If we thought of GDP as a professional athlete, how would 2021 stack up compared to the all time greats? Up there with Tom Brady's 2007 season, or Tiger Wood's "Tiger Slam"? I break it down in this post.
Professor, I wanted to get your take on the conversation related to high inflation vs corporate profits, specifically the claim in some corners of "the discourse" that profits are rising at a higher rate than inflation. The data on corporate profits from BEA does seem to show the rapidly increasing profits, but this argument doesn't necessarily seem to fall into the idea of inflation expectations, drivers etc. How does this discussion fit in to the typical supply/demand side discussions of inflation you've covered so far, or is the debate a red herring?
James, thanks for asking, and for reading my post! This question speaks to the perspective I highlight in this post--we just had the tenth best year in modern history . . . it would be strange if corporate profits were not high. As to the argument (that you mention and that I've read) that corporate profits are high *because* firms are raising prices, that seems historically inconsistent. We had a record expansion in the 1990s, a good stretch in the early part of the 2000s, then another record expansion in the 2010s, yet inflation was just below 2.0 for a significant portion of that time. So, I don't see how that all of sudden, now, corporate profits can be identified as the *cause* of inflation; that suggests the causal chain is: strong economy-> corporate profits -> inflation. But that doesn't fit with history--why didn't "they" raise prices during those previous record-setting expansions? More likely, both variables are driven by the same phenomenon: the unusually high GDP growth of 2021--again, the tenth best we've had since 1948, and the highest since 1984. That's my sense of it at least.
Professor, I wanted to get your take on the conversation related to high inflation vs corporate profits, specifically the claim in some corners of "the discourse" that profits are rising at a higher rate than inflation. The data on corporate profits from BEA does seem to show the rapidly increasing profits, but this argument doesn't necessarily seem to fall into the idea of inflation expectations, drivers etc. How does this discussion fit in to the typical supply/demand side discussions of inflation you've covered so far, or is the debate a red herring?
James, thanks for asking, and for reading my post! This question speaks to the perspective I highlight in this post--we just had the tenth best year in modern history . . . it would be strange if corporate profits were not high. As to the argument (that you mention and that I've read) that corporate profits are high *because* firms are raising prices, that seems historically inconsistent. We had a record expansion in the 1990s, a good stretch in the early part of the 2000s, then another record expansion in the 2010s, yet inflation was just below 2.0 for a significant portion of that time. So, I don't see how that all of sudden, now, corporate profits can be identified as the *cause* of inflation; that suggests the causal chain is: strong economy-> corporate profits -> inflation. But that doesn't fit with history--why didn't "they" raise prices during those previous record-setting expansions? More likely, both variables are driven by the same phenomenon: the unusually high GDP growth of 2021--again, the tenth best we've had since 1948, and the highest since 1984. That's my sense of it at least.