13 ms·

The Rate of Return on Everything, 1870–2015 (2019)

190 points by lazyjeff 2y ago

ggm 2y ago
I shall continue to quote 7% as the acceptable long term rate of return in aggregate and look at apple, telsa, Nvidia, Google askance, wondering when they will return to baseline.
- sk11001 2y ago
  They don't need to return to baseline. The overall market return can be around 7% - within that you'll have losers, flat lines and huge winners like Apple and Nvidia. That's how you get to the 7% average - by having some companies gain much more than that.
  - ggm 2y ago
    It's very hard for that to sustain over decades without causing market distortions. I'd be interested in what is the longest run of above-market returns by any company since the 1870s. In effect, if they accrue enough value, then they alter the average rate of return. And, since that sucks capital out of the rest of the economy, we're kind of fucked overall because companies making tinned peaches and medicine actually need capital, and a good rate of return depends on that capital.
    - JumpCrisscross 2y ago
      > since that sucks capital out of the rest of the economy, we're kind of fucked overall because companies making tinned peaches and medicine actually need capita What's constraining the latter is rates. There is zero evidence tech companies are causing the inflation that is pushing up rates. (If anything, it's broadly deflating.) (And to my knowledge, getting financing for tinning peaches or medicines is plentiful. It's called middle market finance, and while it doesn't make the headlines, it's huge.)
      - ggm 2y ago
        As a non-economist, I ask: do you think their above-grade returns can persist into the future for decades, without becoming a concern, or altering this 7% rate? My example of why it is bad is a hypothetical. If it's a stupid hypothetical I accept that, but my underlying belief that you cannot really have identified, "the same" companies continue to return 2-3x market average over 50 years without some concern remains. Am I wrong? Sure, some companies do better than others. Warren Buffet swears by re-insurance. When the west coast disappears in a tsunami, it won't be as bountiful, right?
        JumpCrisscross 2y ago
        > do you think their above-grade returns can persist into the future for decades In aggregate, yes, given equities have done just fine persisting over the last century and a half. (Also, the 7% figure appears to be nominal.) > you cannot really have identified, "the same" companies continue to return 2-3x market average over 50 years without some concern remains No, I don't believe we have precedent for this. > When the west coast disappears in a tsunami, it won't be as bountiful, right? Flooding isn't typically privately insured. As far as reinsurance is concerned, a tsunami taking out a bunch of California would be financially uneventful; on one hand, you're losing a premium stream, on the other hand, you've freed up reserves. (Not an economist nor an actuary, but have training in both and some licensing in the latter.)
        ptero 2y ago
        It feels like I am always peddling Lyn Alden on macro questions. One of Lyn's recent public articles analyses long term returns and argues that most investments suck, and a few superachievers pull up the averages. So Apples and Nvidias eventually rotate out of the return engines club and are replaced by next few champions; but not a broad group.
        creer 2y ago
        There is a problem of perception. Apple, telsa, Nvidia, Google are in the news a lot - currently. Apple has been amazing for the past 20 years. Even during that period, its PE has varied a lot - the amount of money people were willing to pay compared to profits: at times it's very popular, at times not. Coca Cola is not in your list. But its result during the 1980s, 1990s was less but comparable to Apple these past years. Google is only 25 years old. Nvidia stock market price has been amazing only the past 10 years. Tesla is only 21 years old as a whole. Its stock price is too chaotic to be even described by a single return rate! Walmart did amazing 1975-1993. Nearly 20 years, then not so good. IBM, GE, several others had times of glorious stock market return. But, to return to the way you phrased it, more or less there have always been some companies that seemed to return a lot. Perhaps too much. That's more or less a normal of the stock market. None of them has lasted indefinitely or somehow taken over all of finance. Keeping a large company growing at this pace is, erm, hard. Note that this is not Apple's strategy currently: Apple produces a lot of profit and it is returned to the shareholders rather than desperately trying to grow the company with that money.
    - creer 2y ago
      Are these two example well chosen? Seems to me there has been plenty of entrepreneurship in food. So many new companies started in the past perhaps 20 years, and many now surprisingly large. And medecine overall (drugs, machines, care, insurance, tests, prevention) has been considered a field with good future prospects for a long time - worthy of investing.
deleted 2y ago
[deleted]
pineaux 2y ago
So basically, housing is the best investment vehicle based on all the numbers.
- andrepd 2y ago
  Sad state of affairs, but yes.
- betaby 2y ago
  Earth's population is constantly growing, thus yes.
- idiotsecant 2y ago
  I wonder if this is still true once population growth reaches zero or negative. It seems like the baked in assumption of housing is that someone else is going to need it more tomorrow than you do today. I think this is an experiment the U.S. will begin running in earnest in the near future.
  - betaby 2y ago
    That if won't happen anytime soon neither for the Earth in general nor USA in particular. Media often loves to move goals from population growth to agin g population to fertility rate, etc. All those while connected do not negate the fact that population is growing, and growing fast. That 'once population growth reaches zero or negative' is very theoretical and UN is constantly underestimating population growth. So no, we will not see that in our lifetimes.
