Bowyer’s Profits Per Job Measure: Do Two Wrongs Make
Forgive me for not finishing the title here, but after reading how Brad DeLong reacted to the latest Buzzcharts, to say there could be anything right about Jerry Bowyer’s series would be a farce. Brad writes:
A huge number of people who are on payrolls don’t work for corporations: 21 million of them work for the government, and a host of others for partnerships and sole proprietorships. A bunch of people who are not on non-agricultural payrolls work for corporations as well. Moreover, you miss a good third of economy-wide profits by restricting yourself to corporate profits. Either (a) divide corporate profits by corporate employment, or (b) divide total profits by private employment. Corporate profits divided by a measures of private plus public employment is not sensible – even if you knew enough about the data to avoid accidently multiplying your result by four.
Taking Bowyer’s figures for 1998 after correcting for his mistaken multiplication by four, one would get $3732 in after-tax corporate profits per total reported payroll employees, which indeed sounds awfully low. And after-tax corporate profits represent only 5% of GDP when we know the capital share of national income is much higher. I guess Bowyer could argue his series was some form of proxy to compare trends across time, which would mean the scaling by a factor of four does not matter that much.
His failure to adjust for inflation would matter as we noted earlier. Additionally, changes in the share of employment by the public sector over time would also matter – albeit the rise in this share over the past few years would work against what Bowyer was trying to say. Finally, the composition of the private work force captured by corporate employment might have changed over time as well as the share of corporate profits relative to total profits. If one adjusted for inflation and these other factors, would Bowyer’s graph look at all the same?
One of our readers also objected to this Bowyer comment:
Ignore, if you must, the fact that the real stagflation of the 1970s was caused by the policy prescriptions of Keynesians just like Krugman. Ignore, also, that when Ronald Reagan and Paul Volcker ended that stagflation through supply-side policies …
Bowyer must be unaware of Reagan’s attempt at fiscal stimulus, which was not only offset by the FED’s monetary restraint but also lowered savings and investment and hence long-term growth. Given that Bowyer clearly does not understand what Lord Keynes really meant, I wish he’d simply drop the (ab)use of the term Keynesian. And as far as being a supply-sider, I have yet to hear from anyone at NRO how reducing national savings promotes long-term growth.