[lbo-talk] profit-as-investment ?

[Wojtek S]

Not really.  NIPA has a different structure than SNA - the SNA starts
with the production account and the subsequent sequence of accounts
"distribute" the value added into primary incomes and then operating
surplus as I described.  NIPA uses the expenditure approach instead
(they believe they have better data on expenditures than on income or
production) and structures their accounts differently than SNA
although BEA produces the SNA comparable sequence of accounts in
addition to NIPA.  In any case, the following equity holds
Output - intermediate consumption = gross value added (production
approach) = sum of incomes i.e. employee compensation, plus rent plus
operating surplus i.e profit (income approach) = sum of final
consumption expenditure (expenditure approach.)  So save for
discrepancies due to data quality, these three approaches are
interchangeable as far as the GDP is concerned.

But this is tangential - the main point is the meaning of the phrase
"profit as investment" beyond the tautology in national accounting
systems.  This can mean increase of investment at the expense of
consumption (including luxury consumption) or at the expense of taxes
and benefits - since all these are "uses" of the profits.  The former
can be debated and I can see a benefit of it form a "left" point of
view (planned socialist economies took that approach.)  The latter,
however, is a "libertarian" i.e. Republican wolves in sheep's skin
ruse to put spin on their old mantra of cutting taxes and welfare
state.

This may illustrate what Harvey described as unholy alliance between
left leaning liberals and laissez faire conservatives.  The liberals
willy-nilly produce nice sounding ideas - such as individual rights or
reduction of luxury consumption - which are then used by the
conservatives to justify cutting government services.  In the current
political climate, the only genuine "left" demand should be steeply
progressive taxation, period.  No buts, no ifs, no apologies.  Just
tax the bastards at a confiscatory rate, say 95% of all income above
$250k, regardless of the source.  This will solve the shortage of
investment and the unemployment problems.

wojtek

On Mon, Oct 24, 2011 at 10:50 AM, Doug Henwood <dhenwood at panix.com> wrote:
>
> On Oct 24, 2011, at 9:00 AM, Wojtek S wrote:
>
>> In national accounting, operating surplus (i.e. "profit") is
>> "distributed" into several  "components"  - distributed income of
>> corporations, taxes, social benefits, final consumption, and savings,
>> the latter basically ending up as investments of one sort or another.
>
> Yeah, but you're sort of mixing the income and product sides of the NIPAs. Profit is income, investment is product (expenditure of income).
>
> I think what they mean is that profits should be used to fund investment, not luxury consumption. But who knows, since it makes no sense.
>
> Doug
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