Corporate Profit Share of GDP Reaches All-Time High Despite Sharia Socialism

Moneybox
A blog about business and economics.
Dec. 3 2012 10:19 AM

Corporate Profit Share of GDP Reaches All-Time High Despite Sharia Socialism

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Pat Garofalo notes that despite the reign of terror Barack Obama's Kenyan, anti-colonial mentality has unleashed on America's executive class, after-tax corporate profits are at an all-time high as a share of GDP.

Part of this is an underlying trend away from reliance on the corporate income tax as a source of revenue. But a big part of this is the cyclical weakness of the labor market. In a full employment economy, workers get antsy and start to threaten to quit unless you pay them more. If your business happens to be doing poorly, you probably can't afford to pay them more, and either they leave in search of better jobs and you go out of business or else you offer a raise you can't afford and you go out of business. But if your firm is doing well, then you respond to employee antsyness by sharing some of the spoils. That's why the profit share of GDP plummeted during the boom economy of the late-1990s.

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In today's economy, by contrast, outside of a handful of sectors, people are going to have a very difficult time credibly threatening to leave to take a better job elsewhere. So if sales rise, that goes into profits rather than being recycled out as wages. In theory, profits should finance investments and therefore ultimately boost economic activity. But excessively tight money at the Federal Reserve has kept the profits/savings/investment link out of equilibrium, leaving us with high unemployment, low wages, and high-but-unproductive profits.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.