https://www.economist.com/finance-and-economics/2018/01/06/many-happy-returns-new-data-reveal-long-term-investment-trends
Many happy returns: new data reveal long-term investment trendsProperty yields more than shares and bonds; investment returns outstrip economic growth
(..) More bracing still are the data’s implications for debates on inequality. Karl Marx once reasoned that as capitalists piled up wealth, their investments would suffer diminishing returns and the pay-off from them would drop towards zero, eventually provoking destructive fights between industrial countries. That seems not to be true; returns on housing and equities remain high even though the stock of assets as a share of GDP has doubled since 1970. Gravity-defying returns might reflect new and productive uses for capital: firms deploying machines instead of people, for instance, or well-capitalised companies with relatively small numbers of employees taking over growing swathes of the economy. High returns on equity capital may therefore be linked to a more tenuous status for workers and to a drop in the share of GDP which is paid out as labour income.
Similarly, long-run returns provide support for the grand theory of inequality set out in 2013 by Thomas Piketty, a French economist, who suggested (based in part on his own data-gathering) that the rate of return on capital was typically higher than the growth rate of the economy. As a consequence, the stock of wealth should grow over time relative to GDP. And because wealth is less evenly distributed than income, this growth should push the economy towards ever higher levels of inequality. Mr Piketty summed up this contention in the pithy expression “r > g”.
In fact, that may understate the case, according to the newly gathered figures. In most times and places, “r”, which the authors calculate as the average return across all assets, both safe and risky, is well above “g” or GDP growth. Since 1870, they reckon, the average real return on wealth has been about 6% a year whereas real GDP growth has been roughly 3% a year on average. Only during the first and second world wars did rates of return drop much below growth rates. And in recent decades, the “great compression” in incomes and wealth that followed the world wars has come undone, as asset returns persistently outstrip the growth of the economy. (..)
