This week, we get the first US company reports on earnings for the second quarter of 2019. And it looks as though there will be the first back-to-back drop in overall earnings since the mini-recession of 2016. S&P 500 companies are expected to report an average earnings fall of 2.8 per cent in the second quarter, according to data provider FactSet, following a 0.3 per cent dip in the first three months of the year.
Much is made of the large profits that the top tech companies, the so-called FAANGS, make. But this hides the situation for the majority of US companies. Those with a market value of $300m to $2bn look set to experience a 12% drop in earnings from this time last year after a 17% drop in Q1 2019. So small to medium size American companies are suffering a sharp profits decline.
And even with the larger companies, profits are not as good as portrayed. That’s because earnings per share have been boosted by the large companies buying back their own shares (same earnings but with less shares available). Net share buybacks are expected to contribute 2.1 percentage points to EPS growth in the second quarter, according to analysts at Credit Suisse. US companies snapped up more than $1tn of their own stock last year, a record figure, driven by the Trump tax measures.
Underlying this decline in profits are higher wage costs as fuller employment forces companies to concede wage increases to keep skilled workers – it’s a different story with the less skilled outside the tech sector. Also the cost of other non-labour inputs (energy, raw materials etc) are rising. So profit margins (profits per unit of production) are falling. Analysts expect non-financial companies to report net margins of 10.8 per cent in the second quarter, down from 11.5 per cent in the year-ago quarter, according to figures cited by BofA analysts. “We have been highlighting risk to margins from rising input costs for companies that don’t have pricing power, as well as for labour-intensive companies and sectors amid rising wages, and we expect full-year net margins to contract to 11.2 per cent in 2019 ex-financials from 11.7 per cent in 2018,” they add.
The strong US dollar has also meant that US export companies are finding it more difficult to sustain sales growth. S&P 500 companies are forecast to report a 3.7 per cent increase in revenues, which would be the weakest growth since the third quarter of 2016.
Materials companies, the sector with the most sensitivity to China and the fallout from the ongoing trade war between Washington and Beijing, are expected to have had the toughest time in the second quarter. DuPont and Freeport-McMoRan are expected to be the biggest contributors to the sector’s earnings slump, according to FactSet. The sector is projected to report a 16 per cent year-on-year decline in earnings and a 14.9 per cent drop in revenues.
Most important, even the tech sector will experience an 11.9 per cent fall in earnings and a 1.1 per cent drop in revenues. This is important because it is this sector above all that has driven profits growth in American companies over the period since the Great Recession. If the FAANGS show a decline on profits, then American capital is in trouble.
As James Montier, the post-Keynesian economist at GMO, the large asset fund manager, points out, real earnings growth in the corporate sector has been below the rate of real GDP growth even after the significant boost from the financial engineering from share buybacks. According to Montier, when you dig down into the market you find that a staggering 25-30 per cent of firms are actually making a loss.
In Montier’s view, “the US is witnessing the rise of the “dual economy” — where productivity growth is reasonable in some sectors, and totally absent in others. Even in the sectors with good productivity growth, real wages are lagging (wage suppression is occurring). All the employment growth we are seeing is coming from the low productivity sectors. On top of this, the paltry gains in income that are being made are all going to the top 10%. This is not what a booming economy should feel like.”
There is a segregation of the US economy into sectors with reasonable productivity growth and those with no productivity growth at all. The single biggest driver of productivity is manufacturing, with information and wholesale trade scoring respectably as well. On the least productive side there’s transportation, accommodation, education and healthcare. What’s more, in the laggard group, zero productivity growth has gone hand in hand with zero real wage growth.
Not that this historic non-profitability has stopped investors from piling into even more loss-making opportunities. According to Montier, some 83 per cent of IPOs (new stock issues) this year have come to the market with negative earnings. He stresses:”This is a higher percentage than that seen even at the height of the tech bubble!”
So the stock market rolls on upward to more record highs, floated by the expectation of yet more cheap or near zero cost money from the Federal Reserve. But beneath the hype, the reality is that profits are falling for many US companies, and over a quarter are making loss – in effect, they are ‘zombie companies’.
It is the same story in Europe and Japan. If the profits crash materialises and is sustained through the year, a sharp fall in investment and eventually employment and spending will follow, despite the stock market boom – in effect a new recession.
29 thoughts on “A profits recession?”
