Secular Trends and Technological Progress
This paper suggests that technological progress helps explain several long term financial trends since 1980. Information technology has boosted the productivity of intangible capital and skilled labor. Critically, the creation of intangibles requires the commitment of human capital rather than physical investment, so firms need progressively less external finance. This insight can explain the steady decline in interest rates and net corporate leverage. As part of the reward to intangibles is captured by innovators rather than investors, excess savings flow to fund other tangible assets such as real estate. Over time, rising house prices combined with increasing wage inequality lead to a rise in the ratio of mortgage to productive credit, and increase mortgage default risk. The main conclusion is that the observed trends can only be explained by a highly redistributive form of technological progress which imply a steadily rising productivity and income inequality over time.