    - rybosworld 2y ago
      The population growth rate has consistently declined for 50+ years. It's around 0.8% from a peak of 2.2% in the 60's. There's no reason to think this trend will reverse.
      - betaby 2y ago
        Why should we use peak as a benchmark? Even 0.8% is insanely high, at such rate population will double in ~150 years.
smoovb 2y ago
A few of the links to the 5 other times this has been posted: https://news.ycombinator.com/item?id=16078059 https://news.ycombinator.com/item?id=16078059 on Jan 5, 2018 https://news.ycombinator.com/item?id=19817584 https://news.ycombinator.com/item?id=19817584 on May 5, 2019
superb_dev 2y ago
How can an entire economy have a growth rate? Is it not measuring how much "new money" was put into the system?
- toomuchtodo 2y ago
  Demand increases due to population growth. Population goes down, growth goes down (broadly speaking, some caveats and nuance as always depending on some goods or services). Edit: https://journals.sagepub.com/doi/full/10.1177/2158244017736094 https://journals.sagepub.com/doi/full/10.1177/21582440177360...
  - bombcar 2y ago
    Or demand increases due to some major new factor (which has happened a few times in recent history) that basically enables new energy extraction, or new resource extraction. But over very long periods of time, it does seem to mostly be connected to population.
    - deleted 2y ago
      [deleted]
- OscarCunningham 2y ago
  It's nothing to do with money. We're literally producing more and better goods than the previous year. This can be due to better technology, more tools, or increasing population (and probably some other factors I forgot).
- jetrink 2y ago
  Regardless of inflation or changes in the money supply, new techniques, new technologies, trade, and population growth can cause the value of everything bought and sold to increase over time. You can measure that value in dollars, or you can look at changes in the quantity and quality of goods and services.
- mensetmanusman 2y ago
  An economy is simply the number of people times the average productivity per person. If lots of people are doing a lot of work powered by a lot of energy and productive technology equipment, the (material) economy is good.
_yb2s 2y ago
I don't understand how housing can increase in cost in a stable steady manner, as a fraction of household income over long periods of time like more than 100 years. It seems to defy logic, so it makes me suspect how it is being calculated when people claim that housing costs have gone up by massive amounts. Since only a small increase would price a large number of people out of the market- it seems logical that housing can't really increase in cost/value over long time spans, but must track the overall economy almost exactly.
- bombcar 2y ago
  There have been two major real housing price jumps that I know of, and both are correlated with significant household income increases (at least nominal). Almost everything else can be factored into changes in what the "nominal house" is - from a one room cabin without plumbing to a McMansion with a three car garage. One was the great urbanization post-world wars and the other was the great increase in dual-income households. But if you factor things out and try to correct for as many variables as you can, housing is pretty "steady state" though the percentage of income directed toward it that's acceptable has crept up somewhat. Shelter is, like food, one of the few real necessities and so it will be bid up to the point of pain or worse if there is a scarcity.
  - _yb2s 2y ago
    Fair point, in that sense it seems like some fairly fixed step-ups are possible where people culturally decide to spend more of their income on housing, but it cannot be a steady trend to profit from as an investor, because it will always have a hard cap at 100% of household income. It can't steadily beat inflation over long time scales.
    - JumpCrisscross 2y ago
      > It can't steadily beat inflation over long time scales Of course it can. That’s what productivity means. The value could keep going up even amidst the fraction of incomes being spent on it going down.
- 2y ago
throw0101d 2y ago
If anyone wants to download the data, it's available at: > The Jordà-Schularick-Taylor Macrohistory Database is the result of an extensive data collection effort over several years. In one place it brings together macroeconomic data that previously had been dispersed across a variety of sources. On this website, we provide convenient no-cost open access under a license to the most extensive long-run macro-financial dataset to date. Under the Terms of Use and Licence Terms below, the data is made freely available, expressly forbidding commercial data providers from integrating, in addition to any existing data they may already provide, all or parts of the dataset into their services, or to sell the data. * https://www.macrohistory.net/database/ https://www.macrohistory.net/database/ See also perhaps "Historical Returns on [US] Stocks, Bonds and Bills: 1928-2023" (updated annually AFAICT): * https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile... There's also the The Credit Suisse Global Investment Returns Yearbook: > The Credit Suisse Global Investment Returns Yearbook is the authoritative guide to historical long-run returns. Published by the Credit Suisse Research Institute in collaboration with London Business School, it covers all the main asset categories in 35 countries. Most of these markets, as well as the world index have 123 years of data since 1900. * https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-global-investment-returns-yearbook-2023-202302.html https://www.credit-suisse.com/about-us-news/en/articles/medi... * https://www.credit-suisse.com/about-us/en/reports-research/studies-publications.html https://www.credit-suisse.com/about-us/en/reports-research/s... As well as: > The Global Investment Returns Yearbook, an authoritative guide to historical long-run returns, launched by UBS Investment Bank Research and UBS Global Wealth Management’s Chief Investment Office. This edition demonstrates the combined strength of UBS and Credit Suisse as the integration of the two banks progresses, and also marks the continuity of a longstanding relationship with the authors, Professor Paul Marsh and Dr Mike Staunton of London Business School and Professor Elroy Dimson of Cambridge University. * https://www.ubs.com/global/en/investment-bank/in-focus/2024/global-investment-returns-yearbook.html https://www.ubs.com/global/en/investment-bank/in-focus/2024/...
