Posts Tagged ‘profits’

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196920_600  Bruce Plante Cartoon: Trump and air traffic controllers

That Awkward Moment When You Discover That Wall Street's Insanit

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capital shares

Yesterday, I showed that conventional thinking about factor shares has been finally overturned: they are not necessarily constant, especially within existing economic institutions.

In fact, labor’s shares have been declining for decades now.

The opposite is true of capital’s shares: they’ve been rising for almost three decades.

The profit share of national income has, of course, a cyclical (short-term) component. It falls in the period preceding each recession, and begins to rise again during recessions. That’s how capitalism works.

But the profit share (illustrated by the blue line in the chart above, measured on the left side) also exhibits secular (longer-term) movements—and, since 1986 (when it reached a low of 7 percent), it more than doubled (to a peak of 15.4 percent in 2006) and remains still very high (at 13.6 percent in 2016).

Over that same period, the share of income captured by individuals at the top—the top 10 percent and, a smaller group, the top 1 percent (in the red and green lines, respectively, measured on the right)—who receive distributions of the surplus, also increased dramatically. The share of income of the top 10 percent rose by 29.7 percent (from 36.4 to 47.2 percent of total factor income) and of the top 1 percent by even more, 40.2 percent (from 25.4 to 35.6 percent).

To expand the conclusion I reached yesterday: under existing economic institutions, factor shares do in fact change—and they’ve been turning against labor (beginning in the mid-1970s) and in favor of capital (since the mid-198os) for decades now.

That’s a fundamental change in the class nature of the U.S. economy that needs to be reflected in economists’ theoretical models—which also needs to be corrected in reality, by radically transforming existing economic institutions.

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The business press is having a hard time figuring out this one: the combination of unrelenting drama in and around Donald Trump’s White House and the stability (signaled by the very low volatility) on Wall Street.

As CNN-Money notes,

One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era.

Despite enormous question marks swirling around the fate of President Trump’s economic agenda and his political future, American financial markets have remained unusually calm.

What’s going on?

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What investors actually hate is not uncertainty but, rather, threats to profits. And corporate profits have been growing spectacularly during the recovery from the Second Great Depression. Between the fourth quarter of 2008 and the first quarter of 2017, corporate profits rose more than 150 percent. Meanwhile, U.S. stocks (as measured by the Standard & Poor’s 500) increased by more than 200 percent. The rise in stock prices stems both from the growth in corporate profits and from gains in the stock market itself, which together have fueled further increases in the stock market with steadily declining levels of volatility.

As Ruchir Sharma admits,

Mr. Trump’s mercurial ways may be a source of great concern or indifference, depending on your ideological leanings. But Wall Street doesn’t seem to care one way or other.

What Wall Street cares about is not uncertainty but profits.

That’s the bottom line.

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CEO salaries continue to soar—last year reaching a ratio to average-worker pay of 347 to 1.

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While the profits of U.S. corporations have reached historic highs.

But corporate CEOs and boards of directors still want more—more deregulation, more tax cuts. And, as Matthew Goldstein explains, since his inauguration Donald Trump has met with hundreds of executives, including at least 41 of last year’s 200 best-paid CEOs.

Back in 1848, it was already clear that

The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

 

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Clay Bennett editorial cartoon  PettJ20170524A_low

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Clay Bennett editorial cartoondownload