Some Damages Experts Incorrectly Compute Real Discount Rates
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- 1. Explaining Changes in Wages and Income Inequality, 1979 to 2009
In the wake of the Great Recession and the Occupy Wall Street protests, and following the recent English-version publication of Thomas Piketty’s Capital in the Twenty-First Century, income inequality has been the subject of much public discussion in the United States. In 2011, the Congressional Budget Office produced a report for the Senate Committee on Finance entitled “Changes in the Distribution of Workers’ Hourly Wages Between 1979 and 2009”. In this study, the CBO tracks wage levels and wage distribution, and offers some explanations for changes observed over time.
- 2. Some Damages Experts Incorrectly Compute Real Discount Rates
In calculating economic losses that occur after some date, for instance, lost wages after the date of trial, it is necessary to compute the present value of all such future values. In some courts, a below-market interest rate is used to compute said present values. A below-market discount rate is generally derived as the nominal interest yield on an investment instrument adjusted for anticipated inflation. (A nominal interest rate refers to the rate of interest prior to taking inflation into account. A real interest rate refers to the rate of interest after removing the effects of inflation.)