Re: Profit Rates -- From Michael Yates
Gene writes:
How do you adjust for the change in capital
in telecom companies, before and after the
melt-down? What's the denominator?
World Com
Global Crossing
etc.
Sabri adds:
Hey, it is easy.
Look, let there be two times (Did I sound God-like
here?), and label them as t(1) and t(2). Obviously,
t(1) is when the observation period begins whereas
t(2) is when the observation period ends. Define P(1),
P(2) and CF(1,2) as usual. Then your rate of return
over this observation period is:
{P(2) + CF(1,2) - P(1)}/P(1).
It is evident that the denominator is P(1), is it not?
And forget about these mortal things such as World Com,
Global Crossing and the like.
I've seen some interesting news items that we can relate to this.
First, that's why so many companies are now writing off 'goodwill'. It's
their polite way of saying, man did we screw up when we paid that much for
that stuff.
Second, Rubinstein of Carlyle
Group has come out and said, you know, a lot of private equity groups
holding telecoms and the like really haven't honestly re-evaluated the value
of their holdings. Rubinstein, of course, would like them to get completely
honest here so his CG can continue to buy low and sell high. That CG can
sell at all some of the stuff they themselves have bought makes me think
more conspiratorially all the time (their big profit maker for this year
would seem to be IPOs for defense contractors and being able to unload
ITGroup).
Finally, NTT recently took a HUGE charge, and this would seem to go back to
them wading in and buying up in the telecoms bubble.
Charles Jannuzi
RE: Re: RE: Profit Rates -- From Michael Yates
-Original Message- From: Louis Proyect [mailto:[EMAIL PROTECTED]] Sent: 18 April 2002 19:45 To: [EMAIL PROTECTED] Subject: [PEN-L:25116] Re: RE: Profit Rates -- From Michael Yates What do you meant that poor countries accrue interest liabilities that they don't pay? I was under the impression that the need to pay off debts to imperialist funding agencies is convulsing the 3rd world right now. These statements aren't inconsistent if one takes into account the difference between cash and accruals. The Highly Indebted Poor Countries have massive foreign debts that they can't pay. Because of this, every year, the IMF, World Bank and similar extend new loans to them which cover the interest payments due on their old loans. This is a cruel and stupid game which keeps them in poverty forever, but its net effect is that, when you factor aid and trade into the equation, the cash flow to most HIPCs from the G7 is positive. It's rather similar to the dot com business model where operational losses were supported by positive cash flows from equity issues, although the analogy is not so strong that I want to pursue it. Also (although I wouldn't dream of putting words in Michael's mouth) isn't the problem we are dealing with in the Argentina thread is exactly the need to get past surface impressions when discussing societies like Mexico? Of course, Mexico is not Tanzania but what sense does it make to categorize it (or Poland and Turkey) as a non-poor country just because it shares membership in the OECD? Mexico and Turkey are peripheral nations that will never join the front ranks of other OECD nations such as Norway or Austria. I take your point here (that is, if I understand you correctly as saying that we' re talking about imperialism rather than poverty per se here). But would you have said the same thing about Spain twenty years ago? One of the indicators that we need to take into account is yearly emigration because of unemployment. There are Turkish (and Polish) streetsweepers, prostitutes, newspaper vendors and non-unionized construction workers in Norway and Austria but few Norwegian or Austrian guest workers in Turkey or Poland. But this indicator is also unreliable over time; it has certainly flipped in Ireland which is now full of Italian fund managers. dd ___ Email Disclaimer This communication is for the attention of the named recipient only and should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. ___
Re: RE: Re: RE: Profit Rates -- From Michael Yates
On Fri, 19 Apr 2002 10:48:16 +0100, Davies, Daniel wrote: I take your point here (that is, if I understand you correctly as saying that we' re talking about imperialism rather than poverty per se here). But would you have said the same thing about Spain twenty years ago? No. Spain had a rather powerful economy that developed under Franco's protectionist brand of fascism in the 1950s, with auto manufacturing, etc. But this indicator is also unreliable over time; it has certainly flipped in Ireland which is now full of Italian fund managers. I have no idea what Italian fund managers in Ireland have to do with my point. It is not working overseas that I am calling attention to, but the need to leave one's country in order to survive. This is a south to north, periphery to core dynamic. -- Louis Proyect, [EMAIL PROTECTED] on 04/19/2002 Marxism list: http://www.marxmail.org
RE: Re: Re: RE: RE: Profit Rates -- From Michael Yates
To be fair, although there are known serious problems with depreciation, the WorldCom and Global Crossing affaires aren't really relevant to the statistics Doug quoted. The assets of WorldCom and Global Crossing are worth exactly what they were worth before the meltdown, as stock market movements don't mean much to cables in the ground. The fact that the stock market's assessment of the future excess returns to be earned from renting out those cables no longer provide a viable basis for making interest payments don't change the capital employed for the purpose of the BEA numbers. dd Gene, this is one of the great secrets of economics. Of course, everyone knows, as Jim mentioned, that we have no theory of depreciation, but we go on pretending that out data is of good quality. Eugene Coyle wrote: How do you adjust for the change in capital in telecom companies, before and after the melt-down? What's the denominator? World Com Global Crossing -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED] ___ Email Disclaimer This communication is for the attention of the named recipient only and should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. ___
