As usual, economic freedoms are held accountable for the blunders of centrally planned policies:
Mr Rognlie mounts three main criticisms of these arguments. First, he argues that the rate of return from capital probably declines over the long run, rather than remaining high as Mr Piketty suggests, due to the law of diminishing marginal returns. Modern forms of capital, such as software, depreciate faster in value than equipment did in the past: a giant metal press might have a working life of decades while a new piece of database-management software will be obsolete in a few years at most. This means that although gross returns from wealth may well be rising, they may not necessarily be growing in net terms, since a large share of the gains that flow to owners of capital must be reinvested.
Second, Mr Rognlie’s research suggests that Mr Piketty has overestimated how high the returns on wealth are likely to be in the future. These should also decline over time, he reckons, unless it is very easy for the economy to substitute capital (like robots) for workers. Yet the historical evidence suggests that this is far harder than he suggests.
And third, Mr Rognlie finds that the growing share of national income deriving from capital income has not been distributed equally across all sectors. The return on non-housing wealth, in fact, has been remarkably stable since 1970 (see chart). Instead, surging house prices are almost entirely responsible for growing returns on capital.