Thursday, November 29, 2012

While Corporate Profits Soar....

Corporate profits in America continue to soar -- up now to 11.1% of GDP, the highest level since at least 1947. So where are the jobs? Non-Kenyisans? Tea Partiers? What is your answer??

Graph of Corporate Profits After Tax

Have we reached finally the prefect corporatocracy -- massive profits for corporations, no profits for anyone else?

13 comments:

William Connolley said...

Surely profits and jobs are orthogonal, in principle. If not antagonistic: the fewer people you manage to employ, the more money left for you as profit. Although that may not be what the neo-K's say.

Dano said...

An earlier version of this chart started circulating late last year when it was clear profits had recovered and surpassed previous levels. Now the slope looks just like all the ecological indicators that worry the natural scientists. Not sustainable, and lets hope we learn to pull back from our dependence on corporations. Not holding my breath.

Best,

D

charlesH said...

Well part of this is crony capitalism. The big banks and wall street in cahoots with politicians.

It would be interesting to see what that trend chard looks like by economic sector. I doubt the big profits are in retailing and manufacturing. Sectors were margins and thin and lots of people are employed.

Another thing to look as is tax on labor vs capital. Obamacare is a big new tax on labor. On the other hand, the Fed is pumping the stock market with 0% interest rates.

Dano said...

I doubt the big profits are in retailing and manufacturing

Right. It's FIRE. Useless paper shuffling making bankers rich.

Labor is cheaper in poor tropical countries so we must specialize if we want to get rid of FIRE's influence.

Best,

D

bahamamamma said...

CharlesH continues to amaze me. Right again!

George Bush was a rotten president owing to his economic policies. He protected the elites from the consequences of their follies so we got massive "Crony Capitalism" as exemplified by the bank bail outs.

During the Bush presidency, Barack Obama objected to the rapid increase in federal debt. However, once elected Obama expanded the bail outs, thus amplifying the George Bush errors.

David's graph clearly shows that the problem got started during the Clinton presidency but exploded during the Bush and Obama years.

bahamamamma said...

William Connolley,
Are you the "Stoat" of Wikipedia fame?

While I may disagree with you on climate matters you make a good point when it comes to economics.

Much of my life has been spent working to increase productivity with the result that my employer has enjoyed enhanced profits. It used to worry me that the other side of the coin was fewer jobs.

One might conclude that unemployment could be reduced simply by resisting efforts to improve productivity as advocated by most trade unions.

We tried that in the United Kingdom with the result that our steel industry is now owned by Tata (India) and our once great motor car manufacturers are owned by German, French and American companies. Our banks are going the same way and may soon be under Spanish control.

Meanwhile, here in the USA, General Motors needs government bail outs and Chrysler is under foreign control.

You lose control of the engines of the national economy by getting into debt. The USA used to be a creditor nation but we are beginning to experience the sad consequences of spiralling debt.

charlesH said...

More crony capitalism.

"Just how fat have Washington and the Beltway counties gotten? According to the latest U.S. Census data, between 2000 and 2010 the richest of the Washington, D.C., area have accrued about twice as much new wealth as those not living in or around the area.

Also, some Washington counties have gotten about twice as much new wealth as some of the other richest counties in the United States."

http://pjmedia.com/blog/since-2000-d-c-area-wealth-grew-at-twice-national-average/

David Appell said...

Of course, Obama spent (and is spending) so much because the entire financial system nearly collapsed and consumer demand plummeted. What else could have been done?

Countries in Europe that have pursued austerity have gotten nowhere, and the UK is in a double dip recession. The US has avoided that.... The IMF has found that austerity in Europe is making the problem worse, not better:

http://www.economist.com/blogs/freeexchange/2012/01/imfs-latest-forecast-3

charlesH said...

"Countries in Europe that have pursued austerity have gotten nowhere, and the UK is in a double dip recession. The US has avoided that.... The IMF has found that austerity in Europe is making the problem worse, not better:"

Well of course in the short term it makes life difficult (especially for politicians). However, in the long term it will kill your economy (see Greece because they can't print eros) of in the case of the US (because we can print dollars) we will see high inflation.

Think of it like you just lost your job. Do you allow the family to keep using the credit cards or do you cut them up? Short term vs long term pain.

David Appell said...

Countries aren't families.

People have been warning about high inflation for years -- for 3 decades in the case of Ron Paul. Where is it?
http://research.stlouisfed.org/fred2/series/M1

Austerity makes life difficult for people, not politicians. They're the ones who suffer for the cutbacks; check out the increased suicide rate in Greece, or the depression in Spain, or the recent riots in the UK.

bahamamamma said...