re: profit rates
Daniel Davies writes: The assets of WorldCom and Global Crossing are worth exactly what they were worth before the meltdown, as stock market movements don't mean much to cables in the ground. The fact that the stock market's assessment of the future excess returns to be earned from renting out those cables no longer provide a viable basis for making interest payments don't change the capital employed for the purpose of the BEA numbers. yes. It's important to remember that how one calculates the rate of return depends on what one's purposes are; not all measures of the rate of return are good for all purposes. The forward-looking rate of return would be the _internal_ rate of return, the interest rate that sets the present discounted value of net profits equal to zero. To some extent, this is the rate of return based on stock-market valuation, since the stock market prices are based on guesses of future net profits (not very good ones, of course). A firm will have a different estimate, based on its projected costs, revenues, etc. The other rates of return that people have been discussing have other purposes. I find that the BEA estimates of the profit rate, for example, to be pretty well correlated with other estimates (such as those of Dumenil and Levy), while having something to say about the validity of theories such as that falling profit rates lead to stagnation and/or inflation (or both). That is, the data work in practice, though of course we can't put too much faith in them. One of the basic rules of empirical data is that they're never very good. If you examine the calculation of the real wage, for example, there are lots of caveats. People like Boskin take these caveats and run with them, trying to figure out ways to revise the data to make them look better (either empirically or in terms of the orthodox economics ideology or both). But that doesn't say we should give up on statistics. Rather, it says we have to be humble in using them and to be very conscious of the econometrics of errors in variables. A non-statistical or anti-statistical approach unfortunately eschews any sense of context. Everything is a special case, with no connection or comparison with other special cases. Everything ends up being a bunch of anecdotes. And we know how bad anecdotal evidence is: my wife lost (and is keeping off) 40 pounds by going to a hypnotist, but that doesn't mean I can do so. There are other ways of putting things in context, such as saying all countries in Africa have a similar social relationship to the rich countries of the capitalist core (the imperialist nations). But unless there's some sort of statistical meaning to that relationship, it ends up being too abstract. Statistics shouldn't be rejected, but should instead be treated carefully, and as complementary to other knds of evidence. JD
Re: re: profit rates
I would like to expand on what Daniel said. The problem with the BEA accounting is that it presumes that depreciation follows a preset, regular pattern regardless of changing economic conditions. In addition, the depreciation rates apply to broad ranges of capital goods. I do not doubt for a moment what Doug said about the BEA people being courteous and intelligent. The problem is that their task is impossible. According to economic theory, the value of the capital goods reflect their future earning potential, which is unknown. So the BEA reverts to past depreciation rates and assumes them to follow a predetermined pattern. I am always struck by the way economists pay close attention to analyzing residuals in their econometrics, but rarely pay much attention to their data sources, except when they need to make adjustments to improve their statistical results. Daniel Davies writes: The assets of WorldCom and Global Crossing are worth exactly what they were worth before the meltdown, as stock market movements don't mean much to cables in the ground. The fact that the stock market's assessment of the future excess returns to be earned from renting out those cables no longer provide a viable basis for making interest payments don't change the capital employed for the purpose of the BEA numbers. -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: re: profit rates
I've worked with BEA people in the past. A friend of mine in Gov refers to them as righteous technicians. They are resolutely without political bias in their work. All of their procedures are vetted by panels of outside experts. Without doubt, you can spot all sorts of problems in their work. But I would be willing to bet that you would not be able to arrive at a better way of doing it, given the same resources and data that are available to them. This is probably the best sausage you can get, given the ingredients. One of my own truisms about the Gov, based on my own admittedly limited experience in it, is that however crazy something may seem from the outside (with reference to bureaucratic procedures), there is always a good underlying reason for it, and equally good reasons for not doing it some other way. There is rationality at the micro level, more often than not. Irrationality emerges at the macro level, or it is injected by elected officials or their appointees. mbs I would like to expand on what Daniel said. The problem with the BEA accounting is that it presumes that depreciation follows a preset, regular pattern regardless of changing economic conditions. In addition, the depreciation rates apply to broad ranges of capital goods.
