In the lasting debate over Thomas Piketty's book on outsized returns on capital, a significant fact has been obscured: If you exclude land and housing, capital has not risen as a share of the U.S. economy.
If you're surprised, you're not the only one. Intuition suggests this capital-output ratio should be higher today than it was in the early 1900s. Yet, in the U.S., capital excluding land and housing has been roughly constant as a share of the economy since the mid-1950s, and is lower today than at the turn of the 20th century.
What has skyrocketed over the past several decades is the value of land and housing. In the New York metropolitan area — an extreme example, to be sure — the average price per square foot of land rose to $366 in 2006, from $47 in 1999. Rising land prices aren't limited to New York, and they remain large even after the effects of the Great Recession.