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The Rise of Corporate Profits in the Time of Covid
No full textSUMMARY
In recent months, Canadians have seen significant price increases in everyday goods. New analysis shows that along with prices increasing, so too have corporate profit margins, which is not a coincidence. In 2021, when Canada was in the middle of the covid pandemic, large corporations in all major sectors of the economy saw their profit margins substantially exceed 20 year averages, with many hitting record levels. The Finance, Insurance & Real Estate Sector (FIRE), which already had the highest sectoral profit margin over the last two decades, also had the biggest increase in 2021—reaching a profit margin of 22%.
As the federal government considers its 2022 budget, it is critically important that both rising profit margins and all-time lows in corporate taxation be addressed. Our previous research shows that in 2021, corporations enjoyed their lowest ever effective income tax rate of 16.6%, which contributed to the sharp rise in corporate profit.
However, the key contributor to the jump in corporate profits is increasing prices. This report indicates that in 2021 corporations brought in unprecedented levels of profit largely by increasing what they charge for their goods and services. This allowed corporations to almost double profit margins in 2021 to 16%, compared to the 9% average for 2002 to 2019.
When corporations choose to raise their prices in order to boost their profit margins, they drive up inflation. While much emphasis is put on inflation being caused by government spending, the corporate pursuit of higher profits through price increases is a much simpler explanation, though more poorly understood and less discussed.
This misunderstanding plays into the hands of individuals, organizations and lobby groups pushing an austerity agenda. Such an agenda would have a range of negative repercussions on the Canadian economy, while benefiting only the very rich.
The more Canadians understand what causes prices to rise, the better we can respond in a manner that helps the overall economy, as opposed to enriching only a fortunate few.
Beyond driving inflation and reducing the affordability of goods and services, higher corporate profit margins also contribute to rising inequality. The overwhelming majority of corporate owners are part of the 1% and they receive the majority of capital income.
Fortunately, a number of reasonable, immediately applicable solutions exist, including bringing corporate income tax rates closer to where they used to be, applying an excess profits tax on top pandemic profits, closing the most egregious tax loopholes, and improving corporate financial transparency
No Shortage of Profit: Semiconductor Firms and the Differential Effects of Chip Shortages
No full textFew will argue with the claim that shortages are socially harmful. Shortages, by definition, imply a lack of something – not enough stuff to go around. A shortage of food implies hunger; a shortage of electricity implies darkness. But are shortages harmful to everyone equally? And if they are not, does this mean that shortages can also be good for some As the US government prepares – via the CHIPS Act—to hand semiconductor firms around 50 billion USD to help solve the ongoing shortage of semiconductors, it seems worth asking how we arrived at this particular shortage, and whether the answers to the above questions can help us avoid such shortages in the future. Over the past year, I looked into the business of semiconductors. Particularly, I examined the historical relationships between chip production, chip prices, shortages, and profits. I made some surprising findings. First, there is a close negative correlation between the expansion of chip production and changes in prices in the US. This means that when production growth slows down, so does the rate at which chip prices fall. Second, among the dominant semiconductor firms, there is a close negative correlation between the rate of new investment and differential profitability. By differential profitability, I mean profitability relative to a benchmark average – in this case, relative to the average profitability of the 500 largest US-listed firms (measured by market value). Third, there is a close relationship between the appearance of a semiconductor shortage and the differential profitability of these large firms. This relationship has two salient characteristics: shortages tend to appear immediately following a period in which dominant firms trail, rather than beat, average profitability; and dominant firms tend to beat average profitability during years in which a shortage appears. In short, not only do dominant semiconductor firms tend to have significantly higher profits during shortages, but the shortages themselves do not appear to occur by accident
Die Wahrheit über Inflation (The Truth About Inflation)
No full textMilton Friedman ist seit mehr als einem Jahrzehnt tot, doch sein Denken wirkt noch immer nach. In den 1960er Jahren erklärte Friedman einmal, dass Inflation immer und überall ein monetäres Phänomen sei — ein Problem der zu hohen Geldmenge. Seither kann man sich darauf verlassen, dass, wann immer die Inflation steigt, jemand das alte Diktum von Friedman bemüht und den Staat beschuldigt, zu viel Geld zu drucken.
Wenn es nur so einfach wäre.
Wie vieles in der Wirtschaftstheorie erscheint auch Friedmans Diktum auf den ersten Blick plausibel. Inflation steht für einen allgemeinen Anstieg der Preise. Und da Preise nichts anderes sind als der Austausch von Geld, bedeutet mehr zirkulierendes Geld, dass die Preise steigen müssen. Folglich ist Inflation „immer und überall ein monetäres Phänomen“.
Einer näheren Betrachtung hält Friedmans Diktum aber nicht stand. Das Problem besteht darin, dass die Inflation als ein gleichmäßiger Preisanstieg verstanden wird. Das ist theoretisch bequem, aber empirisch falsch. In der realen Welt weicht die Inflation nämlich stark voneinander ab. Während der Preis für Äpfel um 5 % steigt, kann der Preis für Autos um 50 % steigen und der Preis für Kleidung um 20 % fallen.
Um zu verstehen wie Inflation tatsächlich funktioniert, dürfen wir uns nicht auf Lehrbücher aus den Wirtschaftswissenschaften verlassen, sondern müssen auf reale Daten schauen. Das hat der Politologe Jonathan Nitzan während seiner Doktorarbeit in den frühen 1990er Jahren getan. Seine Arbeit gipfelte in einer Dissertation mit dem Titel »Inflation As Restructuring«. In der realen Welt, so stellte Nitzan fest, ist die Preisentwicklung immer „differenziell“, d. h. es gibt Gewinner und Verlierer. Daraus folgt, dass Inflation kein rein „monetäres Phänomen“ ist, wie Milton Friedman behauptete. Inflation strukturiert die soziale Ordnung um.
Heute, da die Inflationsängste zurückkehren und Friedmans Diktum wiederbelebt wird, sollten wir uns an die realen Fakten halten
Inflation: Everywhere and Always Differential
No full textIn November 2021, I wrote a post called ‘The Truth About Inflation’. At the time, inflation fears were heating up. And as usual, mainstream economists were missing the bus.
Sure, economists pointed to the consumer price index and said, “Look, it’s going up!” But they didn’t look under the hood of this index to see the big picture. Despite what economists proclaim, inflation is not a uniform increase in prices. It is an instability in the whole price system.
It’s now been a year since that post was published, so I thought I’d update the analysis. While much has changed in the global political landscape, the underlying picture of inflation remains the same: it is everywhere and always differential
The Billionaire Boom: Capital as Power and the Distribution of Wealth
Full text linkFROM THE CHAPTER: During the pandemic, the world’s billionaires increased their net worth to unprecedented historical heights. This was an impressive feat for the world’s richest, who took to celebrations by launching themselves into outer space, hosted factory mega-raves, and perhaps more prudently sailed away from the virus on their mega-yachts during the mass suffering caused by the global health crisis. Whether billionaires have profited during the pandemic, or whether billionaires have profited from the pandemic may be difficult to detect with any certainty. However, we know that the accumulation of billionaire wealth has transcended previous orders of magnitude set before the crisis.