smath 2y ago
Doesn’t this contradict Robert Shiller who shows that housing returns are flat in the long term?
- mensetmanusman 2y ago
  Housing prices may collapse over the next 50 years as the population pyramid inverts and buyers demand decreases due to fewer individuals. What is the definition of long-term though?
  - throw_pm23 2y ago
    I'm not sure, population already plummeted in many places while prices went up, as people prefer to live less densely then they used to.
    - mensetmanusman 2y ago
      As the housing maintenance labor force shrinks and it gets more expensive for elderly to maintain their non dense homes though, the value should decrease and become more affordable for the young who can do those labor things. Maybe?
      - chii 2y ago
        no it wont for a long time. If the elderly has any children (presumably they have), those children will inherit the house, rather than sell it at a loss. It would only decrease in price, if the children has a high need for cash, and a low/zero need for housing. This situation is still typically rare (for example, moving away permanently is one such situation). And even in those cases, you will rent out the house, rather than sell for a loss. Therefore, the most average, and typical scenario is going to have the housing price be stable, rather than drop.
- kccqzy 2y ago
  That calculation does not factor into the rent you will not pay when you buy a house and live in it. Imputed rent is a thing and you need to consider it. If you don't live in the house you wouldn't let the house sit vacant: you would rent it. In your formula the rent can be thought of as if it's a dividend of the investment. Alternatively just read the linked article; the linked article makes the correct fair comparison. You will arrive at that conclusion by reading just the second paragraph, which says > data on total housing returns (price appreciation plus rents) has been lacking (Shiller 2000 provides some historical data on house prices but not on rents). In this article we build on more comprehensive work on house prices (Knoll, Schularick, and Steger 2017) and newly constructed data on rents (Knoll 2017) to enable us to track the total returns of the largest component of the national capital stock. Shiller is explicitly mentioned. And the article authors disregarded it because it failed to include rent.
JumpCrisscross 2y ago
“the only exceptions to that rule happen in the years in or around wartime. In peacetime, r has always been much greater than g” This explains the enduring link between populism and war mongering.
- TacticalCoder 2y ago
  > In peacetime, r has always been much greater than g This is an ultra simplistic formula, made by someone who's been born, raised and fed in a highly socialist country where the only word politicians know is "tax".
  - JumpCrisscross 2y ago
    > is an ultra simplistic formula No shit. What gave it away, the two terms or the inequality? :) Joking aside, it's simplistic because it's elementary. If real returns exceed real growth, ceteris paribus, you have a net flow of principal (so to speak) from labour to capital. That doesn't mean one can conclude the argument with those two variables alone. But it's a valid starting point, and concludes with many solutions other than increasing taxes to reduce r.
    - twoodfin 2y ago
      Why is reducing “r” desirable? Why not try to raise “g” instead?
      - tehjoker 2y ago
        Inequality is a social poison all on its own. For example, democracy is meaningless when men of means can buy elections.
        amanaplanacanal 2y ago
        And we have many historical examples of it leading to eventual mob violence.
smarm52 2y ago
> In fact, the long decline observed in the past few decades is reminiscent of the secular decline that took place from 1870 to World War I. > The fact that returns to wealth have remained fairly high and stable while aggregate wealth increased rapidly since the 1970s suggests that capital accumulation may have contributed to the decline in the labor share of income over the recent decades (Karabarbounis and Neiman 2014). Predicted here: Piketty, T. (2014). Capital in the twenty-first century. Harvard University Press. > In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7% a year. > Housing, equity, bonds, and bills make up over half of all investable assets in the advanced economies today, and nearly two-thirds if deposits are included. Interesting, Housing is marked as "risky", and yet heavily invested. Investors are over leveraged in risky investments. They probably do it because controlling housing nets them power above and beyond normal returns. I wonder if this part of the reason for the "boom and bust" of market economies in the West when proper government regulation is removed. The riskiness of much of the investment of most investors may lead to sudden losses and shifts in risk, which may result in them withdrawing capital to "safer" investments, thus triggering a "bust". And `r ≫ g` shows why the wealthy can wield so much power. Holding capital hostage to regulate economic growth and control it is very powerful, and why they can exercise the kind of control they can.
- JackYoustra 2y ago
  It's actually one of the big problems with Capital in the 21st century: if you strip out housing, r < g! Turns out it's all zoning and rent control all the way down! Fix zoning and you end up incidentally fixing inequality too because it's such a large part of economic rents.
  - greenie_beans 2y ago
    if it's all because of zoning, then how come we built more housing in the period leading up to the great recession (with the strict zoning laws that already existed)?
    - JackYoustra 2y ago

