Here’s a letter to the New York Times:
According to Paul Krugman, “profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should – but capital is doing fine by grabbing an ever-larger slice, at labor’s expense” (“Robots and Robber Barons,” Dec. 10). Examination of less aggregated data, however, reveals the story to be more complicated than Mr. Krugman suggests.
After-tax profits as a share of price per unit of real gross value added of nonfinancial corporate business – a figure long calculated by the Bureau of Economic Analysis – averaged 8.0 percent annually during the presidency of Bill Clinton. But contrary to what your readers might suspect, during the presidency of George W. Bush this average annual profit figure fell to 7.3 percent. For the first three years of Barack Obama’s presidency, though, after-tax profits as a share of gross value added in the non-financial sector has soared, to 9.6 percent.
As for labor, its share of price per unit of real gross value added of nonfinancial corporate business averaged 65 percent annually during Bill Clinton’s presidency. Ditto for George W. Bush’s presidency. For the first three years of Mr. Obama’s presidency matters are different: labor’s share fell for 2009-2011 to an average annual rate of 62 percent.*
So capitalists – at least those outside of the financial sector – during the G.W. Bush years 2001-2008 suffered lower after-tax rates of profit (on gross value added) than they did during either the Clinton years 1993-2000 or the Obama years 2009-2011. Workers, in contrast, fared equally well under presidents Clinton and Bush, while under Pres. Obama workers’ average annual share of gross value added is lower than it has been for at least two decades.
Of course, none of the above proves anything – except that one should avoid falling too quickly for Marxist-flavored class-warfare tales of the sort told by Mr. Krugman.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* All figures are calculated from data at the U.S. Bureau of Economic Analysis, National Income and Product Accounts Tables, Table 1.15. Price, Costs, and Profit Per Unit of Real Gross Value Added of Nonfinancial Domestic Corporate Business. (After clicking on this link, click on “Domestic Product and Income,” then scroll down and click on Table 1.15.)