Re: Oz and the American Dream

[Doug Henwood <dhenwood@xxxxxxxxx>]

James Devine wrote:

>Ex-Fedster and economist Alan Blinder was interviewed on US NPR yesterday
>and had some interesting things to say about this (in the fragments I heard
>-- is it possible to get a transcript on-line?). He said that in addition
>to the "irrational exuberance" of the stock market (Greenspan's phrase),
>there's also a "rational exuberance." This seems to be based, among other
>things, on the high profit rates now being enjoyed. If so, the underlying
>stability or instability of the profit rate's current performance should be
>examined. I say that the current profit rate is unsustainable, given the
>political economy of 1998 (it would have been sustainable in 1968).

Yeah, profits are high, but multiples are high too: Procter & Gamble is
trading at 33 times earnings, and Gillette at 46.

Interesting point on profits: a good bit of the profit rise in the U.S.
1990s is the decline in the corporate debt service burden. What Wall Street
calls EBIT - earnings before interest & taxes - looks nowhere near as
impressive as the profit line. (Details in LBO #83, forthcoming, along with
an international perspective on profitability trends.) Creditors are
getting a smaller share of the social surplus, but they're consoling
themselves with their stock returns.

Doug