Wednesday, April 20, 2011

The revenge of the rentier

Tax week provided a lot of discussion of income distribution, and the effects of taxation on increasing inequality in the US. I just wanted to post these two graphs that show the evolution of real wages in the US, since 1950, and real long-term interest rates in the same period.

The red lines are the averages for different periods (first periods are 1950-73 for wages, and 1950-79 for interest). The average growth of real wages in the first period was 2.4% per year, falling to -0.2% subsequently. For interest rates the values are 2.1% and 4.6% respectively. If you think that the increase in interest rates is not that big, think that if you invest $100 at 2.1% after 30 years you get approximately $186, while at 4.6% you receive close to $385. That’s the meaning Keynes’ revenge of the rentier.

PS: All the data is available here. Great website by Sam Williamson.

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