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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Sunday, November 27, 2011

Corprate Net Cash Flow

Connecting peak to peak a la Krugman, since 2005, CNCF seems to have established a new trend line (red) at slightly lower slope than the trend line from the late 90's (blue.)  This, in turn, has a lower slope than the previous trend line (green) from about 1985. 




You'll have to believe me when I tell you a few historical facts (or go to FRED and look them up yourself.)  First, the green line slope is virtually identical to that from 1950 through the early 1970's.  Second, the slope from the late 70's through '85 was greater than the green line slope (you can see that in this chart if you look to the left.)  Third, the slope through the mid 70's was greater still.

Restated, the growth of CNCF has never been slower in the post WW II period than it is right now.  Yet Karl Smith is excited about current growth, is making optimistic predictions about 2012, and expects inflation.

My comment:

What they miss is that labor’s share of national income will fall and probably at a slightly faster pace than before the recession.

I am one who so objects, and I certainly haven’t missed it.

http://jazzbumpa.blogspot.com/2011/06/labors-share.html

How can increasing corporate profits, per se, be inflationary? This just enables even greater wealth disparity. A falling labor share means most people get squeezed out of buying discretionary items. Hence, a continuing (and increasing?) aggregate demand shortfall,

I’d love to see a detailed explanation of how inflation can increase in this scenario.

BTW – put your graph on a log scale and you’ll see your CNCF/GDP ratio climbing during recessions, and very dramatically during this last one. Such was not usually the case before about 

1970 (recession ca. 1955 is the exception.)

http://research.stlouisfed.org/fredgraph.png?g=3yb

Also, beware the denominator. Progressively lower GDP growth since ca. 1980 skews your ratio upward.

http://research.stlouisfed.org/fredgraph.png?g=3yd

JzB

Karl and I can't both have it right. Which of us do you think is wrong, and why?

4 comments:

The Arthurian said...

Obviously Karl is wrong!

Hey, what is "Corporate net cash flow"? Your graph is log, so I cannot interpret the y-axis values. But Karl's is not, and he has CNCF at a max of about 12% of GDP.

Corporate spending is like three times GDP but I suppose that is gross, not net.

Jazzbumpa said...

You wouldn't be humoring me, would you?

Cashflow is basically revenues minus real expenses, excluding accounting fictions like amortizations, etc. It's a far less cooked number than earnings, which a clever accountant can vary by wide margins in either direction, depending on your immediate preferences.

Here's the basic FRED graph of CNCF that you can manipulate at your leisure.

http://research.stlouisfed.org/fred2/series/CNCF

Karl's 12% is a denominator driven number.

Cheers!
JzB

The Arthurian said...

Okay, good definition. Once again, it occurs to me that a peak or rapid increase in the late 1970s probably has something to do with inflation.

I took and divided CNCF by the GDP deflator to strip inflation out of the trend... CNCF/GDPDEF.
Now the rapid increase seems to come later.

The Arthurian said...

...or perhaps earlier when you log the vertical axis.