RE: Re: re: profit rates
I've worked with BEA people in the past. A friend of mine in Gov refers to them as righteous technicians. They are resolutely without political bias in their work. All of their procedures are vetted by panels of outside experts. one problem is that these outside experts are often ideological in their outlook (people like Boskin). One thing I noticed was that the BEA's estimates of the rate of return on capital investment in domestic US nonfinancial corporations used to appear in the flagship ECONOMIC REPORT OF THE PRESIDENT. It seems to have gotten some bad publicity, so now it's only in the BUSINESS CONDITIONS DIGEST. Is there something politicaly incorrect (from a mainstream perspective) about calculating the profit rate? Of course, the whole concept of the rate of profit doesn't fit with orthodox neoclassical economics very well. It's often mushed up with the rate of interest. In the view that the world is simply one big competitive market, it should equal zero. Etc. JD
RE: Profit Rates -- From Michael Yates
Doug writes: Gee, better contact the folks at the Bureau of Economic Analysis. I bet they never thought of this! In fact, I'm sure they've never thought of many of the objections brought up on PEN-L over the last several days. They are, after all, just a bunch of third-rate public sector bean counters. I think what Doug mentioned is important. By the way, it is not just the public sector, where those who are in charge of producing such statistics are in desparate need of education. A similar problem exists also in the private sector, even at Investments Banks, where they are willing to pay good salaries for well educated people. One way to look at this is that it is an adverse selection problem. Of course, there is also a problem of moral hazard: when you have deadlines, the accuracy of your estimates becomes a very minor concern. Sabri
RE: RE: Profit Rates -- From Michael Yates
I think you missed Doug's sarcasm, or I have missed his seriousness. the public sector people are quite well educated. sometimes they are given things to do that are impossible to do well. but they still have to do them. they are not paid as well as some in the private sector, but you would be foolish to take this as a sign of their worth. mbs I think what Doug mentioned is important. By the way, it is not just the public sector, where those who are in charge of producing such statistics are in desparate need of education. A similar problem exists also in the private sector, even at Investments Banks, where they are willing to pay good salaries for well educated people. One way to look at this is that it is an adverse selection problem. Of course, there is also a problem of moral hazard: when you have deadlines, the accuracy of your estimates becomes a very minor concern. Sabri
RE: Profit Rates -- From Michael Yates
Max wrote, Without doubt, you can spot all sorts of problems in their work. But I would be willing to bet that you would not be able to arrive at a better way of doing it, given the same resources and data that are available to them. I generally agree with this claim. One of the main problems with government statistics is that the users of these statistics don't look at all the documentation generated by the government to explain/justify what they do. This documentation often reveals the great amount of thought that has gone into the most minor details of many government-produced sets of data. This documentation goes FAR beyond the quick-and-dirty justifications appearing in the official methodology publications they issue (or instance, the BLS's Handbook of Methods gives just a surface indication of the reason the BLS does what it does). This documentation is often filled with explicit or implicit statements of the weakness of the data. It is often not easy reading, but it is essential reading for those who want to avoid misusing/misinterpreting the data. Further, all data agencies continually reconsider how they do they generate data. A paper trail of this rethinking exists in a vast number of published and unpublished papers on the minute details of data creation. At the same time, most government data implicitly or explicitly accepts uncritically neoclassical economics. But having done this, the government data producers take everything amazingly seriously. As a result, much government data has some silly ideas embedded within it. Eric .
RE: Profit Rates -- From Michael Yates
Max wrote: I think you missed Doug's sarcasm, or I have missed his seriousness. the public sector people are quite well educated. sometimes they are given things to do that are impossible to do well. but they still have to do them. they are not paid as well as some in the private sector, but you would be foolish to take this as a sign of their worth. I don't think I missed his sarcasm but there was some truth in what he said, excluding this part: They are, after all, just a bunch of third-rate public sector bean counters. Further, I know nothing about the Bureau of Economic Analysis people so how can I agree with them being third-rate bean counters? I agree with you that whether in public sector or not, most of the time you are given things to do that are impossible to do well. I was given such tasks myself and I plead guilty of producing garbage. Sabri
RE: Profit Rates -- From Michael Yates