190 points by lazyjeff 2y ago

ggm 2y ago

I shall continue to quote 7% as the acceptable long term rate of return in aggregate and look at apple, telsa, Nvidia, Google askance, wondering when they will return to baseline.

sk11001 2y ago
They don't need to return to baseline. The overall market return can be around 7% - within that you'll have losers, flat lines and huge winners like Apple and Nvidia. That's how you get to the 7% average - by having some companies gain much more than that.
- ggm 2y ago
  It's very hard for that to sustain over decades without causing market distortions. I'd be interested in what is the longest run of above-market returns by any company since the 1870s. In effect, if they accrue enough value, then they alter the average rate of return. And, since that sucks capital out of the rest of the economy, we're kind of fucked overall because companies making tinned peaches and medicine actually need capital, and a good rate of return depends on that capital.
  - JumpCrisscross 2y ago
    > since that sucks capital out of the rest of the economy, we're kind of fucked overall because companies making tinned peaches and medicine actually need capita What's constraining the latter is rates. There is zero evidence tech companies are causing the inflation that is pushing up rates. (If anything, it's broadly deflating.) (And to my knowledge, getting financing for tinning peaches or medicines is plentiful. It's called middle market finance, and while it doesn't make the headlines, it's huge.)
    - ggm 2y ago
      As a non-economist, I ask: do you think their above-grade returns can persist into the future for decades, without becoming a concern, or altering this 7% rate? My example of why it is bad is a hypothetical. If it's a stupid hypothetical I accept that, but my underlying belief that you cannot really have identified, "the same" companies continue to return 2-3x market average over 50 years without some concern remains. Am I wrong? Sure, some companies do better than others. Warren Buffet swears by re-insurance. When the west coast disappears in a tsunami, it won't be as bountiful, right?
      - JumpCrisscross 2y ago
        > do you think their above-grade returns can persist into the future for decades In aggregate, yes, given equities have done just fine persisting over the last century and a half. (Also, the 7% figure appears to be nominal.) > you cannot really have identified, "the same" companies continue to return 2-3x market average over 50 years without some concern remains No, I don't believe we have precedent for this. > When the west coast disappears in a tsunami, it won't be as bountiful, right? Flooding isn't typically privately insured. As far as reinsurance is concerned, a tsunami taking out a bunch of California would be financially uneventful; on one hand, you're losing a premium stream, on the other hand, you've freed up reserves. (Not an economist nor an actuary, but have training in both and some licensing in the latter.)
      - ptero 2y ago
        It feels like I am always peddling Lyn Alden on macro questions. One of Lyn's recent public articles analyses long term returns and argues that most investments suck, and a few superachievers pull up the averages. So Apples and Nvidias eventually rotate out of the return engines club and are replaced by next few champions; but not a broad group.
      - creer 2y ago
        There is a problem of perception. Apple, telsa, Nvidia, Google are in the news a lot - currently. Apple has been amazing for the past 20 years. Even during that period, its PE has varied a lot - the amount of money people were willing to pay compared to profits: at times it's very popular, at times not. Coca Cola is not in your list. But its result during the 1980s, 1990s was less but comparable to Apple these past years. Google is only 25 years old. Nvidia stock market price has been amazing only the past 10 years. Tesla is only 21 years old as a whole. Its stock price is too chaotic to be even described by a single return rate! Walmart did amazing 1975-1993. Nearly 20 years, then not so good. IBM, GE, several others had times of glorious stock market return. But, to return to the way you phrased it, more or less there have always been some companies that seemed to return a lot. Perhaps too much. That's more or less a normal of the stock market. None of them has lasted indefinitely or somehow taken over all of finance. Keeping a large company growing at this pace is, erm, hard. Note that this is not Apple's strategy currently: Apple produces a lot of profit and it is returned to the shareholders rather than desperately trying to grow the company with that money.
