When you say "what matters is profits", Doug, do you mean for valuation purposes, i.e., to investors of capital? Then shouldn't we be looking at the profit *rate* on investment, not share, which is just a share of revenue? Investors maximize rate of return capital advanced, not share of revenue. And it is profit rates that must be analyzed to understand economic growth.
If you look at what I think is the best measure of profit rate--nonfinancial corporate after tax profits plus interests payments divided by net nonfinacial nonresidential fixed capital plus inventories--however, you're likely to get a similar result. Maybe downward a bit since WWII, but unlikely to be significant. At least that's what I found, though I last did it quite a few years ago.
But one large caveat. Much of US based capital's profits comes from foreign affiliate operations not refelcted in GDP. Foreign affiliate data sucks. Still, foregn affiliate production as a share of total corporate output has been growing for about 40 years now, and it's reasonably clear that it has historically produceed higher return rates than domestic production. So total returns to US based capital may have actually been rising, perhaps a bit.
I don't know this without a lot more study of course. But I do think that trying to calculate a total return to US based capital is the (theoretically) best approach to handling the multinational interpenetration problem. US production of foreign capital would have to be subtracted fron US GDP. Global return rates of US capital would also seem to be the most consistent with the valuation problem of the US stock market you are addressing. Of course, besides data problems, it is getting increasingly hard to decipher what exactly is "US based" capital.
>>(2) How about a "disposable 'market investment' income" concept: what's
>>left over after taxes and consumption? If the marginal propensity to
>>consume declines with income and the marginal tax rate does not increase
>>enough to compensate, then a given percentage increase in income could lead
>>to a greater percentage increase in stock market investment. Of course,
>>the trend to greater inequality in income distribution would exacerbate
>>this tendency beyond what aggregate income figures would lead one to
>>predict.
>
>But the consumption share of GDP hasn't been this high since 1940. There's
>no declining marginal propensity to consume at the aggregate level over
>time. Also, indiivduals have been, on balance, heavy net sellers of
>directly held stock for decades. The buying that's driven the market in the
>1990s comes from mutual funds and corporations themselves, buying their own
>stock and that of takeover targets.
>
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>>(3) Is there truth to the rumor that because of corporate stock buybacks,
>>there is "more money chasing fewer stocks" and hence stock value inflation;
>>or is this an urban--or suburban--myth? Even if true, is it only recently
>>true or has it been a long term trend?
>
>Started in the early 80s, paused for a bit in the early 90s, and resumed in
>earnest in 1995.
>
>>(5) There are even changes in fashion: people who wouldn't have thought of
>>dabbling in stocks 20 years ago are now doing so, and not just because they
>>have the money, but because everyone is talking about it. It's like
>>personal computers, or like cars in the 1950's: a not yet mature market.
>>When it does mature, this source of growth will fade.
>
>...or might even turn into a rout. Mutual funds were net sellers of stocks
>from 1972 to 1981, and vigorous buying didn't start until 1991. So it took
>the public nearly 20 years to recover from the bear markets of the 1970s.
>By the way, mutual fund stock purchases averaged about 0.2% of GDP during
>the "go-go years" of the late 1960s and the nifty fifty mania of the early
>1970s; recent buying has been ten times that intense.
>
>Doug
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>