| Profit margins are very high compared to historic trends. Why? GS notes that costs of production have been going down. Firms move jobs from parts of the world with higher wages, to parts with lower. Firms eliminate jobs through mergers. GS notes that some commodity demand has been strong as places like China develop. Lowering costs and keeping demand strong has kept profits high, says GS. After a time, that should end. Beyond a certain point, mergers are less likely to pay off. Beyond a certain point, there aren't many jobs left to ship to low-wage regions. At the same time, global demand for commodities is weakening. Those trends should cause immediate drops in revenue, hence profit margins. As these drops take hold, the price of capital assets like factories or tankers of oil or silos of wheat should fall. This should result in job losses, wage reductions, and generally a spiral that further reduces demand, increases deflation, and shrinks profit margins. Many would argue that deflation and collapse in the corporate profit rate should already be going on, yet it hasn't been. Why? (There are good explanations but this article doesn't talk about them.) GS quipped, roughly, that if the profit margins don't fall, maybe that means capitalism is broken and doesn't work anymore. ------------------- Not in that article but just FYI: A marxian argument can be made that the real rate of profit is, on average, already negative. If so, that is a sign that capitalism is, as GS suggests, maybe self-destructing at long last. The GS quip is, I think, kind of a wry nod to the marxian view. |