A perceptive article. One good measure is to compare the performance gap between the Russel 2K and the S&p 500 which is at its highest since 2009. I am of the opinion that the shares most vulnerable to profit announcements, those most elevated, are in fact the FAANG shares. I am not too impressed with US employment data. The BLS adopts an adjustment figure based on the number of new companies registered each month. They assume that each new firm adds x workers which of course is a nonsense as most new firms are shell companies, or are created by existing firms as special vehicles. It helps explain the JOLTS figures which always show more job openings than workers looking for work.
Wow, what an indictment of the disconnect that’s been allowed to develop between the stock market and the real economy.
This is more evidence financialization is a symptom, not the cause, of falling social profit rate.
When profits are scarce, capital acts like an old, dying bear scrapping for dead salmon at the bottom of the river in the gates of winter.
Profit analysis ― another exercise in economic deception
Comment on Michael Roberts on ‘A profits recession?’*
Michael Roberts reports: “Much is made of the large profits that the top tech companies, the so-called FAANGS, make. But this hides the situation for the majority of US companies. Those with a market value of $300m to $2bn look set to experience a 12% drop in earnings from this time last year after a 17% drop in Q1 2019. So small to medium size American companies are suffering a sharp profits decline.” and “And even with the larger companies, profits are not as good as portrayed. That’s because earnings per share have been boosted by the large companies buying back their own shares (same earnings but with less shares available).” and “Underlying this decline in profits are higher wage costs as fuller employment forces companies to concede wage increases to keep skilled workers – it’s a different story with the less skilled outside the tech sector. Also the cost of other non-labour inputs (energy, raw materials etc) are rising.” and “Most important, even the tech sector will experience an 11.9 per cent fall in earnings and a 1.1 per cent drop in revenues. This is important because it is this sector above all that has driven profits growth in American companies over the period since the Great Recession. If the FAANGS show a decline on profits, then American capital is in trouble.” and “According to Montier, when you dig down into the market you find that a staggering 25-30 per cent of firms are actually making a loss.”
These factoids are seemingly objective information but the only effect of this bombardment with incoherent and mostly irrelevant details is disinformation.
The point at issue is macroeconomic profit, i.e. the sum profits and losses for the economy as a whole. In principle, this number can be calculated with the precision of two decimal places from the profit-and-loss accounts of all firms taken together under the condition, of course, that the firms’ accounting systems reliably register all transactions. The first thing to note is that the economic measurement and control systems are thoroughly corrupted as the case of Enron and the audit firm Arthur Andersen has shown.
The remarkable difference between the genuine science physics, for example, and the fake science economics is that while physicists continuously improve the precision of their measurement devices, economists have not shown much ambition to develop a consistent and reliable measurement system from the level of the individual firm upwards to National Accounting. Economists prefer to stay in the swamp where “nothing is clear and everything is possible.” (Keynes) Or, as the brain-dead Post-Keynesian motto has it: “It is better to be roughly right than precisely wrong!”
This is NOT how science works. Vague theory and vague data are the means of survival of incompetent scientists because, as Feynman put it: “Another thing I must point out is that you cannot prove a vague theory wrong.”#1 In political economics it is possible to “prove” any point with a selection of incoherent and unreliable data.
The correct route to the determination of macroeconomic profit is via macroeconomic theory.
The axiomatically correct Profit Law is given by Q=Qm+Qn with Qm=Yd+(I−Sm)+(G−T)+(X−M) Legend: Qm monetary profit/loss of the business sector, Yd distributed profit, I investment expenditure, Sm monetary saving/dissaving of the household sector, G government expenditures, T taxes, X exports, M imports. Total profit Q is the sum of monetary and nonmonetary profit/loss. Roughly speaking, monetary profit is determined by the excess of business sector investment over household sector saving, the government’s deficit, and the excess of exports over imports.
See part 2
Unfortunately you cannot use that formula because the savings figure is not an actual figure but a balancing item in accounting terms.
Note that the Marxist economist Michael Roberts does not mention the macroeconomic Profit Law once. The reason is simple: Marxian Profit Theory is false since 150+ years.#2, #3 As a result, the whole barrage of Michael Roberts’ factoids (earnings per share, buybacks, partial wage increases, profit margins, productivity, real wages, etc.) is nothing but confused blather.
