I have been puttering around with some of the arguments from The Great Stagnation. One line that stood out to me went something like this

If the capital isn’t doing any better and labor isn’t doing any better then where is all of this supposed innovation going?

My knee jerk reaction was what about human capital. However, I decided to see whether or not capital was doing any better. One of my favorite measures the return to capital is the national dividend yield. That is, what portion of national income is paid out to the holders of US stock.

I was actually a bit shocked at the result. I had assumed that the rise in retained earning would mask some of the “real returns” to capital and that perhaps some of innovation was being sent down the tubes by a corporate bureaucracy that spent profits on empire building rather than paying them out to shareholders.

Yet, dividends as a percent of GDP are rising. That is the owners of corporations are getting paid out an ever larger share of GDP.

FRED Graph

Part of this is because corporate profits as a percent of GDP are rising but it looks like significantly more corporate profits are actually going out of the door.

Here is dividends as a percentage of after tax corporate profits

FRED Graph

Maybe this is coming at the expense of small business owners. Lets add in proprietors profits

FRED Graph

Interesting. Well that warrants looking at Proprietors’ Profits on their own.

FRED Graph

The fall in proprietors’ income up until 1980 seems to be the dominant story, the rise in dividends the dominant story after 1980.

Basically less and less on the nations income was going towards business owners until 1980 when that turned around, both for small business owners and the owners of corporate capital.

This is not a story of the owners of capital doing worse. Indeed, it might even suggest that workers wages were being boosted by the decline in income going to the owners of capital.

An obvious question is – what about interest? I am not sure how to deal with that. On the one hand those are payments to capital but they seem of the kind most likely benefiting the median household. If a working class family was going to save typically that would have been in some interest bearing vehicle.

Plus we have problems with teasing out money demand and inflation fluctuations. Though off the cuff I am not exactly sure how to treat inflation when thinking about these variables. It seems like it ought to matter even when normalizing by GDP.

A high inflation economy is one where a larger fraction of nominal GDP is paid out to bond holders to compensate them for loss in purchasing power. This in theory should depress profits. However, should it depress dividends and proprietors income after capital adjustments? I am not sure.

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