In this chapter, I use the capital as power framework to argue that ownership and exclusion (institutional power) rather than individual productivity or the exploitation of workers can help us account for the rise of the billionaire class and its increase in wealth throughout the pandemic. However, although ownership and exclusion are key factors in the rapid accumulation of wealth, so too have the unprecedented fiscal stimulus and loose monetary policy of governments and central banks during the pandemic. At least in the United States, there is some survey evidence to suggest that a considerable amount of stimulus checks given by the Biden administration ended up in financial markets, boosting share prices, and thus the wealth of billionaire shareholders like Elon Musk of Tesla. This chapter considers two additional main factors: The turn to neoliberalism and rapid technological change. To demonstrate my argument, I have divided this chapter in the following manner. First, I consider the rise of the billionaire class before and during the pandemic. Second, I consider the neoclassical and Marxist understandings of the distribution of wealth and contrast this with the capital as a power perspective before discussing some of the reasons for the rise in billionaire wealth. In the third section, I briefly consider whether billionaires should exist and canvass some recent proposals to address the divide between billionaires and the vast majority of citizens. The chapter then ends with a short conclusion
Hype: The Capitalist Degree of Induced Participation
No full text* Winner of the 2022 RECASP Second Essay Prize *
Power is usually considered as either a ‘positive’ or ‘negative’ construct, as in the power to force action versus the power to forbid it. This paper explores a hybridized approach to power based on the idea of ‘induced participation’. Building on Bichler and Nitzan’s theory of ‘capital as power’, I argue that capitalism reinforces its hold on society through the strategic use of ‘hype’. The idea is that capitalists counteract resistance by boosting confidence in the promise of reward, a process that can be better understood using the concept of hype
El Capital Como Poder. Hacia Una Nueva Cosmología del Capitalismo (2002)
No full textLas teorías convencionales del capitalismo están sumidas en una profunda crisis: tras siglos de debate, siguen siendo incapaces de decirnos qué es el capital. Liberales y marxistas conciben el capital como una entidad económica que miden con dos cantidades universales: la utilidad o el trabajo abstracto, respectivamente. Pero estas unidades son totalmente ficticias: no se pueden observar ni medir. No existen. Y como el liberalismo y el marxismo necesitan estas unidades inexistentes, sus teorías flotan en el vacío. No pueden explicar el proceso que más importa: la acumulación de capital.
Este fallo no es casual. Cada modo de poder evoluciona en concierto con sus teorías e ideologías dominantes. En el capitalismo, estas teorías e ideologías pertenecían inicialmente al estudio de la economía política, la primera ciencia mecánica de la sociedad. Pero el modo de poder capitalista siguió cambiando, y a medida que el poder detrás del capital se hizo más y más visible, la ciencia de la economía política se desintegró. A finales del siglo XIX, con el dominio del capital, la economía política se había dividido en dos ámbitos distintos: la economía y la política. Y en el siglo XX, cuando la lógica del poder del capital ya había penetrado en todos los rincones de la sociedad, las diversas ciencias sociales arrebataron lo que quedaba de la economía política. Hoy en día, el capital reina, pero los teóricos carecen de un marco coherente para explicarlo.
La teoría del capital como poder ofrece una alternativa unificada a esta dispersión. Sostiene que el capital no es una mera entidad económica, sino una cuantificación simbólica del poder. El capital tiene poco que ver con la utilidad o el trabajo abstracto, y va mucho más allá de las máquinas y las líneas de producción. En términos más generales, representa el poder organizado de los grupos de capital dominantes para remodelar -o crear- su sociedad.
Esta concepción conduce a otra cosmología del capitalismo. Ofrece un nuevo marco teórico del capital, basado en las nociones gemelas de capital dominante y acumulación diferencial, una nueva concepción del Estado capital y una nueva historia del modo de poder capitalista. También introduce nuevos métodos de investigación empírica, como nuevas categorías; nuevas formas de concebir, relacionar y presentar los datos; nuevas estimaciones y medidas; y, por último, las premisas de una nueva contabilidad desagregada que revela las dinámicas conflictivas de la sociedad
In Search of Sabotage
No full textA key aspect of Jonathan Nitzan and Shimshon Bichler’s theory of ‘capital as power’ is that it treats property not as a productive asset, but as a negative social relation. Property, Nitzan and Bichler argue, is an institutional act of exclusion. It is the legal right to sabotage […] In this series, which we are calling ‘In Search of Sabotage’, we will investigate how capitalists’ success relates to various social outcomes. If Nitzan and Bichler’s sabotage thesis is correct, a win for capitalists ought to come at the detriment of society at large. With this idea in mind, here is the road ahead. In each installment of this series, we will pick something that we think is a social ‘bad’. (In this post we look at income inequality.) Then we’ll see how this social bad relates to capitalists’ success, as measured by Bichler and Nitzan’s power index. As we work through the data, we have no idea what we’ll find. So join us in this journey of science in action
The Voldemort Index
No full textFor centuries, philosophers have sought to understand concepts such as ‘equity’, ‘fairness’, and ‘justice’. The result has been widespread confusion. Fortunately, Lord Voldemort has rescued us from this moral daze by uncovering the truth. There is only one ethic — the pursuit of power. This is the ‘Voldemort principle’.
