Edward Conard

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Deciphering the Fall and Rise in the Net Capital Share

Brad DeLong Washington Center For Equitable Growth
Date Posted:
March 20, 2015
Is Database:
Database

The post-WWII surge in the net capital share, primarily driven by housing, increased from 3% to 8% of private domestic value added, highlighting a significant shift in economic dynamics.

The post-WWII surge in the net capital share, primarily driven by housing, increased from 3% to 8% of private domestic value...
The post-WWII surge in the net capital share, primarily driven by housing, increased from 3% to 8% of private domestic value added, highlighting a significant shift in economic dynamics. This rise is attributed to factors such as congestion and rent-extraction via NIMBYism. The pre-1990 decline in the net capital share was due to increased depreciation, as durable machines were replaced by rapidly obsoleted technology. Despite this, corporate sector capitalization rose steadily until the late 1960s, followed by a "negative bubble" in the 1970s and a subsequent rise since the 1990s. Rognlie's analysis suggests that variations in the net capital share are more related to pure profits or markups rather than returns on underlying assets, shifting the focus of inequality concerns from capital-labor splits to within-labor income distribution. This analysis challenges traditional views on capital accumulation and its impact on economic inequality.

DeLong, Brad, "DRAFT: Discussion of Matthew Rognlie: “Deciphering the Fall and Rise in the Net Capital Share”"Washington Center for Equitable Growth, March 18, 2015. Available at: http://equitablegrowth.org/2015/03/18/draft-discussion-matthew-rognlie-deciphering-fall-rise-net-capital-share/"....Matt’s focus on the net capital share is surely right.....As Matt stressed, the big news in the post-World War II net capital share is the surge in housing: from 3% to 8% of private domestic value added. How much of this is a real increase in housing intensity? How much reflects congestion driven by exhaustion of the low-hanging superhighways? How much is rent-extraction via NIMBYism? How much trust do we give to these “imputed rent” imputations anyway?There has always been a problem with using our GDP estimates as social accounts. In GDP, we measure each unit’s contribution to production at the final unit’s marginal cost and each unit’s contribution to societal well-being at the final unit’s money-metric marginal utility. In the presence of anything like near-satiation in consumption, or of near-exhaustion in productive capacity, this does not convey a true picture. Hard questions. No very good answers....the secondary big news in his numbers is the pre-1990 fall in the net capital share, a fall driven by a very real rise in depreciation is real. Our capital stock has seen the replacement of long-lasting machines to perform Wellman-Lord desulfurization reactions with video editing machines rapidly obsoleted by Moore’s Law.....But it is puzzling that the pre-1990 fall in the net capital share not matched by a decline in the relative capitalization of the corporate sector. Matt points out a steady rise in capitalization up to the late 1960s, followed in the 1970s by a “negative bubble”-truly absurdly high earnings yields on equities-that lasts well into the 1980s. Then we see a bubbly rise in the relative capitalization of the corporate sector since the start of the 1990s-a rise that persists in spite of sub-par business-cycle performance. Very puzzling....et me end by strongly endorsing what I take to be Matt Rognlie’s bottom line.I take it to be that post-WWII variation in the observed net capital share is not explainable via returns on the underlying assets. Instead, the decomposition in section 3 attributes most of the variation to pure profits, or markups… Accumulation and returns play, outside of housing, a distinctly secondary role, if they play any role at all. But it is equally hard to find any role for the race between education and technology, and there should be if we think the factors of production are labor, education skills, and machines....Likewise, variation in income inequality, is hard to attribute to wealth ownership or to human capital investment or to differential shifts in rewards to factors like raw labor, experience-skills, education-skills, and machines. Matt thus concludes that: "Concern about inequality should be shifted away from the split between capital and labor, and toward other aspects of distribution, such as the within-labor distribution of income."The nly caveat I wish to make is: This is true now. This may not be true in 50 years, if Piketty is right.And Matt’s conclusion is bad news for us economists, for it leaves us in the same position as those trying to explain an earlier large puzzle in the production function, the twentieth-century retardation of the British economy...."