  - creer 2y ago
    Are these two example well chosen? Seems to me there has been plenty of entrepreneurship in food. So many new companies started in the past perhaps 20 years, and many now surprisingly large. And medecine overall (drugs, machines, care, insurance, tests, prevention) has been considered a field with good future prospects for a long time - worthy of investing.

deleted 2y ago

[deleted]

pineaux 2y ago

So basically, housing is the best investment vehicle based on all the numbers.

andrepd 2y ago
Sad state of affairs, but yes.
betaby 2y ago
Earth's population is constantly growing, thus yes.
idiotsecant 2y ago
I wonder if this is still true once population growth reaches zero or negative. It seems like the baked in assumption of housing is that someone else is going to need it more tomorrow than you do today. I think this is an experiment the U.S. will begin running in earnest in the near future.
- betaby 2y ago
  That if won't happen anytime soon neither for the Earth in general nor USA in particular. Media often loves to move goals from population growth to agin g population to fertility rate, etc. All those while connected do not negate the fact that population is growing, and growing fast. That 'once population growth reaches zero or negative' is very theoretical and UN is constantly underestimating population growth. So no, we will not see that in our lifetimes.
  - rybosworld 2y ago
    The population growth rate has consistently declined for 50+ years. It's around 0.8% from a peak of 2.2% in the 60's. There's no reason to think this trend will reverse.
    - betaby 2y ago
      Why should we use peak as a benchmark? Even 0.8% is insanely high, at such rate population will double in ~150 years.

smoovb 2y ago

A few of the links to the 5 other times this has been posted: https://news.ycombinator.com/item?id=16078059 https://news.ycombinator.com/item?id=16078059 on Jan 5, 2018 https://news.ycombinator.com/item?id=19817584 https://news.ycombinator.com/item?id=19817584 on May 5, 2019

superb_dev 2y ago

How can an entire economy have a growth rate? Is it not measuring how much "new money" was put into the system?

toomuchtodo 2y ago
Demand increases due to population growth. Population goes down, growth goes down (broadly speaking, some caveats and nuance as always depending on some goods or services). Edit: https://journals.sagepub.com/doi/full/10.1177/2158244017736094 https://journals.sagepub.com/doi/full/10.1177/21582440177360...
- bombcar 2y ago
  Or demand increases due to some major new factor (which has happened a few times in recent history) that basically enables new energy extraction, or new resource extraction. But over very long periods of time, it does seem to mostly be connected to population.
  - deleted 2y ago
    [deleted]
OscarCunningham 2y ago
It's nothing to do with money. We're literally producing more and better goods than the previous year. This can be due to better technology, more tools, or increasing population (and probably some other factors I forgot).
jetrink 2y ago
Regardless of inflation or changes in the money supply, new techniques, new technologies, trade, and population growth can cause the value of everything bought and sold to increase over time. You can measure that value in dollars, or you can look at changes in the quantity and quality of goods and services.
mensetmanusman 2y ago
An economy is simply the number of people times the average productivity per person. If lots of people are doing a lot of work powered by a lot of energy and productive technology equipment, the (material) economy is good.