First of all, except from a few occasions, I have not dealt with government agencies producing statistical information here in the US. On the other hand, I have some friends who worked at The State Planning Agency of Turkey, The Turkish State Statistics Organization (my translations) and the like, and I know that they are honest, smart and well educated people. This does not mean however that all of those who worked there were honest, smart and well educated people and I heard many horror stories from my friends about many others. One thing I suspect (and Eric and Jim verify) is that it should be true also here in the US that these institutions are not ideologically neutral institutions, whatever neutrality means in this context. Further, since these institutions are bureaucratic in the Weberian sense, as Rob reminds us, they are not conducting independent scientific research. If my boss tells me that I cannot not use a particular model or technique that would allow me to arrive at a better way of doing my work, then I cannot do it. Here is another problem I know from my experience. Suppose you are a scientist whose work relies on the work of others who are performing (boring) tasks according to your specifications. Suppose there are many of them working in parallel so you have no hope of monitoring each of them individually. Unless the results they produce look unreasonable according to your subjective criteria, how would you know how reliable what you got from them are? Here is one more problem: there are too many data to deal with, far too many!... Sabri - Original Message -- Eric wrote: Max wrote, Without doubt, you can spot all sorts of problems in their work. But I would be willing to bet that you would not be able to arrive at a better way of doing it, given the same resources and data that are available to them. I generally agree with this claim. One of the main problems with government statistics is that the users of these statistics don't look at all the documentation generated by the government to explain/justify what they do. This documentation often reveals the great amount of thought that has gone into the most minor details of many government-produced sets of data. This documentation goes FAR beyond the quick-and-dirty justifications appearing in the official methodology publications they issue (or instance, the BLS's Handbook of Methods gives just a surface indication of the reason the BLS does what it does). This documentation is often filled with explicit or implicit statements of the weakness of the data. It is often not easy reading, but it is essential reading for those who want to avoid misusing/misinterpreting the data. Further, all data agencies continually reconsider how they do they generate data. A paper trail of this rethinking exists in a vast number of published and unpublished papers on the minute details of data creation. At the same time, most government data implicitly or explicitly accepts uncritically neoclassical economics. But having done this, the government data producers take everything amazingly seriously. As a result, much government data has some silly ideas embedded within it.
Re: Re: re: profit rates
Max Sawicky wrote: I've worked with BEA people in the past. A friend of mine in Gov refers to them as righteous technicians. They are resolutely without political bias in their work. All of their procedures are vetted by panels of outside experts. I've talked with scores of BEA and other USG stat types over the years. They're not Nobel material, for sure - which may be a good thing, considering some of the wackos and flacks who've won that prize over the years. But they've always struck me as serious, honest people who are completely aware of the strengths and limits of their work, and are very open about it. They deserve more respect than they get from lots of lefties. Doug
Re: RE: Re: Re: RE: RE: Profit Rates -- FromMichael Ya tes
Davies, Daniel wrote: To be fair, although there are known serious problems with depreciation, the WorldCom and Global Crossing affaires aren't really relevant to the statistics Doug quoted. The assets of WorldCom and Global Crossing are worth exactly what they were worth before the meltdown, as stock market movements don't mean much to cables in the ground. And if they're part of the capital stock yet generate no profits, isn't that a relevant and interesting fact? Doug
Re: re: profit rates
But they've always struck me as serious, honest people who are completely aware of the strengths and limits of their work, and are very open about it. They deserve more respect than they get from lots of lefties. Doug Doug, I don't think anyone on this list would think that I am an unserious, dishonest person. And I worked at money management firms and other firms that provide analytics to them. That I worked at those intitutions doesn't make me an ***hole, does it? So, as a leftist, and as someone who had experiences similar to theirs, why should I disrespect those who work at such institutions? Of course, most of them are serious, honest people. I have no doubts about Max's honesty and seriousness, for example. But, there are those who are dishonest liars. I know it. I have worked with them. Sabri
RE: Re: re: profit rates
Sabri wrote, And I worked at money management firms and other firms that provide analytics to them. ... But, there are those who are dishonest liars. I know it. I have worked with them. In my experience private sector data producers--particularly those in the financial sector--sometimes produce a product that is very bad. Not all do, but many do. They often want to sell their data--or use their data to sell something else (pieces of paper!)--and this effects how the data is produced and what it says. Most government data producers do not have to sell their data to survive and, so, the market factor that might corrupt their data generation process is missing. Of course there are honest and dishonest people in any data producing operation. But when data is produced as a commodity (or to help sell another commodity) this tends to increase the role of dishonesty. Eric.
Re: re: profit rates
But, there are those who are dishonest liars. I know it. I have worked with them. Sabri Here is one more thing: I don't think Max can become the President of the US, nor can you, nor Jim Devine, nor Michael Perelman, nor Louis Proyect. Because you are too honest, my friends, too honest!.. Sabri
RE: RE: Re: re: profit rates
Didn't Merrill-Lynch financial advisors recently get in trouble for selling info that was inaccurate -- but helped the investment-banking side of the business? JD Eric writes: In my experience private sector data producers--particularly those in the financial sector--sometimes produce a product that is very bad. Not all do, but many do. They often want to sell their data--or use their data to sell something else (pieces of paper!)--and this effects how the data is produced and what it says. Most government data producers do not have to sell their data to survive and, so, the market factor that might corrupt their data generation process is missing.