DRAFT: Discussion of Matthew Rognlie: “Deciphering the Fall and Rise in the Net Capital Share” By Brad DeLongPosted on March 18, 2015 at 9:27 am SHAREJ. Bradford DeLong:: U.C. Berkeley and NBER:: delong@econ.berkeley.eduFor BPEA Spring 2015 8:30 AM March 20, 2015

To the extent that land is the driver of shifts in our capital share, this is clear a problem to the extent that it is driven by NIMBYism. But is it a problem otherwise?

And as Matt also stressed, the secondary big news in his numbers is the pre-1990 fall in thenetcapital share, a fall driven by a very real rise in depreciation is real. Our capital stock has seen the replacement of long-lasting machines to perform Wellman-Lord desulfurization reactions with video editing machines rapidly obsoleted by Moore’s Law.

But it is puzzling that the pre-1990 fall in the net capital share not matched by a decline in the relative capitalization of the corporate sector. Matt points out a steady rise in capitalization up to the late 1960s, followed in the 1970s by a “negative bubble”-truly absurdly high earnings yields on equities-that lasts well into the 1980s. Then we see a bubbly rise in the relative capitalization of the corporate sector since the start of the 1990s-a rise that persists in spite of sub-par business-cycle performance. Very puzzling.

Let me end by strongly endorsing what I take to be Matt Rognlie’s bottom line. I take it to be that post-WWII variation in the observed net capital share is not explainable

via returns on the underlying assets. Instead, the decomposition in section 3 attributes most of the variation to pure profits, or markups…

Accumulation and returns play, outside of housing, a distinctly secondary role, if they play any role at all. But it is equally hard to find any role for the race between education and technology, and there should be if we think the factors of production are labor, education skills, and machines.

Likewise, variation in income inequality, is hard to attribute to wealth ownership or to human capital investment or to differential shifts in rewards to factors like raw labor, experience-skills, education-skills, and machines. Matt thus concludes that:

Concern about inequality should be shifted away from the split between capital and labor, and toward other aspects of distribution, such as the within-labor distribution of income.

The nly caveat I wish to make is: This is true now. This may not be true in 50 years, if Piketty is right

And Matt’s conclusion is bad news for us economists, for it leaves us in the same position as those trying to explain an earlier large puzzle in the production function, the twentieth-century retardation of the British economy.

It was Robert Solow who said:

Every discussion among economists of the relatively slow growth of the British economy compared with the Continental economies ends up in a blaze of amateur sociology…

I really would like for us to be able to do better.

Notes:

These big worries are:

Worries about depreciation allowances in these accounts. Mine are perhaps bigger than most.

  • Worries about how much of the value that comes from installing capital comes from (local) learning about how to handle the technology, and is something that does not depreciate from the point of view of the individual firm. That is not captured.

  • Worries about, from the societal point of view, how much of the value that comes from installing capital comes from global learning about how to handle the technology.

  • Perennial worries about what in high-end labor incomes are really incomes earned by raw labor and human capital, and what are rent-extraction and thus sharing in the returns to capital.

    In America things are different: the frontier. But in Western Europe one thing going on at the end of theBelle Époqueis the collapse in the value of rents on absentee-owned European farmland.

    Downton Abbey-Highclear-was supportable on its entailed rents a generation before World War I. It was not so afterwards. Some of this was taxes. But there was also a steep relative fall in prices of staple foodstuffs. Not just Iowa and Kansas, but Odessa and New Zealand came online.

    Western European farmland lost its value as a factor of production at the end of the nineteenth century. To what extent was that it? And to what extent is “it now the rise of housing prices in London, Paris, Rome, Milan, etc.? My teacher the late David Landes, a CUNY graduate, simply bought a Paris apartment as a postdoc post-WWII. Those of our postdocs who could not afford to go to private colleges do not pick up Paris apartments casually in the course of a research trip to take a look at bank records.

    The fact that the big news since World War II is a rise in housing as a share of value added raises the question of whether this surge may be in significant part the reversal of story from a century ago-now the rise of valuable urban housing, then the decline of valuable Western European rural farmland.2

    Hard questions. No very good answers.

    There has always been a problem with using our GDP estimates as social accounts. In GDP, we measure each unit’s contribution to production at the final unit’s marginal cost and each unit’s contribution to societal well-being at the final unit’s money-metric marginal utility. In the presence of anything like near-satiation in consumption, or of near-exhaustion in productive capacity, this does not convey a true picture.

