Siegel Rebuttal, Part 1:

As described in the prior post, Jeremy Siegel made several arguments intended to refute the theory that U.S. corporate profit margins will soon regress to the mean, taking stocks down with them.  One of these arguments was that the percentage of overall U.S. profits captured by corporations vs. private entities is very high, so overall U.S. profitability is not, in fact, extreme.  The following email (from an independent analyst) suggests that this argument, at least, is a hallucination:

It’s hard to know where to begin with Siegel, but I have to start someplace, so I’ll pick his point that looking at corporate profits alone gives an inflated picture of overall profit growth, since capital has shifted to corporate ownership.  Here’s a useful chart from the Federal Reserve Bank of St. Louis (click here and see the second row down: Selected Component Shares of National Income.  Also note the third row, which contains the data everyone else is focused on Corporate Profits as a percent of GDP):

Yes, proprietor’s income has grown more slowly than corporate profits.  But looking at the two together, it’s clear that overall profit (as Siegel defines it) is at or close to a high, at least since 1981.

Comments

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