However, this does not hinder Michael Roberts to push a story: “Underlying this decline in profits are higher wage costs as fuller employment forces companies to concede wage increases to keep skilled workers ― it’s a different story with the less skilled outside the tech sector. … So profit margins (profits per unit of production) are falling.”
And from this crappy argument [a fall in margins does NOT mean a fall in macroeconomic profit which is determined by the Profit Law] he derives a gloomy prophesy: “If the profits crash materialises and is sustained through the year, a sharp fall in investment and eventually employment and spending will follow, despite the stock market boom ― in effect a new recession.”
Michael Roberts delivers a fine example of how political economics works and how stupid/corrupt political economists are.
#1 And the answer is NCND ― economics after 200+ years of Glomarization
#2 Proﬁt for Marxists
#3 Ricardo and the invention of class war
Is it normal in the Universität Stuttgart to use disparaging language about professionals with whom you have intellectual disagreements? Or is the “stupidity/corruption” all yours, Egmont?
”Obviously, there is NO such thing as an antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up the market clearing price goes up according to (1) and the real wage remains unchanged according to (2).
This means, first of all, that Ricardo’s theory of profit and rent is proto-scientific garbage. This is fatal for Marx who built on Ricardo.”
Thus the modest Egmont.
Funny how nobody recognised Ricardo’s ‘garbage’ at the time, not even his opponents! Apparently they all were experiencing ‘optical illusions’ (sic).
You say: “Funny how nobody recognised Ricardo’s ‘garbage’ at the time, not even his opponents!”
Fact is that Profit Theory is provably false from Adam Smith onward to Ricardo to Marx to Keynes to Michael Roberts and jlowie.#1-#4 This is not funny but proves than economists are too stupid for science.
#1 Ricardo, too, got profit theory wrong
#2 The Profit Theory is False Since Adam Smith
#3 Capitalism, poverty, exploitation, and cross-over exploitation
#4 For more details see cross-references Profit/Distribution https://axecorg.blogspot.com/2015/03/profit-cross-references.html
Not exactly true. It was, of course, some time later, rather than at the time, but Marx describes in TOSV why Ricardo and his followers explanation of the falling rate of profit was wrong, and was actually a description of a falling rate of surplus value caused by rising wages, and higher primary product prices caused by diminishing returns, which thereby squeezes profits.
Daniel De Leon makes a similar error to Ricardo in posing this contradiction in terms of rising wages and falling profits. Marx explains the difference between portions and proportions. For example, if the working day is 10 hours, and is divided 5 hours necessary labour and 5 hours surplus labour, if then the working day is extended to 12 hours, 6 hours might go to labour, and 6 hours go to surplus value. The proportion between wages and profit remains constant, but the portion going to both rises.
What Ricardo was actually arguing is that the proportion for both cannot rise. But that does not mean either that the portion going to wages cannot rise, whilst the proportion going to wages falls. If the working day rises to 13 hours, 6 hours can go to wages, up from 5, whilst the portion going to profits rises to 7 hours. So, now although the portion going to both rises, the proportion going to profits rises, and that to wages declines.
More importantly, the proportion going to wages may decline, whilst the rate of profit, as opposed to rate of surplus value declines, and vice versa. Then there is the question of the division of profit to interest, rent, taxes etc, the question of the value of the unproductive consumption of capitalists, which affects how much is left as profit of enterprise for accumulation and so on.
Kakarot’s affirmation is still wrong, though.
Wage (variable capital) is the direct representation of value, as expressed in socially necessary labor time (remember, the origin of money is the commodity).
There’s no two kinds of wages — only variable capital. The difference between real and nominal wages arise from the historically specific conjuncture where fiat money is the dominant form of money. It’s an illusion.
Also, there’s no “market clearing price” which automatically readjusts with changes in “nominal wages”. Capitalism is not a system in equilibrium: to posit a “real wage” outside the “market” doesn’t change the circular logic behind it. The illusion this is the case arise from the fact that, in the fiat money system, inflation comes mainly from money printing.
There is most definitely a difference between real wages/standard of living, and money wages, whether money takes the form of fiat money tokens, or a money commodity.
If productivity in wage goods sectors rises, the value of wage goods, the socially necessary labour-time required for their production, falls. A given quantity of money/money commodity will, therefore, buy a grater quantity of those wage goods. If money wages remain constant, therefore, real wages/the standard of living of workers will rise.
