About that rising tide
by digby
Houston, we really, really, really have a problem:
Newly released data on corporate profitability for 2012 show the continuation of historic levels of profitability despite excessive unemployment and stagnant wages for most workers. Specifically, the share of capital income (such as profits and interest, which are hereafter referred to as ‘profits’) in the corporate sector increased to 25.6 percent in 2012, the highest in any year since 1950-1951 and far higher than the 19.9 percent share prevailing over 1969-2007, the five business cycles preceding the financial crisis.
This historic share of income going to profits reflects historically high returns on investments, meaning more profit per dollar of assets. A higher profits share could result from an economy becoming more capital-intensive, where more assets are associated with each worker in the production of goods and services. However, the economy has become less capital-intensive since 2007 and is now only modestly more capital-intensive than it was over the preceding four decades. Profitability used to be lower when there was high unemployment, but in this downturn we have already seen the share of income going to profit exceed the high point reached in the last recovery or at any time in the last five recoveries. We now have an economy built to assure high corporate profitability even when it’s operating far below capacity and when most families and workers are faring poorly. This is further evidence that there is a remarkable disconnect between the fortunes of business and those best-off (high-income households) and the vast majority.
So, basically, they’re just churning profits among themselves and their shareholders and nothing is going to workers or the larger economy. I guess that’s capitalism at it’s best, but it’s getting harder and harder to make the argument that a rising tide lifts all boats. It looks a lot more like this:
