[OPE-L:6090] falling profits

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Fri Oct 26 2001 - 12:04:24 EDT

On Thu, 25 Oct 2001, Paul Zarembka wrote:

> Falling profits CAUSE U.S. crisis or are SYMPTOMS of crisis?   

Profits started falling in 1997 and investment started falling in 2000 and
the recession started in 2001.  This suggests to me that falling profits
was the cause of falling investment and thus of the recession.  To be
sure, profits will decline further as an effect of the recession.  So
falling profits is both cause and effect of the recession.  But the prior
significant decline in profits suggests that falling profits is a
cause.  I would say the most important cause.

> Whose CRISIS?  If the 1930s was a CRISIS, is using the big word today
> suggesting we are in 1929?  Was using the word in 1973 suggesting then
> that we then were in 1929?  Was it correct to have so described?  In sum,
> I am questioning when to use CRISIS (certainly not when it subjectively
> moves us).

I am not saying that today is like 1929.  But I am saying that I think we
are closer to 1929 today than at any other time in the postwar period -
closer than in the recessions of 1974-75 and 1980-82.  What is different
and much worse this time is the very high debt levels of businesses (and
of households).  It is the combination of low profit and high debt that
makes the current situation similar to 1929.  I am not predicting that
things will get that bad.  But I am saying that the chances that things
could get that bad are higher today than they anytime since the Great

> BEA made a revision.  Why should we jump on THIS revision?

The BEA's revision was not based on a change of definitions or of
estimating procedures, which sometimes happens, and which would be more
suspicious.  Rather, the significant downward revision of profits from
1998 to 2001 was the result simply of taking into account more data.  It
would certainly be interesting to know more about why the revision was so
large this time, and I hope to pursue this question.  But it is generally
thought that such revisions based on more data are better than the old

Paul, thanks for your comments.


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