>I enjoyed you article on statistcal measures of the US economy in the latest
>Monthly Review. In there, you contrast two measures of poverty, (1)
>absolute (which is used for the "official" rate), and (2) relative. As I'm
>sure you know, both are deeply flawed. As I explain below I think relative
>and absolute measures can be combined to make a better measure than either,
>and, in fact, the BLS used to publish such a measure.
>
>The relative measure--typically 50% of median income--that you suggest many
>researchers prefer is simply arbitrary; it lacks any vestige of the
>substance of the term. If I argued poverty should be defined as 62.41% of
>the median, what would be your argument against me?
I agree 50% is arbitrary. As it happens, though, the poverty rate using that level comes pretty close to one figured on a basic needs basis (the updated market-basket approach), and also comes close to what Americans tell pollsters a poverty-level income is. And it's pretty easy to do the 50% of median calculations every year, while the market basket/basic needs approach is a lot more work.
>As to the profit rates you use in the article, first a question. Does the
>profit rate for nonfinanciial corps you use in the table on p. 122 contain
>interest payments (they are not mentioned)?
No, by NIPA convention profits are after interest payments but before dividend payments.
>They should be included.
Depends on what you're looking at though. Yes, they should be included if you're looking at capital as a whole. If you're looking at the division of surplus between industry & finance, you should look at them separately. If you're looking at the funds available for investment - which, aside from their contribution to the state of animal spirits, is the reason profits are important, right? - then you should exclude interest.
This is an important point, though. Most of the recovery of profitability (measured vulgarly, by bourgeois standards) is the result of a lower interest bite. These figures tell the story (the NIPA convention is that net interest is paid by the business sector to the household sector - so it enters the accounts as a cost to business and income to households):
--------------------------------------------------------------- PROFITS EARNED AND INTEREST PAID BY THE U.S. BUSINESS SECTOR % of GDP, period averages
profits profits + interest
---------------- net ------------------
pretax posttax interest pretax posttax 1929 9.8% 8.9% 4.4% 15.1% 13.3% 1930-34 2.2% 1.2% 6.4% 9.3% 7.6% 1935-39 5.9% 5.6% 4.3% 11.3% 10.0% 1940-44 11.3% 6.7% 2.0% 13.8% 8.7% 1945-49 9.6% 7.1% 0.9% 11.4% 8.1% 1950-54 10.8% 6.4% 1.1% 12.8% 7.6% 1955-59 10.2% 6.0% 1.8% 12.2% 7.8% 1960-64 10.1% 5.6% 2.5% 12.2% 8.0% 1965-69 10.5% 5.9% 3.2% 13.0% 9.2% 1970-74 7.8% 5.2% 4.2% 11.6% 9.3% 1975-79 8.2% 6.3% 5.1% 13.9% 11.4% 1980-84 6.4% 4.3% 7.7% 13.8% 12.0% 1985-89 7.1% 3.5% 8.1% 13.9% 11.6% 1990-94 7.3% 4.4% 6.9% 13.6% 11.3% 1995-99* 10.1% 6.1% 5.7% 14.8% 11.7%
*1999 figure is first quarter annualized ---------------------------------------------------------------
>Why do you use pretax profits (I see it often in other work too, including
>marxian stuff)? Only after tax profits are capital's share, the actual
>reward to suppliers of capital.
I use pretax because I'm trying to measure long-term economic trends, and the tax code is endlessly fiddled with. But in practice the two measures tell pretty much the same story.
>All three factors I have mentioned would adjust profit rates in the same
>direction--upward. If you accounted for these things I think you would find
>that the 70s and 80s were a lot more like the 50s than you thought, and,
>perhaps, profitability in parts of the 90s may have reached or exceeded the
>postwar peak of the mid 60s.
I didn't go into this in the MR article, but I think the profitability of U.S. capital in the 1990s is quite high, and comes close to rivaling Golden Age levels.
Doug