_yb2s 2y ago

I don't understand how housing can increase in cost in a stable steady manner, as a fraction of household income over long periods of time like more than 100 years. It seems to defy logic, so it makes me suspect how it is being calculated when people claim that housing costs have gone up by massive amounts. Since only a small increase would price a large number of people out of the market- it seems logical that housing can't really increase in cost/value over long time spans, but must track the overall economy almost exactly.

bombcar 2y ago
There have been two major real housing price jumps that I know of, and both are correlated with significant household income increases (at least nominal). Almost everything else can be factored into changes in what the "nominal house" is - from a one room cabin without plumbing to a McMansion with a three car garage. One was the great urbanization post-world wars and the other was the great increase in dual-income households. But if you factor things out and try to correct for as many variables as you can, housing is pretty "steady state" though the percentage of income directed toward it that's acceptable has crept up somewhat. Shelter is, like food, one of the few real necessities and so it will be bid up to the point of pain or worse if there is a scarcity.
- _yb2s 2y ago
  Fair point, in that sense it seems like some fairly fixed step-ups are possible where people culturally decide to spend more of their income on housing, but it cannot be a steady trend to profit from as an investor, because it will always have a hard cap at 100% of household income. It can't steadily beat inflation over long time scales.
  - JumpCrisscross 2y ago
    > It can't steadily beat inflation over long time scales Of course it can. That’s what productivity means. The value could keep going up even amidst the fraction of incomes being spent on it going down.
2y ago

throw0101d 2y ago

If anyone wants to download the data, it's available at: > The Jordà-Schularick-Taylor Macrohistory Database is the result of an extensive data collection effort over several years. In one place it brings together macroeconomic data that previously had been dispersed across a variety of sources. On this website, we provide convenient no-cost open access under a license to the most extensive long-run macro-financial dataset to date. Under the Terms of Use and Licence Terms below, the data is made freely available, expressly forbidding commercial data providers from integrating, in addition to any existing data they may already provide, all or parts of the dataset into their services, or to sell the data. * https://www.macrohistory.net/database/ https://www.macrohistory.net/database/ See also perhaps "Historical Returns on [US] Stocks, Bonds and Bills: 1928-2023" (updated annually AFAICT): * https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile... There's also the The Credit Suisse Global Investment Returns Yearbook: > The Credit Suisse Global Investment Returns Yearbook is the authoritative guide to historical long-run returns. Published by the Credit Suisse Research Institute in collaboration with London Business School, it covers all the main asset categories in 35 countries. Most of these markets, as well as the world index have 123 years of data since 1900. * https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-global-investment-returns-yearbook-2023-202302.html https://www.credit-suisse.com/about-us-news/en/articles/medi... * https://www.credit-suisse.com/about-us/en/reports-research/studies-publications.html https://www.credit-suisse.com/about-us/en/reports-research/s... As well as: > The Global Investment Returns Yearbook, an authoritative guide to historical long-run returns, launched by UBS Investment Bank Research and UBS Global Wealth Management’s Chief Investment Office. This edition demonstrates the combined strength of UBS and Credit Suisse as the integration of the two banks progresses, and also marks the continuity of a longstanding relationship with the authors, Professor Paul Marsh and Dr Mike Staunton of London Business School and Professor Elroy Dimson of Cambridge University. * https://www.ubs.com/global/en/investment-bank/in-focus/2024/global-investment-returns-yearbook.html https://www.ubs.com/global/en/investment-bank/in-focus/2024/...

smath 2y ago

Doesn’t this contradict Robert Shiller who shows that housing returns are flat in the long term?