Although it seems hard to believe (for the modern reader), the rulers of old spoke openly of following the Voldemort principle. For instance, the Assyrian king Tiglath-Pileser bragged of imposing a ‘heavy yoke of empire’ onto his enemies. Sadly, in the centuries that followed, tyrants grew more timid. During the Middle Ages, the masses began to demand ‘rights’ and sought to ‘limit’ the power of elites. Rulers responded by concealing talk of power inside a code called ‘Latin’. It’s a trick that the privileged have used ever since.
Today, elites prefer to speak in a code called ‘economics’. Although it has the appearance of English, ‘economics’ redefines key words to aid the accumulation of power. Specifically, the word ‘power’ is coded into the word ‘free’. Thus, when economists speak of a ‘free market’, they mean a place where the rich get what they want.
Regrettably, after articulating this utopia, economists tend to get lost within it. They forget that the real world can be quite different from the one they envision. The purpose of this essay is to explore the real world — to see how close it comes to the Voldemort principle.
The key question is this: to what degree do the rich get their way? To answer this question, I construct a metric that I call the ‘Voldemort index’. The index measures the degree to which income buys access to resources.
When we apply this index to the real world, the results are alarming. Far from getting their way, it seems that the rich are increasingly left wanting. Although the evidence that follows is disturbing, it should not be ignored. For it is only by understanding the world that we can once again rule it
Firming Up Hierarchy
No full textIf an unmarked package arrived at your door, how would you figure out what was inside? The catch is that you cannot open it.
As a social scientist, I deal with this ‘black-box’ problem all the time. I (metaphorically) watch people go to work at firms. And I see them come home with income. Then I try to picture the ‘machine’ that gave people money.
In my mind’s eye, I see a machine called hierarchy.
Inside each firm, I imagine a corporate hierarchy that sorts workers into a chain of command and assigns them income based on their rank. Or in more personal terms, when people go to work they have a boss. And their boss makes more money than them.
In a colloquial sense, we all know that this is how firms work, because we’ve experienced it as workers. In other words, as individuals, we get an ants-eye view of the corporate hierarchy. But what we can’t do is play god and study corporate hierarchy by cutting the ant’s nest in half. Corporations tend to dislike that.
And so as scientists, we’re left with a black-box problem. If we want to study how hierarchy affects income, we have to do it without opening the corporate box. Our only option is to ‘stand’ outside firms and watch what goes in and out. Then we see if these observations are consistent with what we think goes on inside.
Speaking of observations from firms, in this post, I unpack data from a landmark 2019 paper called ‘Firming up inequality’. In that article, economists Jae Song and colleagues use data from the Social Security Administration to reconstruct the income distribution within US firms from 1981 to 2013. Their results are a goldmine for studying the hierarchical pay structure within firms.
Using Song’s data, here’s the idea that I’m going to test. I think that the recent rise in US income inequality is being driven by a redistribution of income within firms. In short, I believe that corporate hierarchies have become more despotic. Corporate elites have taken income that once went to the bottom of the hierarchy and redirected it to the top.
To test this idea, we’ll take a meandering route. First, I’ll tell you about my model of corporate hierarchy and how it explains income as a function of ‘hierarchical power’. Then I’ll give you a tour of US income inequality, and show you why it’s plausible that the recent rise in top incomes is being driven by growing ‘hierarchical despotism’. Next, I’ll break out the math and build a model of the US corporate landscape. I’ll use this model to predict the redistribution of income within US firms. Finally, I’ll compare the model’s predictions to the real-world trends reported by Song and colleagues. If all goes well, we’ll get some insight into the machinations of US corporate hierarchy.
My results? I find that to a surprising extent, the redistribution of income within US firms can be explained by a single parameter — a change in the rate that income scales with hierarchical power