RE: RE: RE: Re: re: profit rates
Jim wrote, Didn't Merrill-Lynch financial advisors recently get in trouble for selling info that was inaccurate -- but helped the investment-banking side of the business? I know the LA Times has covered this at least twice a week or so ago, but I haven't see much in the WSJ about it. Eric .
Re: RE: RE: RE: Re: re: profit rates
a la michael pugliese ;-): - http://www.usatoday.com/money/finance/2002-04-19-merrill.htm No quick deal likely in Merrill Lynch case By Thor Valdmanis, USA TODAY NEW YORK -- The dark cloud hanging over the securities industry just got darker. Hopes of quickly achieving a final settlement between Merrill Lynch and New York Attorney General Eliot Spitzer over alleged conflicts of interest among Merrill research analysts have been dashed because of arguments about culpability and money, people close to the negotiations say. - http://www.boston.com/dailynews/107/economy/SEC_considering_whether_to_joi%3A.shtml SEC considering whether to join probe of conflict of interest By Michael Gormley, Associated Press, 4/17/2002 13:39 ALBANY, N.Y. (AP) Federal regulators met with New York Attorney General Eliot Spitzer on Wednesday to determine whether they should join his investigation into Wall Street analysts accused of giving positive stock ratings to companies they were criticizing among themselves. Securities and Exchange Commission officials were also being briefed by Spitzer's fraud prosecutors on the status of his investigation into analysts at Merrill Lynch Co. and some of its rivals, said a source familiar with the matter who spoke on condition of anonymity. - http://www.mips1.net/mukfn.nsf/Current/852569CF00506AC142256A87002E1E93?OpenDocument Merrill Lynch acts to end conflicts of interest By: Tim Wood Posted: 2001/07/11 Wed 10:00 ZE2 | © MoneywebUK 1997-2002 NEW YORK - In what amounts to a tacit admission of guilt, global investment firm Merrill Lynch is to prohibit its analysts from owning stocks they cover. The move might be interpreted cynically as a belated response to public outrage over analysts' inability or unwillingness to deliver accurate recommendations. Few conflict of interest allegations have been substantiated, but it is common cause that the Chinese wall between firms' investment bankers and analysts was demolished during the listings boom from 1996 to 2000. -- --ravi
Re: RE: RE: RE: Re: re: profit rates
The WSJ has pretty much dropped the ball on the MS investigation. The most they've done is dribble stuff like below out a little at a time. I actually am surprised at this--they are generally more conscientious and interesting about stuff like this. AG's Probe Against Merrill Muddies Waters For Wall Street By CHERYL WINOKUR MUNK and LYNN COWAN Of DOW JONES NEWSWIRES NEW YORK -- An action by New York State Attorney General Eliot Spitzer on Monday makes the future even muddier for securities firms' research and investment banking practices. A court order, obtained by Spitzer, against Merrill Lynch Co. (MER) requires the country's largest brokerage firm to make immediate reforms such as better disclosure about its investment banking relationships and more context for its stock ratings. Spitzer is also considering bringing criminal charges against the firm, which denies the allegations. Since the analyst objectivity issue gained momentum after the dot-com bubble burst, firms have been scrambling to make sure their policies are in compliance with the best practices adopted last summer by the industry's main trade group. Merrill itself revamped its research policies over the summer, to prohibit stock analysts from owning stocks they cover. Merrill also began disclosing, on the front page of all research reports, a statement that it has or may have business relationships, including investment banking ones, with companies mentioned. The firm is also planning to revamp its research this quarter to focus more on GAAP accounting. The Attorney General, however, claims its order Monday requires Merrill, for the first time, to disclose the relationship between its research and investment banking arms. The press release said Spitzer has issued subpoenas to other securities firms, though it did not say which ones. Goldman Sachs Group Inc. (GS), J.P. Morgan Chase Co. (JPM) both said they had not received subpoenas. Lehman Brothers Holdings Inc. (LEH), Credit Suisse First Boston, Bear Stearns Cos. (BSC), Morgan Stanley (MWD), the Salomon Smith Barney unit of Citigroup Inc. (C) and UBS Warburg wouldn't comment. The immediate impact of Spitzer's action is unclear, but his order includes an application to the State Supreme Court for approval to gather more evidence about Merrill's research practices. If he prevails, it could be very embarrassing for Merrill and other firms, based on the sampling of information Spitzer has obtained so far. According to his investigation , at the same time that Merrill was contemplating a neutral rating on selected stocks, such as Excite@Home Corp. (ATHM), analysts were telling one another that the stock was such a piece of crap, among other things. Many of the allegations involved former Merrill internet analyst Henry Blodget. In a statement Monday afternoon, Merrill said the allegations reveal a fundamental lack of understanding of how securities research works within the overall capital raising process. They cite a limited number of employee emails, taken out of context, as 'proof' that investment banking had undue influence in determining research ratings. In fact, these emails prove nothing of the sort. The attorney general's investigation has been underway since June 2001 and is yet another example of the pressure facing the industry in the wake of the dot-com bust. Spitzer said he hoped his action would prompt regulators, including the Securities and Exchange Commission, to weigh in with proposed changes for the industry. Ultimately, regulators and other may seek to have the firm split its equity research and investment banking businesses, similar to Arthur Andersen's plan to break apart its auditing and consulting businesses, according to Spitzer. It was unclear whether he was referring to just Merrill or the overall industry. Congress is currently studying the thorny issue of analyst objectivity. In addition, The New York Stock Exchange and the National Association of Securities Dealers Inc. have proposed new rules for investment banks. The comment period ends next week. These rules would require additional disclosures of potential conflicts in analysts' research notes. They would require investment banks to clearly state whether they own of 1% or more of the company they are writing about; whether there are any investment banking conflicts of interest at the time a report is issued; and whether any compensation has been paid by a subject company to the investment bank within the last 12 months or is expected within the next three months. -- Christian
