Brad DeLong's Semi-Daily Journal (2004)

And real profits (as compared to reported profits) are what?

That chart makes me want to fashion a red flag and start digging up cobblestones. . .

After tax profits in 2001:Q4 got a big boost from the "Job Creation and Working Training Act of 2002," which allowed accelerated depreciation. The effect was to raise after-tax profits, but to lower profits on a tax accounting basis.

Also, insurance companies suffered roughly a $40 billion loss in Q3 due to 9/11 benefit liabilties. This dropped out in Q4. (NIPA profits show such a loss as it occurs, not when paid out.) Also, airline profits in Q4 were boosted by a $20 billion subsidy passed by Congress after 9/11.

The first question is to see how tax rate changes have affected this measure.

By maybe $40 billion per year of a $180 billion per year jump in after-tax corporate profits between 2001:III and 2001:IV

This is total profits for the whole corporate sector? If not, then maybe further consolidation is accelerating it.

Where does this chart come from? I'm surprised by this chart and want to look into it more.

Thanks.

I'm more interested in profit margin than I am in absolute profits. If I recall, profit margins have been falling steadily over the long term since the 1950s when it was still double-digits (now it ranges 3-8% and headed downward). There is a slide at Comstock Funds that shows this (see slide 9):

http://comstockfunds.com/html/moneyshow/ComstockMoneyShow_files/frame.htm

Bush's/Congress' fiscal policies and in particular their tax cuts clearly helped corporate profits - we could debate forever the % impact - but it is for sure statistically significant.

1st. individuals contributing their labor to the work force care about after-tax income. the big tax cuts have helped keep pre-tax wage and salary expenses lower for corporations while after-tax wages and salaries have risen sharply. This has helped keep inflation in check and helped feed the productivity boom which has helped the profit boom.

2nd. The incrase in after-tax income due to tax cuts has also supported demand/consumption.

3rd. unincorporated business are taxed at the highest personal tax rate which has increased after-tax income at all profitable unincorporated businesses (i am not sure if they are included in those stats or not) but at a minimum this has supported business consumption/demand/investment by unincorporated business.

4th. the dividend and capital gains taxes have helped support/increase the stock market which has improved corporate pension funds, insurance funds, the securities industry, asset management companies, etc as well as supported demand/consumption through positive wealth effects.

5th. helped reawaken animal spririts in general

6th. what matt said above regarding accelerated depreciation

and obsiously the govt deficit spending has kept up demand/consumption which has further helped corporate profits - and interest rates have remained at all time lows so corporations have been able to refinance all their debt at record low rates which has drastically helped profits. obviously these last 2 are not directly tied to the tax cuts but they could have been the countervailing forces that would have wiped out the primary effects if govt spending had been cut to compensate for the tax cuts or if interest rates had risen because of rising deficits. fortunately, they have only helped rather than hurt.

In particular, I bet the huge refinancing of corporate debt at lower rates makes up a decent size chunk of the increase in corp profits (the corporate bond market has been extraordinarily hot for 2 years now)

What does a chart of profits as a percentage of GDP look like? Obviously, it won't change the picture of the last two years, but over the decade what does the trend look like?

"That chart makes me want to fashion a red flag and start digging up cobblestones. . . "

Yes, well charts that don't scale to anything and don't even adjust dollars for inflation can do that, by making down look like up. For instance, I bet you thought from looking at it that profits are higher there at the end in 2003 than they were in 1996 and 1997, as a share of national income.

This is a nice example of how a chart that's hardly good for anything else can be used to incite an emotional response.

"Where does this chart come from? I'm surprised by this chart and want to look into it more."

For all kinds of economics charts go ask Fred: http://research.stlouisfed.org/fred2/
Or you can get the original data from the Bureau of Economic Analysis
http://www.bea.doc.gov/
and make your own with Excel.

"What does a chart of profits as a percentage of GDP look like?"

As a pct of National Income corporate profits hit the high plateau during the eight Clinton years averaging 10.4%, compared to 8.6% in the twelve Republican presidential years before and a profit recession after.

In fact corporate profits during the 1994-9 stretch were the highest of any such period since 1970, which is as far back as I looked.

Of course back then Democrats were using charts of profit levels to justify bragging rather than to incite cobblestone throwers.

>>Yes, well charts that don't scale to anything and don't even adjust dollars for inflation can do that, by making down look like up. For instance, I bet you thought from looking at it that profits are higher there at the end in 2003 than they were in 1996 and 1997, as a share of national income.<<

Well, they are (though not by much). See http://www.j-bradford-delong.net/movable_type/2004_archives/000116.html

“It's a really good time to be an American corporation. “

How much investment did it take to produce those profits? Moreover I suspect that lurking behind this statement is the idea that “it’s too good for them” and that American corporations should be less profitable.

That's awesome. Profits are good. We should encourage corporations to make even more profits. In fact, I have the utmost respect for firms that have the highest profits. Capitalists are in favor of killing off those companies that can't deliver an economic profit.

God bless America, capitalism and profits. Let's go for 10!

Matt:

Methinks this chart's source data is corporate profits after-tax adjusted for inventory and capital consumption adjustments, therefore it would be adjusted for depreciation and that would not explain any of the increase.

monte

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