Sunday, June 5, 2011

Exploring two contexts for profit

In the previous post, Graph #3 shows corporate profits relative to the difference between gross and net corporate income. Graph #4 shows profits relative to GDP.

I want to compare the two.

The corporate income numbers are annual. So I converted everything else from quarterly to annual for this comparison. For that reason, the graphs in this post may look a bit different from comparable graphs in my earlier posts.

Also, the comparable data runs from 1947 to 2007, a later start and earlier end than in the other graphs.

Anyway, here's the comparison:

The blue shows profit relative to corporate spending, or the difference between gross and net income, or what I call the Adam Smith version.

The red shows profit relative to GDP.

The two lines are closer than I expected. And the two tend to move up and down together, for the most part. Again, not what I expected.

Before the mid-1960s, the blue (Adam Smith) numbers are generally higher. After the mid-1960s, the red (per GDP) numbers are generally higher. I think this might be significant: Profits, as profit-makers measure them, have been relatively low since the mid- latter 1960s.

On the other hand, profits are a larger portion of GDP since the mid-'60s. And that means other income -- wages, for example -- has been a lower portion of GDP for a long time.

But is that true? I am not sure.

On the other hand, the numerator is the same for both the red and blue lines. And that means corporate spending was relatively small until 1965, and relatively large since 1965. Conversely, GDP was relatively large until 1965, and relatively small since. Now I'm thinking I should compare corporate spending and GDP directly at some point.

No final analysis. Just observations and evaluations and figuring-out.

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