But, money wages can fall, so that the same quantity of wage goods are bought, and so the real wage/standard of living of workers remains constant. But, with lower money wages, which reflects a smaller portion of the working-day required as necessary labour, the proportion of the working-day constituting surplus labour rises, and so money profits rise.
That is the whole basis of relative surplus value as set out by Marx. It is also the foundation of Fordism, upon which social-democracy was also based during most of the last century, because, even if money wages do not fall proportionate to the fall in the value of wage goods, so that real wages rise,each year, the money wage still falls, so that money profits rise, and the rate of surplus value rises, which is a powerful lever in raising the rate of profit.
In fact, as Marx says, in Capital I, workers do not like falling money wages, even when their real wages are rising. Or to put it another way, as Keynes said, wages are stick in a downward direction. So, the simple answer for large-scale Capital with the establishment of central banks, is that the central bank devalues the currency by printing more of it, so that the unit of account for both wages and prices is devalued. That means that money wages can rise nominally, whilst the prices of wage goods similarly do not fall proportionate to the reduction in their value. That way real wages rise, nominal wages rise due to inflation, but inflation adjusted money wages fall, resulting in inflation adjusted money profits rising.
Yes, but all the categories you list are, ontologically, value (i.e. socially necessary labor time). What you list is just the different mechanisms of distribution of value.
That’s not what Kakarot said. He postulated an “automatic” self-regulating market system (“market clearing prices”) and an outside, completely different category in the form of “real wages”. He essentially stated that the capitalist system is actually two systems: one of value (“real wages”) and one of a perfectly self-regulating, perpetually in equilibrium, market.
Worst of all, he didn’t explained how both systems “communicate” (relate to each other): he just states that your salary automatically readjusts prices and then there is a separated, completely unrelated, “real wage”, which magically dictates how much you can purchase in the free market for a living.
His theory, however, is empirically false: if you receive your salary at the end of the month, prices in the market don’t automatically adjust upwards proportionally to how much your bank account rose that day. An apple is sold for the same price, regardless if you’re poor, middle class or a millionaire. Commodities are sold by their prices of production, not by how much you earn individually.
There’s no “market clearing price”: he’s just confusing the phenomenon where the central bank prints more money with value theory. Yes, if you print more money and equally distributes it among all individual of a society, you’re basically rising all the prices proportionally: but fiat money is fictitious capital, not value. If you do a Q.E. in order to bail out big business (unequal distribution of printed money) then you’re still in the realm of fictitious capital, with the difference we’re now talking about a different distribution of value.
He uses (appropriated) Marxist terminology, but he’s not talking about the Marxist theory.
Reblogged this on Oakland Socialist and commented:
Here is an article about declining profits in the corporate world. It fits with how Karl Marx explained the contradictions of capitalism. (Note: These are tendencies, not something that happens absolutely in all times and places. We should see them like we see the tendency for rivers to flow towards the sea. If there is a mountain in the way, the river might turn and flow away from the sea for some distance. But eventually, it will turn again and flow towards the sea. Same with these contradictions):
Tendency for the rate of profit to fall: This seems contradictory in the era of massive accumulation of wealth, but it’s really not. It refers mainly to the profitability for companies that actually produce something, not profitability from pure speculation. It works like this: The capitalist has two types of investment or capital – “constant” capital and “variable” capital. The former is their investment in machinery, a building, etc. The latter is their investment in wages. But it’s only the investment in wages that really leads to profits. That sounds crazy, but the reality is that the machinery wears out over time. As it does so, it simply imparts part of its value to the product it produces; it doesn’t actually add value. But we are different. What happens is that the worker is more or less paid for what she or he requires to live and produce the next generation of little wage slaves. The rest goes to profits. So, the more workers that are replaced by machinery (automation), the greater percentage of the capitalist’s investment goes to “constant” capital, which doesn’t produce profits. It’s an ever decreasing percentage of his or her investment that can produce profits – which is exactly why the capitalist has to squeeze us all the harder.
Note: We might think that investing in automation could increase their profits, and so it might for a time. But then the competition also invests in the same or even better automation and they all have to cut their prices because there’s less labor going into their product.
Tendency towards overproduction: What this means is simply that workers cannot buy back all they produce, because if they could, there would be nothing left for the profits of the capitalists. During the post WW II economic boom, they tried to get around this by deficit spending – pumping more money into the economy. This increased the amount of dollars in circulation in relation to the amount of goods being produced (the GDP) and as a result inflation started to take off.
