RE: Re: The rate of profit and recession

["Devine, James" <jdevine@xxxxxxx>]

Paul Phillips writes:>In the late 90's we kept hearing from CEOs, primarily
in the US, that the reason inflation was contained was as a result of
increasing competition from offshore companies, in part because of
'globalization' of production and increased overinvestment (increasing
excess productive capacity) in countries like China, in part because of the
rising value of the USD.  Thus the rising wages could only be justified by
increased productivity... Thus, the inability to realize the increased costs
(realization as per Charles) would lead to falling profits would it not.
What then is the root cause of the falling profits?<

I can only talk about the US and the nonfinancial corporate business sector
at that. Here I am attending to only the proximate explanation. (My
discussion with Fred concerns more fundamental causes.)

The recent falls (i.e., of the last 1 1/2 years or so) are due to falling
demand and rates of capacity utilization. That is, there were realization
problems.

Before that, looking at the non-trended BEA data, the decline of the ROP
was due to the declining SOP (share of profits). At the end of the business
cycle upturn, wages started rising relative to productivity, as did raw
material prices (of raw materials produced outside the US NFCB sector).
There may have also been some bottlenecks and horizontal
disproportionalities (such as those due to over-investment in fiber optic
cable) that limited productivity growth in the cyclical peak, too. The cost
pressures pushed toward inflation, but the high US dollar and international
competition kept businesses from raising prices much (at least in the sector
under consideration).

The fixed capital/output ratio continued to fall all the way until 2000
(following its trend from the early 1980s), indicating that labor
productivity growth exceeded the rate of growth of fixed capital per worker.
The "classical Marxist" theory doesn't seem to work, at least not for this
specific example, because the counter-acting tendency was winning.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine