As the capitalists we are, I would be much more concerned about the corporate profit shares of GDP, relative to labour and tax, in the next 15 years. It has been a golden age recently. Golden ages don’t usually last forever. From 1951 to 2004 US corporate profits never got above 8.5% of US GDP, averaging just under 6.1%. It has been mostly in the range 9% to 11.5% since the credit crunch, averaging just over 10%.
https://fred.stlouisfed.org/graph/?g=1Pik
If that average figure falls, Berkshire’s very diversification will suggest that our profitability will fall just as much. If the old norms returned, profits could fall by 30-40% and stay that low as a percentage of revenue forever. That’s not a prediction, but one should probably be prepared for some unknown fraction of it to become true. For Berkshire, or for any broad US equity portfolio.
This is an excellent understanding of the class struggle at the core of a capitalist economy. The past 40 years, beginning with the institutionalization of neo-liberal orthodoxy under Thatcherism and Reaganism, have been a triumph for capitalists. Labor unions were broken in the UK and the USA, taxes on capital evaporated, and the commonwealth was shifted from supporting working people through social benefits and an investment in public goods to the subsidization of capital investments. Not surprisingly, corporate profit margins took off. Indeed, profit margins seem to have reset at ~10% from the 6% average we saw between 1948-1980.
The question is, will this arrangement of class forces continue or will the pendulum swing back such that the wage earning class, through its capture of the state, increases taxes on capital in order to subsidize a public investment in social goods (ie. education, health care, income subsidies, and protections of collective bargaining). Interestingly, even some republican candidates like Blake Masters are calling for the rejection of globalization and a reorientation to a more autarkic economy. Indeed some conservatives believe our national economic policy should encourage one income households with incomes sufficient to support the traditional breadwinner-homemaker family as a means of reestablishing traditional family values.
My point is that the improvement in corporate profit margins is best understood as a result of political and economic policy and not some productivity revolution in capital goods (although that can play a temporary part in firm specific profit margins). As such, the new normal in profit margins will last only as long as capitalists continue to dominate the state in a way that allows them to dictate social and economic policy. What we are seeing politically around the world today is the precarity of the political and economic hegemony of capital. Even in the Republic party, the business elites are nervously navigating the rise of untamed working class interests within the party.
PP