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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Thursday, June 23, 2011

Where Has All the Money Gone - Part 3 - Dividends

We've already seen that as GDP growth has faltered, corporate profitability has soared.   The next thing to consider is - what have corporations done with all that money.   There is a limited selection set: pay taxes, distribute as dividends, pay down debt, invest, speculate, and hold as cash.

Here is a look at dividends and taxes, through 2008, from this source which cites BEA as primary source.  They divide profit among dividends, taxes, and undistributed earnings with the three totaling 100%.  Here is a graph of these two as percentages of earnings, and it's stunning.  Taxes in blue, dividends in red.

The 1978 inflection point in dividend payout is as sharp as any I've seen in any data set.  The trend lines tell the story.  The taxation picture is not so simple.  The percentage of earnings was above 50% from 1950 to 53, than dropped to 35% in 1965, then generally rose to 43% in 1980.  It's been down, down, down since, reaching an all time low of 21.5% in 2008.   Trend lines through the data sets are not greatly different, though the recent one slants down more.

The percentage dividend payout increase is actually greater than the tax payout decrease.  The net result is a funneling of money from the government into the hands of dividend recipients - and we all know who they are.

This is not only "Starve the Beast" in action, it is a massive redistribution of wealth into the hands of those who already have the most.   Say what you will about the relative efficiencies of the private and public sectors in using resources, the public sector places money into the hands of people who will spend it and keep the economy moving.  The private sector funnels it into rent seeking.

We are SO screwed.

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