Re: Re: Re: Re: Re: Re: Re: Re: "Fear and insecurity"over the
Michael P. wrote: >I didn't mean to say the rapid payback causes high profits, but rather than >high profits mean that companies will expect rapid payback. that fits with what I was saying: if high profits make companies expect rapid payback, they're more likely to invest in fixed capital now to take advantage of that rapidity. Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
Re: Re: Re: Re: Re: Re: Re: "Fear and insecurity"over the
Jim, I didn't mean to say the rapid payback causes high profits, but rather than high profits mean that companies will expect rapid payback. Jim Devine wrote: > I don't think the profit rate was high in 1998 because of rapid payback, > but because wages were low relative to productivity (high rate of > surplus-value) and because the output/capital ratio was high. If we're > talking about the after-tax rate, then the tax system has helped boost > profit rates. > > If the aggregate average profit rate is high, that means high cash flow > relative to invested capital and thus more deposits by companies into the > financial system. It also encourages optimistic expectations about future > profitability. This suggests that all else equal, if the realized rate of > profit rises for the economy as a whole, so does the rate of investment in > new projects. > > Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Re: Re: Re: Re: "Fear and insecurity" over the
I wrote: >I don't think the profit rate was high in 1998 because of rapid payback, >but because wages were low relative to productivity (high rate of >surplus-value) and because the output/capital ratio was high. If we're >talking about the after-tax rate, then the tax system has helped boost >profit rates. Compare 1988 (a profit peak year) and 1998 (a year after the profit peak, according to current statistics). According to the US Department of Commerce (Survey of Current Business, June 1999), comparing these years, for domestic nonfinancial corporations: -- the profit rate (or rate of return) rose from 8.7 to 9.6 percent (more than a 10 percent increase). Profit rates are up steeply (though they haven't returned to the standards of the 1960s, which some see as the exception, not the rule). It peaked in 1997 at 9.9 percent. -- the profit rate based on current production rose from 6.2 to 8.3 percent (a 32 percent increase, but down from 8.5 percent in 1997). The fact that this change is larger than the previous one reflects the fall in interest income as a percent of the net stock of reproducible tangible wealth from 2.5 to 1.3 percent. The "productive" capitalists have been winning relative to the rentiers since about 1990. -- the after-tax profit rate based on current production rose from 4.0 to 6.0 percent, a 50 percent increase. The fact that this change is larger than the previous one reflects a fall in the effective tax rate on nonfinancial corporations. (It's been falling since the 1980s.) -- the share of property income in domestic income rose from 18.4 to 18.5 percent. This is not much, but reflects the lag of wages behind labor productivity. As Doug points out, the property income share peaked in 1996 at 19.5 percent. -- the share of profits from current production rose from 13.0 to 15.9 percent, whereas the share of net interest fell from 5.4 to 2.5 percent. -- the output-capital ratio implied by these numbers rose from 0.47 to 0.52, which is a pretty significant change by historical standards. Some might think that a lot of this may reflect rising utilization of capacity (faster turnover of commodities), but the Federal Reserve's capacity utilization rates fell between these two years. The statistics for 1998 will likely be revised when they show up in the SURVEY OF CURRENT BUSINESS this June. Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
Re: Re: Re: Re: Re: Re: "Fear and insecurity" over the
Michael wrote, in explaining why high profit rates may mean falling real investment: >High profit rates translate into a rapid payback period. Long-lived >capital goods, say, a railroad line cannot repay themselves very quickly. but on the macroeconomic level, we're talking about a variety of different projects, some with rapid payback and others with slow payback. (Even for a specific corporation, this is often true, since corporations diversify. Even a company that specializes in long-term projects will have some long-term projects that it started years ago that are paying off now.) If the profit rate is high as an aggregate average, that suggests that each type of project is more likely to be profitable now than when profit rates are low. I don't think the profit rate was high in 1998 because of rapid payback, but because wages were low relative to productivity (high rate of surplus-value) and because the output/capital ratio was high. If we're talking about the after-tax rate, then the tax system has helped boost profit rates. If the aggregate average profit rate is high, that means high cash flow relative to invested capital and thus more deposits by companies into the financial system. It also encourages optimistic expectations about future profitability. This suggests that all else equal, if the realized rate of profit rises for the economy as a whole, so does the rate of investment in new projects. Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
