Discussion

The authors opened the discussion by thanking Richard Rogerson and MatthewRognlie for their comments. They expressed their appreciation for Rognlie’s effort to frame their paper in the context of the literature. The authors also shared his skepticism about the implications of caseP. AndrewAtkeson spoke next and pointed out that the ratio of after-tax net operating surplus to the capital stock for nonfinancial corporations has remained roughly constant since the 1960s, fluctuating between 6% and 8%. In support of this statement, Atkeson cited figures from the Bureau of Economic Analysis’s annual report on the “Returns for Domestic Nonfinancial Business.” Atkeson argued that the literature has mostly focused on decomposing this series into various components: the return on observed and unobserved physical capital, the return on intangible capital, and monopoly markups. In his view, the relevant source of variation in factorless income is government bond yields. Atkeson noted that a balanced growth model, where the return on capital is stochastic and has a mean of roughly 7%, would be consistent with the empirical evidence on the behavior of after-tax net operating surplus. In this model, the net operating surplus is entirely attributed to the return on physical capital. The authors responded that case R in their paper focuses precisely on the role of bond yields. Although Atkeson’s neoclassical benchmark implies zero profits, the authors mentioned that there is no consensus about the importance of profits and their evolution over time. In addition, there has been growing interest recently in the evolution of markups over the past few decades. The authors noted that when profits are not zero, the counterpart to Atkeson’s measure of profits corresponds to the return on capital (R) plus firms’ profits divided by the capital stock (P/K).