    And what hat does this mean, anyway?

    How much of this is a real increase in housing intensity? How much reflects congestion driven by exhaustion of the low-hanging superhighways? How much is rent-extraction via NIMBYism? How much trust do we give to these “imputed rent” imputations anyway?

    As Matt stressed, the big news in the post-World War II net capital share is the surge in housing: from 3% to 8% of private domestic value added.

    I never understood why, in the Solow model, gross savings was supposed to be a function of gross output anyway. There are the big worries over the data.1Let me skip those.

    Matt’s focus on the net capital share is surely right.

    And this is why it is truly excellent that Matt Rognlie brings well-ordered and insightfully-organized data to these questions.

    What about what John Maynard Keynes called the “euthanasia of therentier”? As accumulation proceeds the relative fall in the rate of profit exceeding the relative rise in concentrated wealth? Piketty points to remarkable constancy in the rate of profit at between 4% and 5% per year, but is agnostic as to whether the cause is easy capital-labor substitution, rent-seeking by the rich, or social structure that sets that as the “fair” rate of profit.

    He guesses that the real explanation is that 1914-1980 is the anomaly. Without great political disturbances, wealth accumulates, concentrates, and dominates.

    Thomas Piketty has a guess.

    It is simply not possible to see such an extreme concentration of benefits as in any way a return to a factor of production obtained as the product of “hours spent studying” times “brainpower”.

    Relative to 1968 you need 3.5 times the wealth now in the U.S. and 8 times the wealth worldwide. That is an income and wealth an order of magnitude higher than my grandfather ever did.

    One of his other grandsons, my first cousin Phil Lord, mighthave a chance of making it into the same financial range-if he can make the transition from co-director to “producer” and “created by” credits-but if he does he will still be breathing much less rarified relative air.

    A little family history: My Grandfather Bill was in not just the 1% or the 0.1% but the 0.01% back in the days before the rise in inequality. He sold his chemical construction company to the IMF conglomerate and retired back in 1968.

    To get large swings in the income distribution out of small changes in the relative supply of educated workers seems to require less substitutability between formal college and other factors of production then seemed reasonable. Higher experience-skill premiums and sharply higher education-skill premiums, yes. But the action seems to be far, far out in the upper tail.

    But, recently, reality does not seem to agree.

    I was weaned on the explanation of recent trends in US inequality set out by the very sharp Claudia Goldin, Larry Katz, and company. It was skilled-biased technical change, coupled with the end of the era that had begun in 1636 of making increasing educational levels a priority. That combination greatly raised the return to education-based skills. That was the principal driver of rising income inequality.

    Thus I am in an excellent position to, if not add intellectual value, share lavishly in intellectual rents.

    Let me thank Matt for doing some very serious and thoughtful digging. The upshot is that I am in an ideal position for a discussant: There are very interesting and important numbers that have not been put together before, and there is an author who is wise enough not to believe he has with the numbers mean nailed.

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    Previous articleMarch 20, 2015Deciphering the fall and rise in the net capital shareThe net capital share in large developed economies has followed a U-shaped trajectory postwar, driven mainly by the housing sector. Initially declining until the mid-1970s, the net capital share has since moderately increased, contrasting with gross capital shares.Next articleMarch 20, 2015Free Lunch: Piketty meets his matchMatthew Rognlie challenges Thomas Piketty’s theory of capital-driven inequality, showing that capital cannot substitute for labor to the extent Piketty suggests.
    Showing 43 database articles primarily about Housing

    First-Time Home Buyers Are Older Than Ever

    Aziz Sunderji Home Economics
    Date Posted:
    March 24, 2026
    Is Database:
    Database

    The median age of American first-time home buyers was 35 years old in 2025, up from 32 in 2015.