Re: Re: Re: RE: RE: Profit Rates -- From Michael Yates
Doug, Gee, Solow and Samuelson never thought of it either, when defending the idea of the production function. Luckily they had Joan Robinson to call it to their attention. But you and I are talking about different profit rates, as Daniel Davies has just pointed out. Gene Coyle Doug Henwood wrote: Eugene Coyle wrote: How do you adjust for the change in capital in telecom companies, before and after the melt-down? What's the denominator? Gee, better contact the folks at the Bureau of Economic Analysis. I bet they never thought of this! In fact, I'm sure they've never thought of many of the objections brought up on PEN-L over the last several days. They are, after all, just a bunch of third-rate public sector bean counters. A handy reference list of people who need an education can be found at http://www.bea.gov/bea/beatel.htm. The person who handles the capital stock estimates is Leonard Loebach, at 202-606-9764. If he's like most of them, he'll probably answer his own phone and be happy to talk to any knowledgeable, friendly caller. Doug
Re: profit rates
Didn't Merrill-Lynch financial advisors recently get in trouble for selling info that was inaccurate -- but helped the investment-banking side of the business? JD Well Jim, don't get me started. What is going on there is very sad, to say the least, very sad. I used to like the number 5 a lot because it is sufficiently close to the Lehman Aggregate Bond Index duration. If all the bonds had 5 years duration, I would have had no problems whatsoever in those days. May God let the duration of all US bonds be 5 years for the benefit of those I left behind. Best, Sabri
RE: Profit Rates -- From Michael Yates
From Michael Yates In the discussion about profit rates, I am confused. Doug Henwood suggests dividing profits by capital stock. Wouldn't this involve dividing a flow (profits) by a stock (capital stock) and therefore making a not very meaningful calculation? Dividing flows by stocks is not always bad voodoo. This calculation would give a ratio equivalent at the macro level to Return on Capital Employed, which is always a useful thing to know in the context of companies and I don't see a fallacy-of-composition type argument which would make it not a useful thing to know about whole economies. Or to put it another way, it's a flow divided by a stock in the same way that the rate of interest is a flow divided by a stock; it's a rate of return. And, in any event, why make such gross calculations which don't tell us much? Just as life expectancies and GDP per capita are not good comparison measures in many cases, because they hide all the disparity within countries. I agree much more with this, in that FDI into the Asian countries in particular is going to span all sorts of non-comparable items, but what do you do? The aggregate numbers are all that's available In addition, shouldn't comparisons be made between truly comparable things. For example, it would be meaningful to compare profitability between an engine plant in the U.S.and one in Mexico. My guess is the rate would be higher in Mexico than in the U.S. as costs are lower and productivity is probably comparable. Of course, profits are difficult to get good accurate measures on, so it would probably still be hard to make a good comparison. Isn't it the case that more money flows from the poor countries to the rich ones than vice versa? Repatriated profits, interest, etc. are greater than than the inflow of money to the poor countries. Vastly depends on your definition of a poor country. If you mean non-OECD, then the answer is broadly no on a cash basis but yes on an accounting basis (because poor countries accrue interest liabilities that they don't pay). But this definition would not count Mexico as a poor country because it's OECD. dd ___ Email Disclaimer This communication is for the attention of the named recipient only and should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. ___
RE: RE: Profit Rates -- From Michael Yates
but according to the Cambridge UK folks, you can't measure capital stock to begin with . . . To me the interest rate(s) is more meaningful, since at least it is observed and is the object of literal transactions, unlike capital. profits are susceptible to what I suspect are flaky inventory valuation and capital consumption adjustments, and even a pristine profit rate can mislead in light of the time profile of investment returns. mbs From Michael Yates In the discussion about profit rates, I am confused. Doug Henwood suggests dividing profits by capital stock. Wouldn't this involve dividing a flow (profits) by a stock (capital stock) and therefore making a not very meaningful calculation? Dividing flows by stocks is not always bad voodoo. This calculation would give a ratio equivalent at the macro level to Return on Capital Employed, which is always a useful thing to know in the context of companies and I don't see a fallacy-of-composition type argument which would make it not a useful thing to know about whole economies. Or to put it another way, it's a flow divided by a stock in the same way that the rate of interest is a flow divided by a stock; it's a rate of return.
