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Home Publications Blogs Beat the Press Profit Share Hits Post-War High and the Post Doesn't Notice

Profit Share Hits Post-War High and the Post Doesn't Notice

Friday, 29 March 2013 07:51

The revised GDP data for the fourth quarter released yesterday showed the profit share of corporate income hitting 25.6 percent. This is the highest since it stood at 25.8 percent in 1951. However if we look at the after-tax share of 19.2 percent, we would have to go back to 20.8 percent share in 1930 to find a higher number, excepting of course the 19.3 percent number hit last year.

To put this in context, the after-tax profit share was just 14.5 percent in Reagan's Morning in America days. The difference would have come to roughly $330 billion last year. To put this in the 10-year budgetary window that is the standard framework in Washington these days, the rise in after-tax corporate profits since the Reagan era can be seen as equivalent to a $5.0 trillion tax on the nation's workers.

This surge in profits in a weak economy (profits tend to move with the cycle) is striking but readers of the Washington Post version of AP piece on the data wouldn't know anything about it. This piece includes no mention of the jump in corporate profits in 2012.

There are a few other issues that the piece could have better presented to readers. It noted that:

"The fourth quarter was hurt by the sharpest fall in defense spending in 40 years."

It would have been useful to point out that defense spending reportedly rose at an extraordinary 12.9 percent annual rate in the third quarter. Defense spending is often erratic from quarter to quarter; this is why it is important to put sharp changes in context. The same applies to the GDP growth numbers more generally. The 0.4 percent growth rate for the fourth quarter looks like a sharp slowdown from the 3.1 percent rate in the third quarter, but the growth rate of final demand (which excludes inventory fluctuations) was little changed, falling from 2.4 percent in the third quarter to 1.9 percent in the fourth quarter.

This piece also highlights the drop in unemployment claims in recent weeks to their lowest level since the downturn began (although there was a jump last week). While this decline is good news, there is an important caution. As the period of high unemployment drags on, a larger percentage of newly laid off workers will not qualify for unemployment benefits. The reason is that many of the people laid off are likely to have been unemployed for substantial stretches in last two years and therefore ineligible for benefits. It would require a careful analysis of data on individual work histories to determine the exact impact of recent stretches of unemployment on eligibility. But if the share of ineligible workers among the newly unemployed has increased by 5 percentage points since the start of the downturn, it would mean that the same number of layoffs would translate into roughly 20,000 fewer claims.

Comments (6)Add Comment
Deficits Don't Matter. Neither Do Taxes. Dick Cheney Said So.
written by Last Mover, March 29, 2013 10:01
This is the highest since it stood at 25.8 percent in 1951.

Isn't there a way to plaster this message on billboards all around America in bold red letters right next to Cheney's snarling face?

written by skeptonomist, March 29, 2013 10:38
There is nothing new in this - by my reckoning profits/GDP had already reached a post WW-I record before the recession:


There was a drop in 2009 but recovery was almost instantaneous. The current level is about twice the peace-time average. Of course we remain at war to some extent, but hardly as much as during WW II, Korea and cold-war rearmament.

It is past time for economists to consider the idea that the prospect of very high profits is not always an incentive, but may be a disincentive to societally-useful activity. Their ideas about incentives are psychologically naive and inconsistent with history. (I am talking about the general attitude of US economists who have influence on public policy.)
written by skeptonomist, March 29, 2013 2:34
Also, economists should be directing their attention to why profits jumped up so fast after 2003. Was it banks or military contractors? What else could account for this? And if it was banks making money on mortgages, how are they doing it now?
"The Post doesn't notice"
written by John Puma, March 29, 2013 2:49
The Post, Times and other propaganda organs are replete with very smart people. They notice quite a bit.

Perhaps Mr Baker is being polite with his "doesn't notice" phrase that seems to be used somewhat frequently.

Perhaps "didn't notice" is code for which this intermittent reader never got the translation but I'd suggest the more important the "missed message," the more likely it is the result of purposeful obfuscation of information that the corporate overlords do not want freely disseminated.

Obfuscation...a lighter shade of grey
written by JP, March 29, 2013 9:31
@John Puma
Yes, Dr. Baker is extremely polite. At least he hasn't called me a raving idiot, yet, or blocked me from the site. You are very tactful in how you craft your words, a trait I secretly admire. (Well, it used to be a secret!)
Hell, I'm a junkman, not a writer and certainly not an economist. I use hammers and if need be get a bigger hammer. I communicate much the same way, not necessarily with much forethought and seldom with tact. I am self employed for much the same reason. I do not play well with authority and generally let it be known.

This note is to let you know that I think that your observation/comment "purposeful obfuscation of information that the corporate overlords do not want freely disseminated" is currently closer to "spot on" than most would like to accept. Hopefully, the "obfuscation" term is in danger of failure and is being eroded.

I spend a lot of time communicating with my customer base, conservativley described by me described as being very far to the right politically. (No pun intended, the words just came out that way!) The one commonality that we seem to reach, when they inevitably broach one of their favorite conversational topics, politics, is their discontent with government and those who run the whole circus act. It is more and more common for them to express their belief that whomever is elected, at the national level at least, those individuals do not "call the shots." They are beginning to perceive a one party system (a giant step in their belief system!)even though they will continue to vote their traditional allegiances. I am hoping this is a transitioal phase in their ability to break free from the pedagogues and their use of the catch phrases that allow the electorate to enslave themselves. The same applies to both ends of the political spectrum.
Oxford study
written by Jim, March 31, 2013 12:24
http://www.sbs.ox.ac.uk/centre...eports/CBT Tax Ranking 2012.pdf

Can you comment on this study? I've seen other studies that Bernstein has linked showing data that contrasts the findings of this study. Why is Obama proposing a tax cut for corporations?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.