Mainstream economists, famous for their inability to agree on basic questions of fact and their inability to predict even the most obvious crises percolating just over the horizon, are sending their usual mixed messages about the state of the American economy. Some say the economy has finally turned the corner, and that better days are ahead. Others see a weak economy hounded by low growth, with little hope for the millions of unemployed for many years to come.
But as the stock market reminds us every day, the economy as it affects ordinary working Americans is quite different from the economy of major corporations. One economy is driven by wages, the other by profits. And it looks like the latter is doing pretty well: these days, corporations in the US are making some serious dough. In fact, the profit margins of US corporations are now the highest on record, as you can see in the following chart:
This chart has been the focus of much debate over the last week, focused largely on the question of when corporate profits will revert to the historical mean. But a more interesting question is probably how this record came to be set in the first place, given the still painful hangover of a massive financial crisis.
That’s not an easy question to answer, but here’s a clue: the chart below shows wages paid to workers as a percentage of gross domestic product — that is, how much of the economic pie goes to people who work for a living. Notice anything?
Illustration from thethreesisters on Flickr, via Creative Commons.
Top chart from James Montier at GMO.
Bottom chart from the Federal Reserve Bank of St. Louis.
