Income Dynamics, Economic Rents and the Financialization of the ...

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Using National Income and Product Account data, Figures 1-2 extend these time series to the present. 6 Figure 1 shows that the rise of the Finance Sector as a proportion of GDP reported by Krippner (2005) continued after 2001. 7 By 2007 this sector accounted for almost a quarter of all income in the US economy. The relative decline of manufacturing continued as well. --Figure 1 about here-- Following Krippner (fc) we report two measures of profits. The first we label pre-tax profits, this subtracts depreciation allowances from real net income. This exclusion is an accounting practice that recognizes that productive assets wear out. But it is also a policy lever that exempts some corporate profit from taxation, presumably in order to encourage capital investment. Depreciation allowances change over time and, to some extent, vary by industry as Con- gress has attempted to encourage capital investment in specific industries (e.g. oil and gas explo- ration). Thus depreciation is an accounting practice that allows corporations to not count some of 6 The National Income and Product Accounts are produced by the US Bureau of Economic Analysis and are the primary source of data used to estimate the Gross National Product of the United States. These data are primarily derived from income tax returns aggregated to the industry level and so are more accurate than conventional survey data. See Appendix A for concor- dance we use to harmonize Standard, North American, and Census Bureau Industrial Classifica- tions across time. 7 Throughout this paper we display time series as ratios of national income. This mirrors our theoretical account of income rents developed in the next section, which treats income dynamics from a relational rather than absolute perspective. In addition, focusing on ratios simplifies com- parisons across time because they control for dynamics associated with inflation, growth and to some extent the business cycle. 8
their profits as taxable income. Thus, in our second measure we count all corporate profit (i.e. we add back depreciation allowances). Krippner (fc) labels this measure corporate cash flow, we refer to it as realized profit. This is the more accurate measure of where in the economy profits are accumulating. While depreciation allowances may be reinvested into new physical capital, in practice this income can also be distributed to owners, top managers, employees, or as the pattern of financialization demonstrates invested in financial assets. Figure 2 displays the trends in finance sector profit as a percent of all private sector profit since 1948. We report parallel time series for both measures between 1997 and 2000, during this period the National Income and Product Accounts shifted from the Standard Industrial Classification (SIC) to the North America Industry Classification System (NAICS). The key change for the Finance Sector associated with this shift was the creation of a new category of Holding Companies that managed financial assets. This re-categorization shifted a significant proportion of profits from the original banking industry to this new category --Figure 2 about here-- Profits in the financial sector as a proportion of all profits in the economy grew slowly between 1948 and 1970, dropped across the 1970s, and increased dramatically after1980. Figure 2 also shows that the post-1980 pooling of corporate profits in the finance sector accelerated after 2000. Using the conventional accounting measure this trend peaked in 2002 when fully 45% of all taxable profits in the private sector were absorbed by finance sector firms. By comparison finance sector employment grew less dramatically, moving from 3.9% to 7.2% of employment during the same period. 9
Page 1 and 2: Income Dynamics, Economic Rents and
Page 3 and 4: “I think everybody a few years ag
Page 5 and 6: economic sociology and political ec
Page 7: tion but since the two trends are l
Page 11 and 12: While we have established that the
Page 13 and 14: ployees, a lower capital share of i
Page 15 and 16: income dynamics, which should follo
Page 17 and 18: serve Bank, led by Paul Voker, foug
Page 19 and 20: anks profitability, the second and
Page 21 and 22: Together these shifts in the instit
Page 23 and 24: nancial engagement of non-financial
Page 25 and 26: count suggests a certain happenstan
Page 27 and 28: The other finance sector industries
Page 29 and 30: from the society overall. The emplo
Page 31 and 32: as dramatic. In the Security indust
Page 33 and 34: egulatory relaxation and a general
Page 35 and 36: occurred if finance sector actors h
Page 37 and 38: of total national profits in the fi
Page 39 and 40: swaps. Clearly, the market and poli
Page 41 and 42: Our analysis points to the federal
Page 43 and 44: ents from other actors in the econo
Page 45 and 46: Krippner, Greta. 2005. “The Finan
Page 47 and 48: Stockhammer, Engelbert. 2004. “Fi
Page 49 and 50: %GDP 10 15 20 25 30 35 Figure 1. Fi
Page 51 and 52: Ratio 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1
Page 53 and 54: %Profits 0 5 10 15 20 Figure 5. Fin
Page 55 and 56: Ratio 1.0 1.5 2.0 2.5 3.0 Figure 7.
Page 57 and 58: Table 1. Summary of Institutional A
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Appendix A. Industry classification
Page 61 and 62:
Appendix B. Sector and industry shi
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