Reihan Salam writes

There is no denying that corporate profits are reaching stratospheric levels while employment levels are essentially stagnant. If you own a piece of Home Depot or Whole Foods or Amazon, congratulations, 2011 was a banner year for you. But if you’re a typical American worker, well, that’s another story.   

The Commerce Department recently found that personal incomes were $265 billion lower over the years 2008, 2009 and 2010 than had originally been assumed, while corporate profits were $343 billion higher. Indeed, corporate profits now represent 12.6 percent of GDP — the highest number in 60 years.

. . .

An economy that invents more new products and processes will be a wealthier economy — and one that creates more jobs. Until we stop protecting established firms and inhibiting start-ups, we can expect slow growth, high unemployment and ever-increasing resentment toward corporate America.

Obviously its far from clear to me that the owners of corporations necessarily benefit from record corporate profits but lets leave that aside for now.

The issue of corporate profits vs. incomes for the average American I increasingly think plays an important role in the recession.

Though I think of it in a different way. What the macro-economy “wants” to do – for unspecified micro reasons – is to transfer large amounts of national income away from the median household and towards corporations and a working elite.

However, nominal rigidities – in wages, land prices and debt – prevent the macroeconomy from easily accomplishing this. In a smooth world workers incomes would fall, the value of the land that workers live on would fall, the debt burdens of workers would fall and the economy would move forward with a much larger fraction of future output moving into the hands of corporations and small working class.

As a note: I do keep refer to corporations as a residual claimant because I think there are important ways in which corporations actually consume resources as an entity. That is, if you forced the corporation to cash-out to its owners every quarter and then raise cash every quarter, it wouldn’t simply be a transactions cost issue, the resource consumption pattern in the economy would be very different.

In any case, this problem could be solved macroeconomically by increasing the rate of inflation. This would allow real wages to fall, real land prices to fall and real debt levels to fall, while real corporate profits rose to soak up the residual.

The micro issues are more complex and of course its not even completely clear what they all are.

And, to be sure this is just a sense, I am not hanging my hat on this theory.

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