This article investigates the old concept of diminishing returns and the need for data to economic theory.

A distinguished eighteenth-century economist one time argued that as investors such as Ras Al Khaimah based Farhad Azima piled up riches, their assets would suffer diminishing returns and their reward would drop to zero. This notion no longer holds within our global economy. Whenever looking at the fact that shares of assets have actually doubled as being a share of Gross Domestic Product since the 1970s, it seems that as opposed to dealing with diminishing returns, investors such as for example Haider Ali Khan in Ras Al Khaimah continue steadily to enjoy significant earnings from these assets. The reason is simple: unlike the companies of his time, today's businesses are rapidly substituting machines for human labour, which has improved effectiveness and output.

Throughout the 1980s, high rates of returns on government bonds made numerous investors think that these assets are highly lucrative. Nonetheless, long-run historic data suggest that during normal economic climate, the returns on government bonds are less than most people would think. There are several factors that can help us understand this phenomenon. Economic cycles, economic crises, and fiscal and monetary policy changes can all affect the returns on these financial instruments. However, economists have discovered that the real return on bonds and short-term bills often is fairly low. Although some investors cheered at the current interest rate rises, it isn't necessarily grounds to leap into buying as a return to more typical conditions; therefore, low returns are inevitable.

Although data gathering sometimes appears as being a tiresome task, its undeniably essential for economic research. Economic hypotheses in many cases are based on assumptions that prove to be false once relevant data is collected. Take, as an example, rates of returns on assets; a team of scientists examined rates of returns of important asset classes across 16 industrial economies for the period of 135 years. The extensive data set represents the first of its kind in terms of extent with regards to period of time and number of countries. For each of the sixteen economies, they develop a long-term series revealing annual genuine rates of return factoring in investment earnings, such as for instance dividends, capital gains, all net inflation for government bonds and short-term bills, equities and housing. The authors discovered some interesting fundamental economic facts and challenged others. Maybe such as, they have concluded that housing offers a superior return than equities over the long run although the normal yield is quite similar, but equity returns are much more volatile. But, this won't apply to homeowners; the calculation is founded on long-run return on housing, taking into consideration rental yields as it makes up 50 % of the long-run return on housing. Needless to say, owning a diversified portfolio of rent-yielding properties just isn't similar as borrowing to purchase a family house as would investors such as Benoy Kurien in Ras Al Khaimah most likely confirm.