    At what age do people buy their first home? My analysis of data from the University of Michigan’s Panel Study of Income Dynamics (PSID) shows that, on average, they’re 35—three years older than a decade ago, and eight years older than in the 1970s. The PSID is a remarkable dataset. Like wildlife researchers tagging a pod of whales, the researchers at the University of Michigan have tracked 85,000 individuals from 5,000 families they began studying in 1968. This ‘longitudinal’ data allows us to observe the kids in these families as they leave home, form their own households, rent their first apartments, and eventually become first time buyers (FTBs) of homes. And because specific individuals are tracked over time, we can pinpoint the exact moment someone transitions from renting to owning for the first time, and how old they were when it happened. No other U.S. dataset can do this, and none go as far back as the 1960s.

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    • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — .@jefflarrimore @kevincorinth find that Millennials between the ages of 36-40 have 18% higher real median household incomes (net of taxes and transfers) than…
    • Why Are Young Adults in the English-Speaking World So Unhappy? — As housing affordability has deteriorated in the Anglosphere, the share of young people (18-29) “who believe hard work brings success” has declined relative to…
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    How the Housing Market Split in Two

    Jess Remington Agglomerations
    Date Posted:
    March 16, 2026
    Is Database:
    Database
    Is Important:
    Important

    As of 2024, American homeowners who bought a house within the last year were spending 26% of their income on housing, relative to 20% for existing homeowners – the largest gap in almost 40 years.

    Historically, monthly housing costs for new and existing homeowners have tended to move in tandem. From 1990 through the aftermath of the Great Recession, both groups saw costs rise during booms and fall during downturns, with the gap between them remaining relatively stable at two to four percentage points. That pattern briefly reversed during the Great Recession, when new buyers were able to purchase homes at depressed prices and consequently spent slightly less of their income on housing than existing owners. By 2017, the typical two-point gap had returned. The current divergence began in earnest in 2022. By 2024, new homeowners were spending 26% of their income on housing, compared to 20% for existing homeowners — a six-percentage-point gap, the largest in nearly 40 years. Although new homeowners spent a slightly larger share of their income on housing at the peak of the housing bubble in 2007 (28%), the gap with existing homeowners was smaller (four percentage points).

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    • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — US consumer sentiment is significantly lower than expected based on unemployment and inflation. Alternative measures of inflation that include borrowing costs…
    • NAR Says the Typical First-Time Homebuyer Age Was 40 This Year, Up from 33 in 2021—but Is This Accurate? — FRBNY data indicate that the age of the median American first-time home buyer is 33 years old, ~ the same as in 2021, not 40 and not up 7 years since 2021, as…
    • Affordability, Part II — Krugman highlights two concrete facts that help explain the social frustration reflected in discussions of “affordability:” the income of the young hasn’t kept…
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    Living With Mom And Dad At 30

    Aziz Sunderji Home Economics
    Date Posted:
    February 25, 2026
    Is Database:
    Database

    The share of American 30-year-olds living with their parents or roommates nearly doubled btw 1990 and 2025, from 17% to 32%. Aziz Sunderji finds that this group is largely responsible for the age cohort’s 15pp decline in homeownership over that period.

    Among married 30-year-olds, the homeownership rate has barely budged—63% in 1990, 60% today. Among single 30-year-olds living alone, the homeownership rate actually rose, from 25% to 29%. The typical 30-year-old living at home is male (61%), has never been married (89%), and doesn’t have a college degree (73%). Only 27% have a bachelor’s, compared to 42% of all 30-year-olds. In the early 1990s the profile of those living at home at 30 looked nearly identical: 64% male, 77% never married, and less educated than average. [However], in the ’90s, a greater proportion of young, less educated men would have gotten married and moved out. Among men without a college degree—the group most likely to be living with their parents—the marriage rate has plunged from 58% to 36%.

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    • Changes in Milestones of Adulthood — US Census data show that btw 2005 and 2023, the fraction of Americans aged 25–34 who completed their education rose from 74% to 83%, but the % “ever married”…
    • What Explains Low Millennial Home Ownership? — 60% of millennials who are married and living apart from their parents at age 30 own a home, compared to 68% of comparable baby boomers. At 30, 42% of…
    • Young Adults Are Growing Increasingly Economically Dislocated — About 10% of Americans aged 20–24 are not working or seeking work, nor are they in school or raising children, about twice the fraction during the 1990s. This…
    • Housing
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      • Family/Marriage

    Productivity Stagnation in the Construction Industry: An International Perspective

    Elsie Peng Goldman Sachs
    Date Posted:
    February 3, 2026
    Is Database:
    Database

    Post-1965, measured labor productivity in US construction averaged ~ -0.6% per year, compared to +1.6% economy-wide. GS attributes ~40% of the gap to tighter land-use rules, ~20% to weak innovation, and ~20% to mismeasurement of quality improvements.

