Home > Uncategorized > The imputed rent is to darn high! More on Piketty

The imputed rent is to darn high! More on Piketty

Quite some people who are reading Piketty are somewhat puzzled by ‘r’, the return on capital. How can r keep increasing when the amount of capital, as a % of GDP, doubles?! What is ‘r’ anyway? Piketty is actually quite clear on ‘r’: he uses the definitions and data from the national accounts. One of the constituent parts of ‘r’ are house rents: actual rents as well as imputed rents. Imputed rents are an imputed stream of income of owner occupants of houses and are supposed to be as high for these owners as actual rents for comparable houses (becomes a little difficult for houses of the top 0,1%, but for most owner occupied houses this procedure is reasonable). And when we look at imputed rent as a % of total household expenditure we see that this did increase quite a lot (should have calculated this as a part of disposable income or GDP but that required a whole lot of additional calculations while these data were directly available on the Eurostat site). Even for neoclassical economists, who do not believe that house prices are house prices and calculate the value of housing capital as the discounted value of the stream of rents (look here, in french, via Marginal Revolution) this will mean that the amount of capital increases, compared with household expenditure (and a fortiori when the ECB lowers interest rates, i.e. the discount factor). I do admit that it is troublesome to mark houses to market when they are not on the market. But discounting a stream of income in an uncertain world is troublesome, too, and it does not make any sense to calculate the extra ordinary rise of house prices in many countries away! Anyway – the imputed rents are too darn high! Which explains part of the conundrum.

Update: I forgot to state that quite a part of the imputed rent gain of owner occupiers is of course siphoned off by the banks which provided mortgages with newly minted money




  1. F. Beard
    April 22, 2014 at 8:06 pm

    I forgot to state that quite a part of the imputed rent gain of owner occupiers is of course siphoned off by the banks which provided mortgages with newly minted money merijnknibbe

    Yes, the population is driven into debt (if they are so-called creditworthy) with their own stolen (via unjust money dilution) purchasing power. Honest (the lending of existing money only or at least 100% private banks) would at least allow the poor to save in real terms because one need not be so-called creditworthy to save.

    I continue to be amazed at the number of people who view government-backed credit creation for private purposes to be absolutely necessary but it isn’t – not if restitution with new fiat is provided to the entire population in an inflation resistant manner by banning, at least temporarily, new credit creation by the banks and metering the restitution to just replace existing credit as it is repaid. Because who needs credit if he has equity?

  2. BC
    April 23, 2014 at 1:22 am

    Yes, and in the US the imputed cumulative compounding interest for total credit market debt outstanding to average term is an equivalent of 100% of GDP in perpetuity, as well as total net flows to the financial sector exceeding the growth from a year ago of wages and final sales at a rate of contraction typical of recessions historically.

    That is, the rentier claims to the financial sector and to the top 0.01-0.1% to 1% preclude any growth hereafter of real final sales per capita indefinitely.

    The larger the equity market, corporate bond, and real estate bubbles encouraged and enabled by central banks and their private TBTE bank owners, the larger the claim against wages, profits, gov’t receipts, and overall final sales per capita, and the more protracted the period of little or no real growth of final sales per capita, i.e., “secular stagnation”.

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