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Monday, November 28, 2011

Corporate Net Cash Flow - Pt 2

In comments, Art suggests looking at CNCF divided by the GDP Deflator to strip out inflation, and provides a link to the relevant FRED graph.   I put trend channels on it, 'cuz - well, that's what I do.

The original post WW II (Golden Age) trend is indicated with a green channel.  The more recent trend, with significantly lower slope, is in the purple channel.  For the green channel, the orange midline (eyeballed) is included.

This begs the question: when did the trend actually change?  When you have a time series that bumps and wiggles along, it's tough to say for sure.  One could argue that the channel shift started with the the last touch to the top of the green channel in the mid 60's, since that is where I've drawn the beginning of the new channel.  But, the new channel can often be extrapolated back into the previous channel.  So, though that interpretation can be visually compelling, it isn't necessarily correct.  One way to get a handle on trend changes is to look at the standard deviation envelope, as I did here for the Federal Funds Rate.  I haven't done that here.  I don't have the time right now, and probably lack the motivation to go at it that way.

Another approach is to see where the data stops exceeding the channel midline.  I'm not going to suggest any kind of a rule, but I have noticed that stock market trends tend to fail at the midline rather than the top line of the trend channel.  The last touch of the midline occurred just before the 1980 recession.  The first local peak to fall short of the midline is the double peak in the mid 80's.  Soon after, the data line pierces the bottom of the green channel for the first time.

I'm going to suggest that the trend change is located at the midline failurein the early 1980's.  But if you would  prefer a different milestone, I'm not going to argue strenuously against it.  I would like to get your line of reasoning though.  I think mine is rational, and consistent with other economic phenomena.  What do you think?

Any way you slice it, though, policy over the last 30 (at least) years have not been as good for businesses as were the policies of the previous post-war period.  My take-away is that Republican policies of low taxation, deregulation, lax enforcement, union busting, and job outsourcing have simply been bad for the country and bad for the economy - bad in every way.  Even the corporations are doing less well in this neoliberal period than they did when Keynesian economics informed policy.

I infer from this that Republican policy is based on ideology, not on facts or data.  But, of course, this is no surprise.

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