Sunday, June 5, 2011

A comment with graphs

This is a response to Jazzbumpa's comment on my previous post. Jazz writes

What this suggests is that the last decade really is extraordinary. Putting graph 1 on a log scale would be interesting.

Good idea, Jazz.

The Google Docs display of that graph, using the FRED CP data:

Graph #1

Same data, log scale:

Graph #2

Some wiggles, but pretty much a straight line since the mid-1950s. Subject to interpretation, of course. But I'd say that the last decade is not extraordinary. It looks extraordinary on Graph #1, but it is just part of the exponential curve. Similar to what I have shown elsewhere for the growth of debt.

Jazz writes

But the truth is that Corporate profits really have soared while the rest of us have suffered. Indeed, there is a huge shift, starting in the mid 80's, of all times. And there is your great stagnation.

I agree. This graph (the Adam Smith version) --

Graph #3

-- scheduled to post on June 8, shows a distinct trend-change in 1982 when (one could say) supply-side policies began to take effect. A huge shift, starting in 1982 specifically.

A huge shift, from the factor-cost "wages" to the factor-cost "profit". Absolutely. And as a result we have "the slow, steady decline in median income" as you say, and the uptrend of profits visible here.

Jazz writes

But your second graph is not garbage. The context is relevant. It's just that with any time series ratio, you need to be very careful about what conclusions you draw.

The reference is to this graph, number 2 in the previous post:

Graph #4

The Adam Smith quote at the end of the previous post is important, I think, because it tells us (or, me) about how people who receive profit gauge profit. And that is far more significant, I think, than how people who don't receive profit gauge it.

Meanwhile, the graph of profit relative to GDP suffers from the sort of denominator problems that you have pointed out to me on more than one occasion.

Jazz writes

The next thing to look at might be how all that profit is distributed among sectors.

It's in the works. Not next, but it's in the works.

1 comment:

Jazzbumpa said...

Art -

You inspire me.

The last decade is absolutely extraordinary.

And I'd say the Adam Smith graph goes a long way towards validating the CP/GDP graph. Smith has declining peaks in the golden age, while CP/GDP has level peaks. Other than that, the shapes are very similar.

What this suggests to me is that labor was receiving a large share of the wealth before 1983,and despite that fact, profits didn't suffer as a portion of robustly growing GDP.

You see profits take a nose dive in every recession. Except for the all-time low in the mid 80's. What's up with that?