This tendency works hand-in-hand with the tendency for the rate of profit to fall. If wages are cut to boost profits, that also cuts into the markets for the capitalists. On the other side, if wages go up, then this cuts profits even further. In fact, the attached article explains that the recent boost in wages has had exactly that effect.
(Note: Michael Roberts, the economist who wrote this article, doesn’t believe there is such a tendency, and some other Marxist economists don’t either. I do.)
The existence of the nation-states in the era of world production and world politics: The history of capitalism is the history of the rise of the nation-states. They cannot escape that. They need the nation states to keep workers thinking of themselves as “Americans” or “French” or “Iranians” rather than as workers. They also need strong national governments to keep workers in line. But the nation states are in sharp conflict with the fact of a global economy. For example, when a capitalist wants to invest in a foreign country, they have to keep in mind the relative values of the different currencies. A currency swing could turn a profit into a loss. Same when he or she enters into a contract to import or export a product. There is also the competing interests of the different national capitalists. It’s these interests that sent the world into two devastating world wars, for example. In Europe, the capitalists tried to get around this by forming the European Union. Now, it is exactly the crisis of global capitalism that is tending to lead the EU to collapse.
So, overall, the crisis of capitalism involves more than just the tendency for the rate of profit to fall, but that is an extremely important part of it all. Here’s Michael Roberts on that aspect. Workers beware: The job at stake may be your own!
“The capitalist has two types of investment or capital – “constant” capital and “variable” capital. The former is their investment in machinery, a building, etc.”
This is misleading. The constant capital for firms producing things comprises mostly of their circulating constant capital, i.e. raw materials, not the fixed capital of machinery etc., and it is that which is fundamental to Marx’s law of a falling rate of profit.
Marx explains the law like this. Firms introduce new machinery/fixed capital to raise their productivity. They seek to raise productivity to undercut their competitors. A main driver for this is when labour is in short supply, which pushes up wages.
As firms introduce new machinery to raise productivity, this raised productivity means that each unit of labour now processes more raw material than it did previously, so the proportion of material, circulating constant capital, as a proportion of the total value of output constantly rises, relative to the new value created by labour in the production process, both that which goes to paid labour, and that which goes to profits. So, the rate of profit tends to fall.
But, he sets out, for example, in Capital III, Chapter 6, that it is not only the proportion of labour that falls in the value of final output. The proportion attributable to fixed capital also falls. It dies so for several reasons. Firstly, the new labour saving machine is also machine saving. One new machine saves two or more older machines. Although the new machine might be – but often isn’t – absolutely more expensive than one of the older machines, it is relatively cheaper, precisely because it replaces several of those machines. Secondly, the new machine processes far more material, so the amount it transfers in wear and tear to each unit of output is proportionately smaller. Thirdly, the same technological developments that make the new machine possible raise productivity so that it becomes cheaper to produce machines themselves. Think of a new PC compared to an old mainframe and so on.
But, in TOSV, Chapter 21 Marx sets out why this tendency for the rate of profit to fall is in fact much less than it is said to be, in his words. For one thing the rises in productivity mean that raw materials themselves also become much cheaper, new materials are developed that are both cheaper and more effective, means of reducing waste, or utilising what was waste as bi-products and so on are developed. Take the use of coal in a steam engine, for instance. Once better engineering made possible high pressure boilers, and also introduced systems using multiple condensors, not only did the steam engine become cheaper, but a ton of coal was able to produce ten or more times as much energy.
But, most importantly, the law is only significant in economies where the production of material commodities is dominant, because its only in those economies where this relation between rising productivity, and an increased proportion of raw material/constant capital to variable-capital exists.
In economies based upon services that no longer applies, because the labour does not process raw material. Given that today’s economies are 80% based upon services, and manufacturing represents only a small proportion of new value and surplus value production, the law of the tendency for the rate of profit to fall has little relevance in that regard. Its main importance as Marx discusses in Capital is in respect of the allocation of capital between sectors of the economy. In other words, the annual rate of profit, which is the basis for calculating the average rate of profit, is higher in those spheres where the organic composition of capital is lowest, or where the rate of turnover of capital is highest. Capital will thereby accumulate faster in those sectors than in sectors where the organic composition of capital is high, or where the rate of turnover of capital is low.
