Technology or Market Power


December 9, 2012, 3:02 pm12 Comments

Technology or Monopoly Power?

More on robots and all that: first, here’s the chart from the BLS (pdf), which focused on nonfarm business:


Dean Baker warns me that the trend is a bit slower if you look at net output, because depreciation is a rising share of the total. Still, something major is happening.

Nick Rowe makes a good point, however, which is not so much a critique of the robot story as a general puzzle. Income has been shifting to capital, which would seem to increase the return to investment; but real interest rates are low by historical standards, and were low even before the financial crisis, suggesting that maybe the return to investment is if anything low. You might be able to make some headway here by stressing the different between safe assets and risky investments, but it is a puzzle.

Rowe suggests that a third factor, land, may be soaking up the excess returns and being misclassified as part of capital income. Logically, this could be true; I have doubts about whether it can be a major factor empirically, although obviously the thing to do is check it out

But there’s another possible resolution: monopoly power. Barry Lynn and Philip Longman have argued that we’re seeing a rapid rise in market concentration and market power. The thing about market power is that it could simultaneously raise the average rents to capital and reduce the return on investment as perceived by corporations, which would now take into account the negative effects of capacity growth on their markups. So a rising-monopoly-power story would be one way to resolve the seeming paradox of rapidly rising profits and low real interest rates.

As they say, this calls for more research; but the starting point is to realize that there’s something happening here, what it is ain’t exactly clear, but it’s potentially really important.

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