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This article is based on this paper: https://australiainstitute.org.au/wp-content/uploads/2023/02... It looks at some recent time period (roughly, during COVID) and breaks down the growth in money spent by where it goes (e.g. company profits, labor, etc.) and how much of it is due to real growth in output vs. being due to purely inflationary price hikes. It aims to show that a disproportionate amount of the excess money spent, beyond that accounted for by real growth, went to company profits. There are two problems with the approach in this article. First, its choice of time period is somewhat arbitrary. Over the course of this particular 11 quarter time period (Dec 2019 - Sep 2022), corporate (+38%) and small business (+30%) profits grew much more than labor expenditures (+17%). But just from the data presented, over the final 8 of those 11 quarters, growth in corporate profits (+22%) and labor expenditures (+18%) were comparable, and growth in small business profit (+7%) was much less. This article doesn't present the data, but what would happen if choosing a longer time scale? Quarter over quarter we see business profit growths are very volatile, sometimes growing, sometimes shrinking (negative growth). So unless you're looking at longer time horizons like decades, you can probably find runs of 8-12 quarters showing any narrative you want. The other problem is how this article tries to determine how much growth in each component was real vs. purely inflationary. The problem is it assumes the real growth of each component was the exact same (about 6.5%). After observing 38% nominal growth in corporate profits and 17% nominal growth in labor expenditures, it simply assumes the real growth in each (due to real growth in output) was the same 6.5% for each of those categories. One implication of this presumption would be that over any time period, the real output growth of corporations and the real output growth of small business would always be the exact same, percentage-wise. This is definitely a completely flawed presumption. And it's doing most of the heavy lifting in the paper's overall argument. |