Saturday, March 10, 2012

Real Corporate Profits per Capita

Click to enlarge.

A picture's worth a thousand words.

Source Data:
FRB: Flow of Funds Accounts
St. Louis Fed: Population
St. Louis Fed: CPI


Fatboy said...

Slide dial to track wealth gains

Troy said...

That's annual per-capita debt take-on.

Well, non-institutionalized over-16 population, whatever that is.

Stagflationary Mark said...


Your 2nd link is fascinating and hardly unexpected. Sigh.

Stagflationary Mark said...


The beauty of non-institutional is that shows us the true economic state of our country.

The picture is not clouded by our vast military industrial complex nor our rapidly growing prison system. These two "institutions" are safely ignored.

Remember, a man behind bars is not unemployed. He's got all kinds of free time on his hands. It's almost like he's semi-retired!

Now don't you feel better? Lol, sigh.

Fatboy said...

"The picture is not clouded by our vast military industrial complex nor our rapidly growing prison system. These two "institutions" are safely ignored."

Stagflationary Mark said...


I hear that. As a society, we've fallen and we can't get up. Sigh.

Mr Slippery said...

As a society, we've fallen and we can't get up.

I think the wealthy never fell down, but seized the opportunity to put a boot on the necks of the rest of us when we fell down.

Fatboy, nice links. Fun reading.

Stagflationary Mark said...

Mr Slippery,

They didn't even have the decency to use an American boot.

December 27, 2004
Even the cowboy boot now sports 'Made in China'

Troy said...

I'm on an Everest kick now, and I thought my graph above looked familiar . . .

here is per-capita debt take-on in light blue since 1995 with the South Col route in dark blue . . .

Troy said...

This is the deficit chart above as a percent of wages.

I left my usual WTF comment at DeLong's this morning, hopefully he'll publish it.

Troy said...

ah, DeLong did clear my comment

Stagflationary Mark said...


He claims there aren't enough safe havens for the dollars that are out there.

This might sound crazy but, maybe, just maybe, we shouldn't have exported 10 trillion dollars (cumulative trade deficit adjusted for inflation since 1990) then!

Of course, in the world of economics I am a crazy person. Jeremy Siegel certainly thinks so. Still waiting on his mythical 3.5% real yields.

Forehead. Desk. Whack. Whack. Whack.

Stagflationary Mark said...

I should add that long-term TIPS yields have fallen dramatically since then, much to the ongoing dismay of Jeremy Siegel and his bogus economic theories based on hundreds of years of American history.

Perhaps he didn't get the memo. Past performance is not necessarily indicative of future returns.

Anonymous said...

I think this is more a reflection of the loss of earnings by the middle class than a confirmation of bubble. Profits were not being shared in salaries and employee benefits. It is also reflective of the Bain Capital type of raping and pillaging.

Stagflationary Mark said...


I'm of the belief that real corporate profits will return to the median again.

If corporations could automate and outsource every single job away they would. But what would happen to profits if few consumers had jobs?

I am also a believer that the "raping and pillaging" you bring up will continue. CEOs will continue to make obscene amounts of money regardless of what corporate profiits do. Picture what would happen to the typical middle class 401k plan if corporate profits were to fall dramatically again. It already happened once (recently as seen in the chart). I expect it to happen again.

Just opinions of course. Time will tell.

Anonymous said...

I don't disagree with those opinions. How strong a correlation do you think this chart would have to Stock Market Value per Capita? I don't think they would correlate at all which would be kind of curious.

Stagflationary Mark said...


How strong a correlation do you think this chart would have to Stock Market Value per Capita?

That's a great question. You would think the correlation would be very high but a casual glance suggests that's not the case.

Take the dotcom bubble. Investors paid a large premium for future profits that in many cases never materialized.

Further, the stock market performed much better than the median line would indicate that it should have throughout the 1980s and 1990s. In terms of profits, the 1980s and 1990s really weren't all that special.

That said, I'm fairly confident that investors today would panic if real corporate profits per capita were to rapidly return to the median line, just like they did the last time it happened. I don't think it is priced in. Not even close.

