Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Wednesday, June 15, 2011

Where has all the Money Gone, Part 1.5.2 - A More Even Closererer Look at Corporate Profits - Finance Sector

In Part 1.5.1, I said this:

I wondered it there was a break point around 1980.  I don't think there was. 

I was wrong.

To make a point about the increase in the Finance share of corporate profits over the post WW II period, I took a 13 year moving average of the data.   This is what it looks like.

6/16 UpdateUnderlying quarterly data is in the thin purple line. Long averages are in green, through 1985, and red from 1986 on.   Upon rereading, I see how I could have caused some confusion, without this information.    I want to be clear, not confusing.  Sorry that this post does not meet that standard.

A long average filters out the hash, and reveals the underlying trend.  Or, I should say, trends, since there are two, with a sharp break at the beginning of 1986.  A trend line on the data through  '85 is a near-perfect match to the average line, which barely even wiggles.  We see a bit more action in the post-85 segment, but the new trend is still very clear, indeed.  The earlier trend line in green is now the lower channel support line. 

Well, as I always say, policy matters.  Was there anything that changed in the 80's that might have facilitated this shift?

The times of those last three peaks in the quarterly data are Q1-86; Q1- 91; and Q3-01.


The Arthurian said...

I've no good memory for the specifics of what might have changed. But I know that when the financial-sector share of corporate profits increased, the productive-sector share fell.

Investors therefore found the financial sector more appealing, which contributed to the growth of finance.

Meanwhile, the declining share in the productive sector drew money *away* from that sector, which contributed to the growth of unemployment.

Jazzbumpa said...

I had my tongue tucked way high with that question.

Reaganomics is what happened. Lowered taxes, reduced regulation. Just the beginning of what the Rethugs want to do to us now, only deeper, harder, and sharper.


The Arthurian said...

Oh, you were looking for the obvious answer! :)

"deeper, harder, and sharper"

Yeah, and they refuse to understand that the need for "deeper, harder, and sharper" is evidence their plan has failed.

Steve Roth said...


I assume this is for 13-year periods *ending* 1947, 1948, etc?

So the leftmost point of the purple line is the average for 1934-46?

Steve Roth said...

Wait never mind I didn't look closely.

Rex said...

Bradley-Gephardt? Lowered the top rate to 28% from 50%, along with other changes.