Monday, 3 February 2014

US rate of profit, 1948-2012

The charts below show some measures of the rate of profit for US corporations from 1948 to 2012. There are many ways to construct such measures from official data, but, as noted in my review of Lapavitsas's book on financialisation (6 January on this blog), none of them can expect to come very close to a Marxist view of the rate of profit. Apart from the usual issues of whether the data are accurate (and even if they measured what was necessary, the data are often revised), the domestic profits recorded by US corporations will also reflect the surplus value accrued from trade links with other countries. Profits from foreign investment can, in principle, be deducted from total profits, as is done here. However, that still leaves out a key source of profit for companies like Apple and Wal-Mart that get their commodities produced in poor countries.

Given such limitations, I do not think that it makes much sense to spend a lot of time making amendments to the available data for profitability and I have chosen a relatively simple measure of the profit rate. This is the total domestic US corporate profits in a year divided by the average of domestic fixed assets at the start and end of the year. In addition, I have shown the pre-tax and post-tax rate of profit, and also given measures of fixed assets on a current cost and on a historical cost basis. The pre-tax profit rate is higher than the post-tax measure, because even the US government has not managed to make taxes negative for corporations. The historical cost (HC) of fixed assets is lower than the current cost (CC) measure, given inflation, so the rate of profit measured against HC fixed assets will be higher than the rate of profit measured against CC fixed assets. This is dull stuff, but these things obviously have an impact on the profitability curve.

Here are two charts showing the four measures:

Data sources: US Bureau of Economic Analysis, National Income and Product Accounts, Tables 6.17 and 6.19 line 2. BEA Fixed Assets Accounts, Tables 6.1 and 6.3 line 2.

In the case of each measure, there was some rise into the mid-1990s from the post-1945 low point seen in the early 1980s. But by 2000-2001 the rate of profit was back down again close to the post-war lows. This decline preceded the 9/11 attacks, although it was exacerbated by them. There was then a sharp rise in recorded profitability in the next five years up to 2006. This rise was helped by much lower interest rates and a credit-fuelled rise in spending, capped by an accumulation of toxic assets that were not recognised as being a problem. The crisis from 2007-08 pushed profits lower, but the rate of profit measures increased again into 2012. This latter rise was largely on the back of higher profits for manufacturing and for the finance sector. In the former case, a further reduction in financing costs will have helped, while, for the latter, wider lending margins and the Fed's generosity in buying toxic assets have been a big boost. Far from the higher 2012 profit rates signalling that the world (or even the US) is OK, they reflect an economy that still requires a zero rate policy from the central bank and which is still engulfed in debt.

Tony Norfield, 3 February 2014


Anonymous said...

If you were to do 1956 to 2012, it would show a slight secular increase in the rate of profit?

The chart would also seem to indicate that profit spikes are met with profit collapses!

So the conclusion, capitalism is pretty unstable? Take it or leave it?

Steve H

Tony Norfield said...

Hi Steve,

It may look like a possibly rising trend of profitability from 1956-2012, but the stats argue differently, even though the period starts from a relatively low point.

For all four measures, the time trend of the profit rate is negative, and in 2 of the 4 cases with a significant coefficient (the other two were with t values of -1.7, so not far from the 95% level).

The before-tax trend is more negative, given the impact of tax cuts on the after-tax trend.

The profit rate is volatile, but note that it has taken exceptional events/policies to boost reported corporate profits in the past dozen years, and there remains a huge amount of debt that these profits do not take account of.