If the return to the median was a very slow process I think stock market investors could generally adapt to the sluggish reality though.

They say you can boil a frog alive if you turn the heat up slow enough. I think we're the frogs in Bernanke's monetary experiment.

Stagflationary Mark said...

Here's another thought.

Investors who bought stocks when real corporate profits per capita were well above the median have a pretty lousy track record. Profits didn't stay strong for long.

Just look at 1998 and 2006 on the chart. If this relationship holds, then I would argue there is plenty of stock market risk right now.

Those who bought when profits were weak in 1983 did great though. Profits didn't stay weak and investors were rewarded when they improved.

This implies that there is some correlation (as one would expect), at least at the extremes.

I believe we are at an extreme right now. Corp profits are very high and the stock market has doubled from the bottom. This is not bargain territory.

Troy said...

Latest from DeLong's comments:

Issuing IOUs to themselves is in fact the only way that the Japanese can accumulate the nominal claims necessary to finance a retirement

If one quadrillion yen of debt is really savings, shouldn't two quadrillion yen of JGBs even be more savings? Like I said, where is the point of no return reached???

Why not just pay taxes for current spending and then borrow to finance retirement? Isn't that the more responsible way to go?

I understand that current consumption has to come from current production, and that Japan's rough trade balance puts them in a much better position than the US, which has a spiraling national debt on top of a deepening trade imbalance.

We can't pay our own way in the world AND we're "saving" like the Japanese now.

If you look at the componentry and capital equipment that goes into making something like an iPhone, in many cases Japan remains at the top of the value-adding heap

Not to be a total Debbie Downer here, but this is rather dubious going forward. Even with the latest Foxconn pay-rise (to $400/mo), a Shenzhen worker can work all day for the Japanese hourly rate. Japan's age 15-20 cohort is 60% what it was just 20 years ago and is going to decline from here. Sony is bleeding billions and Japan Inc reportedly failed to be able to produce the new iPad's screen.

. . .

what is wrong with these people???

Jokers to the left of me, clowns to the right.

My thesis wrt Japan is if & when they start actually paying their gov't expenditures again land prices there are simply going to crash.

Same thesis here, too, but I don't expect any action on this front until 2020 or so.

If I had a blog I'd focus on 2026. That's our 250th birthday, and when the S is going to fully HTF, demographically.

I see Time beat me to it, LOL.

Stagflationary Mark said...


If I had a blog I'd focus on 2026. That's our 250th birthday, and when the S is going to fully HTF, demographically.

We can't focus on 2026! Haven't you heard? Long-term has been redefined to be the time between now and the start of the next recession.

Here is the "new and improved" long-term used in a sentence.

Stocks are 100% safe if held for the long-term, lol. Sigh.

Troy said...

In the Delong discussion I actually changed my mind (again) about Japan, a little, here.

It does seem that for Japan to cover its baby boom retirement will take around $4000 per working-age adult, 7% of GDP. This is less than our per-worker defense waste which is at $5000/yr (the Japanese defense waste, $50B/yr, is a rounding error on ours).

But this change of heart is kinda predicated on the idea that by buying one quadrillion yen of bonds the baby boom taxpayers have foregone consumption.

I still suspect the neoliberal argument here that "bonds are savings!" is BS, that the money wasn't actually saved at all, just laundered through the gov't back into consumption.

But as far as Japan goes, it is true that their bb is much smaller than ours, we're going to have 80 million boomers on Medicare by 2030:

Somehow that link's assertion that there will be 2.3 workers for every retiree requires 184 million workers in 2030. Um. . . .

The Japanese will have half the kiddy burden in 2030 that they had to deal with in 1950, while our kiddie burden has been increasing since 1980 and will be 50% higher than 1950 come 2030:

Fukushima-I is a major monkey wrench, but maybe I'll be able to retire in Japan after all : )

Troy said...


Stagflationary Mark said...



Have no fear! We're already have nearly 180 million workers!

39.3 Million Missing Jobs

Oops. My bad. That's just the red trend line. Never mind, lol. Sigh.

Stagflationary Mark said...

Ack. Sorry about that. I rearranged the words without double-checking. You get the idea though.