Re: RE: Profit Rates -- From Michael Yates
Daniel Davies: Isn't it the case that more money flows from the poor countries to the rich ones than vice versa? Repatriated profits, interest, etc. are greater than than the inflow of money to the poor countries. Vastly depends on your definition of a poor country. If you mean non-OECD, then the answer is broadly no on a cash basis but yes on an accounting basis (because poor countries accrue interest liabilities that they don't pay). But this definition would not count Mexico as a poor country because it's OECD. What do you meant that poor countries accrue interest liabilities that they don't pay? I was under the impression that the need to pay off debts to imperialist funding agencies is convulsing the 3rd world right now. Also (although I wouldn't dream of putting words in Michael's mouth) isn't the problem we are dealing with in the Argentina thread is exactly the need to get past surface impressions when discussing societies like Mexico? Of course, Mexico is not Tanzania but what sense does it make to categorize it (or Poland and Turkey) as a non-poor country just because it shares membership in the OECD? Mexico and Turkey are peripheral nations that will never join the front ranks of other OECD nations such as Norway or Austria. One of the indicators that we need to take into account is yearly emigration because of unemployment. There are Turkish (and Polish) streetsweepers, prostitutes, newspaper vendors and non-unionized construction workers in Norway and Austria but few Norwegian or Austrian guest workers in Turkey or Poland. Louis Proyect Marxism mailing list: http://www.marxmail.org
Re: Profit Rates -- From Michael Yates
Michael Perelman wrote: Doug Henwood suggests dividing profits by capital stock. Wouldn't this involve dividing a flow (profits) by a stock (capital stock) and therefore making a not very meaningful calculation? That's the definition of rate of return, no? Interest on a bond is computed as coupon divided by principal. Ditto return on equity, or dividend yield. Doug
RE: RE: RE: Profit Rates -- From Michael Yates
Max writes:but according to the Cambridge UK folks, you can't measure capital stock to begin with . . . you can measure aggregate capital stocks (K), simply by multiplying price times quantity of each type and then adding up, but the question is what that measurement means. The Cambridge UK folks said that you could measure K, but that you couldn't use it as an independent variable as part of a theory of distribution, where the marginal product of K was somehow related to the rate of profit received (or the interest rate). The value of the rate of profit or of the interest rate has an effect on the value of K, so it's not the one-way causation that the neoclassicals assume. Of course, there are all sorts of _other_ measurement problems. The hardest is that of measuring depreciation in order to figure out the K net of depreciation. To me the interest rate(s) is more meaningful, since at least it is observed and is the object of literal transactions, unlike capital. but it's quite important to have some idea of the benefit to a industrial-capitalist borrower (the rate of return) in addition to understanding the cost to that borrower (the rate of interest). Estimated rates of return are always going to be approximations, but it's better than nothing. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: RE: RE: Profit Rates -- From Michael Yates
How do you adjust for the change in capital in telecom companies, before and after the melt-down? What's the denominator? World Com Global Crossing etc. I vote with the Cambridge UK folks. Max Sawicky wrote: but according to the Cambridge UK folks, you can't measure capital stock to begin with . . . To me the interest rate(s) is more meaningful, since at least it is observed and is the object of literal transactions, unlike capital. profits are susceptible to what I suspect are flaky inventory valuation and capital consumption adjustments, and even a pristine profit rate can mislead in light of the time profile of investment returns. mbs From Michael Yates In the discussion about profit rates, I am confused. Doug Henwood suggests dividing profits by capital stock. Wouldn't this involve dividing a flow (profits) by a stock (capital stock) and therefore making a not very meaningful calculation? Dividing flows by stocks is not always bad voodoo. This calculation would give a ratio equivalent at the macro level to Return on Capital Employed, which is always a useful thing to know in the context of companies and I don't see a fallacy-of-composition type argument which would make it not a useful thing to know about whole economies. Or to put it another way, it's a flow divided by a stock in the same way that the rate of interest is a flow divided by a stock; it's a rate of return.
RE: Profit Rates -- From Michael Yates
Gene writes:
How do you adjust for the change in capital
in telecom companies, before and after the
melt-down? What's the denominator?