    Our analysis shows that, within the US, the tightening of land use regulations has accounted for 40% of the gap in productivity growth between construction and the rest of the economy since 1965, and the lack of innovation and quality mismeasurement have each accounted for 20%. Looking across countries, we find that more severe tightening of land use regulations and greater quality mismeasurement account for most of the underperformance of the US construction industry since 1991, relative to other major G10 countries.

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    • Stagnant Construction Productivity Is a Worldwide Problem — The sharp contrast between soaring productivity in manufacturing and limited or no such growth in construction since the 1990s is not limited to the US, but…
    • Five Decades of Decline: U.S. Construction Sector Productivity — “Labor productivity in U.S. construction in 2023 was essentially the same as it was in 1948.” Btw 1970 and 2020, labor productivity in the American…
    • The Strange and Awful Path of Productivity in the U.S. Construction Sector — Value-added/full-time employee in the US construction sector was ~40% lower in 2020 than in 1970; had construction productivity grown at 1% a year, aggregate…
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    • Productivity

    What Explains Low Millennial Home Ownership?

    Aziz Sunderji Home Economics
    Date Posted:
    January 28, 2026
    Is Database:
    Database

    60% of millennials who are married and living apart from their parents at age 30 own a home, compared to 68% of comparable baby boomers. At 30, 42% of millennials are married, versus 64% of boomers.

    The diagram traces the path from birth to living arrangement at age 30 for Millennials and Boomers. It reveals two junctures where the generations diverged. First, household formation: 31% of Millennials at age 30 still live with parents or roommates, compared to just 19% of Boomers at the same age—a 12-percentage-point gap that immediately disqualifies Millennials from the ownership track. Second, marriage: among those who do form households, only 61% of Millennials are married by age 30, versus 77% of Boomers. These two factors—not leaving the nest and not marrying, at least by age 30—account for the bulk of the 18-point ownership gap (43% for Boomers vs. 25% for Millennials). Part of this comes down to shifting preferences and values, but stretched affordability is also an important driver. Strikingly, conditional on being a married household head, ownership rates are much closer: 68% of married Boomer heads owned at 30, compared to 60% of Millennials—an 8-point gap, far smaller than the headline 18-point difference.

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    • NAR Says the Typical First-Time Homebuyer Age Was 40 This Year, Up from 33 in 2021—but Is This Accurate? — FRBNY data indicate that the age of the median American first-time home buyer is 33 years old, ~ the same as in 2021, not 40 and not up 7 years since 2021, as…
    • The Eldest Millennials Had the Same Fertility as the Youngest Baby Boomers — Btw 1980 and 2000, US completed fertility fell from > 3 children per woman to < 2. Today, the oldest millennials, at 44, have 1.92 children, the same…
    • Housing
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    • Politics

    Why Do People Leave New York City?

    Aziz Sunderji Home Economics
    Date Posted:
    December 12, 2025
    Is Database:
    Database

    82% of NYC emigrants are not moving to Texas or Florida; they are moving to Long Island and Westchester. Aziz Sunderji suggests that lowering housing costs could help the city retain these workers.

    The vast majority of NYC emigrants aren’t fleeing to Texas or Florida—they’re moving to Long Island and Westchester, citing housing as their primary motivation. These are not people who have given up on the New York metro area; they’re people who want more space, want to own rather than rent, or simply want a better home than they can afford in the five boroughs. Interstate movers are a different story. They tend to be younger, more educated, and childless—and they leave primarily for jobs. This cohort is harder to retain through housing policy alone; their departures reflect the pull of opportunity elsewhere rather than the push of inadequate housing. The policy implication is straightforward: New York City cannot compete with booming job markets in other cities or Miami’s climate.  The four out of five emigrants from New York City who stay local are, in effect, still rooting for New York—they just need a place to live.

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