Mr Karakot i don’t think you have ever cared to understand what marx wrote. for instance he never even implied that psychology rules profits and capitalism or that we have a zero profit economy as you mention in your essay. so you’d rather not refer to his theory, just speak of your own theories and try to explain them better. cause, really, you haven’t explained anything in these posts. what is the meaning of posting if you do not make sense and just throw 3 “paper” links? or is it just insulting sone who doesn’t share your views? (business sector? that includes banks, bonds, speculation too i suppose? and you expect to predict something of a crisis ever? government expenditure added to the profits? you can do better than that…)
You say: “Mr Karakot i don’t think you have ever cared to understand what marx wrote.”
It is pretty obvious that you don’t even known the difference between thinking and brain-dead blathering.
The point at issue is macroeconomic profit and whether there is a profit recession. In order to answer the question you must know what profit is. If you “think” the macroeconomic Profit Law is false you are free to logically/empirically refute it.
Marx is a side issue, he is only one of many who did not know what profit is.#1, #2
#1 Karl Marx, fake scientist
#2 Marx’s bicentennial ― nothing to discuss, nothing to celebrate
Your views cannot go unchallenged despite them being as thin as graphene. Firstly the origin of the system of national accounts from which you draw your categories is based on volume 2 of Das Capital. There Marx compiled the first input output tables when he described simple and expanded reproduction. There he proved how the value of the final sale equaled the non duplicated value absorbed in producing that product. Further he showed this value to be equal to the Labour newly added plus materials/power consumed and depreciation. This was crucial because the value of final sales is the corner stone of the national accounts used to derive GDP, national income and it’s divisions. And by the way this knowledge came to the West via two Russian emigres Leontiev and Kutznet.
From the little I have read of your work it suffers from two fatal flaws. You are clueless about Marx and grossly ignorant of the origin and substance of the categories you deploy.
You say: “Firstly the origin of the system of national accounts from which you draw your categories is based on volume 2 of Das Capital. There Marx compiled the first input output tables when he described simple and expanded reproduction.”
Take notice that input-output tables deal with real magnitudes while national accounting deals with nominal magnitudes. These are quite different things as every economist should know.
Marx proved nothing except that he was an incompetent scientist who NEVER understood what profit is and how the economy works.#1, #2, #3, #4 The same holds for his followers to this day. The proof is in Michael Roberts profit analysis and your confusion about input-output and national accounting.
#1 Dear idiots, Marx got profit and exploitation wrong
#2 If we only had classes
#3 The thing with profit and exploitation
#4 Socialism and scientific incompetence
“Further he showed this value to be equal to the Labour newly added plus materials/power consumed and depreciation.”
Unless you mean by this the labour newly added only in Department II, this is wrong. What Marx demonstrates is that the value of output of Department II – assuming simple reproduction – is equal only to the total newly added labour, i,e Department I (v = s), plus Department II (v + s), because Department II c, is equal to Department I (v + s).
As Marx points out, Adam Smith’s “absurd dogma” that the value of commodities is resolvable into revenues (wages, profits, rent, interest and taxes) is also applied to the national output, and this absurd dogma was continued, as Marx says, by economists after Smith. It is what lies behind the current equation of National Income and National Output, as also used by Keynesian economists.
But National Income cannot equal National Output for precisely the reason that Marx sets out, i.e. the value of commodities, and therefore also national output cannot be resolved entirely into revenues. The value of commodities, and of national output is equal to c + v + s, not just v + s.
The value of final output as measured by GDP is equal to revenues/National income, because it is only equal to the consumption fund, as Marx sets out in Capital III. It is equal to Department I (v + s), which is exchanged with Department II (c), and with Department II (v + s), which processes those means of production. But, national output also included Department I (c) which is not exchanged with Department II, and thereby forms a revenue for no one, i.e. it comprises no element of value of added labour, no value that goes to wages, profits, rent, interest or taxes.
That is why all measures of the rate of profit based on GDP or National Income data, are necessarily wrong from the beginning.
Boffy how many times do I have to remind you GDP = National Income + consumption of capital. Or in the words of Marx: GDP = c+v+s and National Income or Net National Product = c+v. GDP is not equal to National income. GVA is not equal to National Income. You really don’t understand the SNA. Leontiev and Kutznet’s did which is why the SNA gives rough approximations in the aggregate and why the pair were the greatest economists of the 20th century.