World Com
Global Crossing
etc.
Hey, it is easy.
Look, let there be two times (Did I sound God-like
here?), and label them as t(1) and t(2). Obviously,
t(1) is when the observation period begins whereas
t(2) is when the observation period ends. Define P(1),
P(2) and CF(1,2) as usual. Then your rate of return
over this observation period is:
{P(2) + CF(1,2) - P(1)}/P(1).
It is evident that the denominator is P(1), is it not?
And forget about these mortal things such as World Com,
Global Crossing and the like.
Also, assume that there does not exists a Middle East,
September 11 did not happen and we live happily forever.
Sabri
Re: Re: RE: RE: Profit Rates -- From Michael Yates
Gene, this is one of the great secrets of economics. Of course, everyone knows, as Jim mentioned, that we have no theory of depreciation, but we go on pretending that out data is of good quality. Eugene Coyle wrote: How do you adjust for the change in capital in telecom companies, before and after the melt-down? What's the denominator? World Com Global Crossing -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
[PEN-L:5342] re: profit rates
In response to my argument that the reason why the Opec cartel could collapse was because the labour cost of expanding production in the Gulf was substantially below the elevated market price. If this had not been the case, cheating would not have been possible. Gil replies that: If by "labour cost of expanding production" Paul means "marginal cost of production as represented by socially necessary labor time", I see the preceding statements as twice insupportable. First, the "because" clause begs a central question. Recall from my previous post the point that Roemer has demonstrated that rent and uneven exchange can be coherently explained without reference to labour values. Second, "market price exceeding labour cost" is neither necessary nor sufficient to support the implication of monopoly power (and by extension, the "possibility of cheating"). Concerning sufficiency: we know from Sraffian arguments (*without* having to buy into Sraffian economics as a paradigm, note) that market prices consistent with competitive ( and thus not collusive) behavior can yet exceed labor value (on this point also see the discussion of ground rent and interest below). Concerning necessity: Suppose the Sraffian price in an industry is less than the corresponding labor value. There is no contradiction in suggesting that firms in that industry might collude to raise that price to a level equalling labor value. The profit rate in that industry will then be higher than in other industries, but that's what monopoly power is all about. No contradiction, so no necessity. 1. I do not doubt that it may be possible to re-write Ricardo's theory of rent in terms of the phenomenal forms of value - prices - but has anything new been added to the theory in so doing. Does the non value based theory predict different results from classical political economy? In this actual example, do you doubt that the amount of labour required to expand Gulf oil production was substantially less than the amount of labour commanded by the oil commodity that it produced? If your example was supposed to show the falsity of the labour theory of value this would have to be the case. 2. Deviations of prices from values on the basis of Sraffian transformatio are at the limit of what is statistically measurable, so much so that there existence as phenomena is questionable. The fundamental hypothesis of transformation theory in all its variants - that the rate of profit should be statistically independent of the organic composition - has yet to be demonstrated. For the British economy we have presented results ( Bergamo Centenary Conference on Capital III, 1995) which indicate that it is false. Does Gil have any empirical evidence to suggest that oil in 1974 was actually selling below its value, as his argument would imply? I went on to say: "Thus the short term nature of the super rents is what would be expected from the law of value." Gil responds: This does not follow. Counterexamples: first, a positive interest rate implies that the price of the money commodity in loan capital transactions exceeds its value. I do not accept this. Price and interest are dimensionally incomparable. Price has dimension $ or Pounds etc, interest has dimension seconds^-1. An interest rate is not therefore a price of the money commodity. He continues: Positive ground rent implies that the market price of unimproved land exceeds its value, which is zero. But positive interest rates and positive ground rents have been around a long, long time, suggesting there is absolutely nothing intrinsically "short run" about rents to relatively scarce and differentially owned tradeables (like land, like oil supplied by a cartel, like usury and merchant's capital). It is unclear whether Gil is discussing absolute or differential ground rent here. Let us assume that he is refering to differential. Ricardian political economy did not attempt to explain rent as a price of a 'land commodity', it explained it as a second order effect arising from deviations in labour productivity on different plots of ground. Thus the fact that the land is unimproved is of no relevance to rent. Applied to oil, it would imply that a rent by Opec would only be sustainable so long as the marginal oilfields were ones with a much lower labour productivity. This was not the case so the price fell. There is no implication in the Ricardian theory that rents must be short term, he was well aware that the British landowning class had been living off them for centuries. What he was concerned to do was to explain that their rise during the first decade of the 19th century was due to the declining labour productivity in agriculture. His aphorism that 'rents are high because corn is dear' rather than 'corn is dear because rents are high', remains valid, and applicable to oil revenues. If Gil believes