David,

Austerity is not the cause, it is the effect. You need to take a step back; the UK's problems have been long in the making.

Once we (Brits) adopted the "Entitlement Mentality" over sixty years ago, we were doomed to mediocrity and poverty.

Great Britain became "Great" through hard work, but modern Brits can't handle that. The solution is to encourage immigrants to come into the country to handle as much of the "Grunt" work as possible.

More recently the USA has embraced "Entitlements" and the "Politics of Envy" while opening up its borders. It is just a matter of time before any semblance of greatness is lost.

charlesH said...

"People have been warning about high inflation for years -- for 3 decades in the case of Ron Paul. Where is it?
http://research.stlouisfed.org/fred2/series/M1"

Well I would like to believe high inflation is not coming. If there is no downside to running high deficits then let's just print everyone a cool millions dollars. What do you suppose would happen? If there is no danger in running $1T decifits let's run $2T? $10T?. Why not?

"Austerity makes life difficult for people, not politicians. They're the ones who suffer for the cutbacks; check out the increased suicide rate in Greece, or the depression in Spain, or the recent riots in the UK."

Well yes. The politicians suffer because the people suffer and get mad at the politicians so the politicians run deficits until they can't (see Greece).


Hohokam71 said...

Regarding the statement “People have been warning about high inflation for years -- for 3 decades in the case of Ron Paul. Where is it?” … pre-2008, I would argue that inflation actually was there: http://research.stlouisfed.org/fred2/series/CPIAUCSL/ . One of Paul’s major claims is that inflation begins in earnest due to Nixon closing the “gold window” in 1971, so I think that there is data to back up his claim. There has always been inflation to some degree (ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt), but to discount Paul’s argument by asking “where is the inflation” over the past few decades ignores CPI data.

But this doesn’t answer a more important question: where is the hyperinflation that was predicted after 2008? I think that a place to start is the M1 chart from David’s 6:11AM comment (http://research.stlouisfed.org/fred2/series/M1), and then compare it to the Excess Reserves (money being held by banks, not circulating in the economy) at http://research.stlouisfed.org/fred2/series/EXCRESNS. The bottom line: banks are holding on to a lot of money, a bit under the increase in M1. My interpretation of this data: the brief deflationary period was caused by securities crashing during 2008, after which point the Fed injected liquidity into banks to offset the losses. In short, the Fed “filled in the monetary hole” on the balance sheets of lending institutions that resulted from equities losing value, in order to preserve public confidence … and (in my opinion) lending institutions are holding on to it, as a hedge against future similar occurrences until the economy appears strong again (and since the Fed provides interest on Excess Reserves, at least since October 2008). During this entire time, the Fed targeted M1 growth to prevent deflation from collapsing equities (as well as high inflation), and so to see the inflation (per the CPI chart) resume after the initial deflationary dip is reasonable.

Keynseans would call this a “liquidity trap” … but they don’t predict hyperinflation. So, where did the “hyperinflationists” go wrong? The economic school favored by those who did think hyperinflation would result is the Austrian school. Wikipedia provides a good definition of inflation per this school (http://en.wikipedia.org/wiki/Austrian_School#Inflation), in short: inflation occurs when the supply of money is greater than the demand of money. But this isn’t happening beyond “normal” Fed targeted inflation: most (not all) of the new money is “tied up” in Excess Reserves, and isn’t circulating in the economy as an additional supply. Therefore, the Fed didn’t really “flood” the economy with new money, it just filled the hole from crashing securities in bank balance sheets (again, to maintain public confidence) which they aren’t lending out … most of the “new money” isn’t seen as an increase in supply, hence no major inflation. As a result, I don’t think that the underlying economic theory is disproven and doesn’t work, but rather modern vocal adherents (Ron Paul, Peter Schiff) didn’t foresee (or at least emphasize loudly) that most of the new money wouldn’t be circulated, and hence hyperinflation wouldn’t be the immediate result.

What I think that they should be emphasizing is what will happen with the demand for money (which is low right now: http://research.stlouisfed.org/fred2/series/M2V ) increases, thereby signaling a recovering economy, and subsequently providing the signal for banks to lend the Excess Reserves … if the Austrian theory is correct, this is when hyperinflation will result. Unless, of course, the Fed shrinks the supply of money accordingly to prevent hyperinflation (and the “hyperinflationists” should be emphasizing this, as well). Since the Fed “creates” money via journal entries between them and member banks, I don’t think it will be difficult for them to find a mechanism to quickly “unprint” the Excess Reserves when demand for the money picks up again in time to prevent hyperinflation … although the timing of this will be very, very critical