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September 20, 2006

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knzn

I suspect that much of what is being counted as profits is actually rent. As I recall, there are just a few industries that account for a large fraction of total profits, and, I would guess, have much higher rates of profit that bring up the average. The biggest, IIRC, is oil. But a high rate of profit in the oil industry doesn’t really mean that the capital itself is profitable; it just means that, if you own oil fields and haven’t marked them to market, you get to report a lot of profits when you exploit them.

John Freeland

Chris:

Noted. For those of us less economically sophisticated, can you elaborate on these data, particularly the reversal of the trend that ended June 2002? What caused the change in trend? Is it likely to continue under current policies? Thanks.
SustainableMiddleClass.com

panasianbiz

This was indeed an interesting post, especially considering how many other reports have been painting a bleak picture of the U.S. economy. I especially appreciated the graph, but would have liked a bit more elaboration on its implications, since I'm a bit of a novice at this subject.

chris

Thanks for your interest chaps. I'd like to hope that others will investigate this claim - but neoclassical economists have never really understood profits.
As a matter of arithmetic, the rise in profits since 2002 is largely the counterpart of a rise in capital spending.
You might claim globalization has also helped, by holding wage growth down. But this is only good for profits if demand stays strong - if spending falls in line with wages, profits don't benefit.
My hunch - and I don't like hunches - is that a rebuilding of the personal savings ratio will cause a fall in profits in the next 2-3 years.
A longer-term question, though is: shouldn't high profits attract more investment, which competes profits down? If not, why not, given the easy availability of finance?

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