You say: “As Marx points out, Adam Smith’s ‘absurd dogma’ that the value of commodities is resolvable into revenues (wages, profits, rent, interest and taxes) is also applied to the national output, and this absurd dogma was continued, as Marx says, by economists after Smith. It is what lies behind the current equation of National Income and National Output, as also used by Keynesian economists.”
Marx’s scheme of simple/expanded reproduction is no less absurd. Here is the macroeconomic Profit Law with increasing complexity.
(1) Qm=−Sm in the elementary production-consumption economy (= simple reproduction),
(2) Qm=I−Sm in the elementary investment economy (= expanded reproduction)
(3) Qm=Yd+I−Sm in the investment economy with profit distribution,
(4) Qm=Yd+I−Sm+(G−T)+(X−M) in the general case with government in an open economy.
All equations consist of measurable variables and are, as a matter of principle, testable with the precision of two decimal places. This settles the matter.
It is time for you and Michael Roberts to get out of economics because you are too stupid for the elementary mathematics that underlies macroeconomics. Marxians are scientifically incompetent just like non-Marxians and all together are only employable as clowns and useful idiots in the political Circus Maximus.
If I am so stupid why do read my posts and comment on them at length? Why not try your expertise and knowledge with more worthy subjects and give this blog a rest?
Guy’s a troll, Michael. Ban him
Apparently, he writes a lot:
Wages are the price of commodified skills. If the value of a skill declines, that means that the socially necessary labour time (snlt) it takes to produce that skill is less i.e. the productivity of educators has increased perhaps through the easier uptake of those skills brought about through automaton. Real wages are tied to snlt embodied in skills. Real wages might decline as output per hour of labour (productivity) increases. In any event, productivity increases decrease the value of goods and services, but, as history has shown with FIRE, the prices of those goods and services can be politically manipulated to rise and perhaps to burst into a precipitous decline to more accurately reflect their value.
At any given level of employment L, the wage income YW that is generated in the
consolidated business sector follows by multiplication with the (average) wage
rate W. On the real side output follows by multiplication with the productivity.
Finally, the price follows as the dependent variable under the conditions of budget
balancing, i.e. C = YW , and market clearing, i.e. X = O. Note that the ray in
the southeastern quadrant is not a linear production function; the ray tracks any
underlying production function. The same holds for the distribution of wage incomes
in the southwestern quadrant. All those details are not needed at the moment.
It can be directly read off from the 4-quadrant scheme that the real wage W
equal to the productivity R, that is, labor gets the whole product. If the wage rate is
lowered, the market clearing price falls. If the number of working hours is increased
the price remains constant, provided productivity does not change. If productivity
decreases the price rises. In any case, labor gets the whole product and profit is zero,
or in Walras’s terms, there is ‘ni bénéfice ni perte’, neither profit nor loss.
The consensus to date has been that it is mathematically impossible for
capitalists in the aggregate to make profits. (Keen, 2010, p. 2)
Marx, too, encountered the zero profit economy.
Our capitalist stares in astonishment. The value of the product is exactly
equal to the value of the capital advanced. The value so advanced has
not expanded, no surplus-value has been created, and consequently
money has not been converted into capital. (Marx, 1906, III.VII.43)
The weak spot in the otherwise impeccable zero-profit argument is that aggregate
profit has been greater than zero for most of the time in most of the known market
economies up to the present. Clearly, Figure 1 tells not all that is interesting about
Anyone interested can follow his arguments on why Marx knew virtually nothing about how profit is generated might want to look here: https://poseidon01.ssrn.com/delivery.php?ID=665084071084092110085083089070093074057022040093022044117127114105125089093080066074107049044100122125039010076002122090117018026027063013080112094093066124096106076042065010074119086067024078108121067115026093010076111012127005068120073123008127004001&EXT=pdf
I have given the link to Proﬁt for Marxists already in my first post, see #2. So, anyone interested in “why Marx knew virtually nothing about how profit is generated” has already read it.
See also Capitalism, poverty, exploitation, and cross-over exploitation
As in all countries in the core capitalist zone, the bottom 40% of income earners in Canada receive only a measly share of the national income.
As in all countries of the capitalist core zone, the income share of the bottom 40% in Canada has fallen since 1975 – albeit less strongly than in Germany, for example.
Wal Buchenberg, Hannover