mensetmanusman 2y ago
Housing prices may collapse over the next 50 years as the population pyramid inverts and buyers demand decreases due to fewer individuals. What is the definition of long-term though?
- throw_pm23 2y ago
  I'm not sure, population already plummeted in many places while prices went up, as people prefer to live less densely then they used to.
  - mensetmanusman 2y ago
    As the housing maintenance labor force shrinks and it gets more expensive for elderly to maintain their non dense homes though, the value should decrease and become more affordable for the young who can do those labor things. Maybe?
    - chii 2y ago
      no it wont for a long time. If the elderly has any children (presumably they have), those children will inherit the house, rather than sell it at a loss. It would only decrease in price, if the children has a high need for cash, and a low/zero need for housing. This situation is still typically rare (for example, moving away permanently is one such situation). And even in those cases, you will rent out the house, rather than sell for a loss. Therefore, the most average, and typical scenario is going to have the housing price be stable, rather than drop.
kccqzy 2y ago
That calculation does not factor into the rent you will not pay when you buy a house and live in it. Imputed rent is a thing and you need to consider it. If you don't live in the house you wouldn't let the house sit vacant: you would rent it. In your formula the rent can be thought of as if it's a dividend of the investment. Alternatively just read the linked article; the linked article makes the correct fair comparison. You will arrive at that conclusion by reading just the second paragraph, which says > data on total housing returns (price appreciation plus rents) has been lacking (Shiller 2000 provides some historical data on house prices but not on rents). In this article we build on more comprehensive work on house prices (Knoll, Schularick, and Steger 2017) and newly constructed data on rents (Knoll 2017) to enable us to track the total returns of the largest component of the national capital stock. Shiller is explicitly mentioned. And the article authors disregarded it because it failed to include rent.

JumpCrisscross 2y ago

“the only exceptions to that rule happen in the years in or around wartime. In peacetime, r has always been much greater than g” This explains the enduring link between populism and war mongering.

TacticalCoder 2y ago
> In peacetime, r has always been much greater than g This is an ultra simplistic formula, made by someone who's been born, raised and fed in a highly socialist country where the only word politicians know is "tax".
- JumpCrisscross 2y ago
  > is an ultra simplistic formula No shit. What gave it away, the two terms or the inequality? :) Joking aside, it's simplistic because it's elementary. If real returns exceed real growth, ceteris paribus, you have a net flow of principal (so to speak) from labour to capital. That doesn't mean one can conclude the argument with those two variables alone. But it's a valid starting point, and concludes with many solutions other than increasing taxes to reduce r.
  - twoodfin 2y ago
    Why is reducing “r” desirable? Why not try to raise “g” instead?
    - tehjoker 2y ago
      Inequality is a social poison all on its own. For example, democracy is meaningless when men of means can buy elections.
      - amanaplanacanal 2y ago
        And we have many historical examples of it leading to eventual mob violence.

smarm52 2y ago

> In fact, the long decline observed in the past few decades is reminiscent of the secular decline that took place from 1870 to World War I. > The fact that returns to wealth have remained fairly high and stable while aggregate wealth increased rapidly since the 1970s suggests that capital accumulation may have contributed to the decline in the labor share of income over the recent decades (Karabarbounis and Neiman 2014). Predicted here: Piketty, T. (2014). Capital in the twenty-first century. Harvard University Press. > In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7% a year. > Housing, equity, bonds, and bills make up over half of all investable assets in the advanced economies today, and nearly two-thirds if deposits are included. Interesting, Housing is marked as "risky", and yet heavily invested. Investors are over leveraged in risky investments. They probably do it because controlling housing nets them power above and beyond normal returns. I wonder if this part of the reason for the "boom and bust" of market economies in the West when proper government regulation is removed. The riskiness of much of the investment of most investors may lead to sudden losses and shifts in risk, which may result in them withdrawing capital to "safer" investments, thus triggering a "bust". And `r ≫ g` shows why the wealthy can wield so much power. Holding capital hostage to regulate economic growth and control it is very powerful, and why they can exercise the kind of control they can.

JackYoustra 2y ago
It's actually one of the big problems with Capital in the 21st century: if you strip out housing, r < g! Turns out it's all zoning and rent control all the way down! Fix zoning and you end up incidentally fixing inequality too because it's such a large part of economic rents.
- greenie_beans 2y ago
  if it's all because of zoning, then how come we built more housing in the period leading up to the great recession (with the strict zoning laws that already existed)?
  - JackYoustra 2y ago