July 03, 2020
Apparently Steven Rattner, a regular columnist at the New York Times, is unable to get government data on corporate profits. That is what readers must conclude from his column on the strength of the stock market in spite of a plunging economy. While Rattner rightly points to the fact that interest rates on bonds are extremely low, which makes stocks seem like an attractive alternative, he never once mentions the likely shift from wages to profits that we can expect in a weak labor market.
The bulk of the widely touted shift from wages to profits occurred in the weak labor market following the Great Recession. (There was also a shift in the housing bubble years, but this was largely fake profits as banks and other financial institutions booked large profits on loans that subsequently went bad. This would be like recorded profits on fictitious sales.) Workers were regaining their share in the tight labor market of the last five years.
With the coronavirus recession likely to lead to a weak labor market for years to come, especially if the Republicans and deficit hawks can dictate policy, the profit share is likely to rise back to post-Great Recession peaks. This would mean that profits will soar, even if the economy is very weak.
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