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Relation of Profit to Monopoly Power, Investment, and Economic Expansion in the Contemporary United States Economy

Paper Session

Sunday, Jan. 6, 2019 10:15 AM - 12:15 PM

Hyatt Regency Atlanta, Hanover A
Hosted By: UNION FOR RADICAL POLITICAL ECONOMICS
  • Chair: David M. Kotz, University of Massachusetts-Amherst

Exploring the Phases of Current Business Cycle Expansion in the United States and Contemplating the Next Recession

Erdogan Bakir
,
Bucknell University
Al Campbell
,
University of Utah

Abstract

In a number of studies over the years, we have showed that before-tax profit rate is a good predictive of cyclical downturn in the U.S. economy (Bakir & Campbell, 2006, 2009, 2017 and Bakir, 2015). In a typical business cycle, profit rate peaks at a certain stage of the business cycle expansion and then starts to decline while economic growth continues. This initial decline in the profit rate during what we call the late expansion phase of the business cycle becomes a reliably good predictor of cyclical contraction. In this paper, we use this same framework to explore the phases of the current business cycle expansion and contemplate the next cyclical downturn.

The United States Corporate Profits, Monopoly Power and New Technologies

Armagan Gezici
,
Keene State College

Abstract

This paper is an examination into the profitability of U.S. public corporations with the aim of identifying the changing sources of monopoly power in the economy. Findings by Grullon etal. (2017) show that over the last two decades, 75% of U.S. industries have registered an increase in concentration levels and the firms in industries with the largest increases in concentration achieved higher profit margins. In this paper, we first decompose firm profitability into various components to better understand the role played by increasing industrial concentration. This exercise is the first step in building the argument that increase in concentration implies increase in monopoly power for firms, as reflected in higher mark-ups. Then, we analyze the relationship between firm mark-ups (monopoly power) and the use new technologies, which is captured by industry level indicators, ranging from industry classifications of technological intensity, to patents granted. The ultimate goal is to establish empirically that the use of new technologies contributes to the increasing monopoly power and concentration in the U.S. industries.

The Rate of Profit, Aggregate Demand, and the Long Economic Expansion since 2009 in the United States

David M. Kotz
,
University of Massachusetts-Amherst

Abstract

The current economic expansion in the U.S., which began in the summer of 2009, has by now lasted for almost 9 years. It is currently the second longest expansion since the end of World War II, exceeded only by the 10 year long expansion of the 1990s. The previous two expansions, of the 1990s and 2000s, were prolonged by big asset bubbles, which have played a key role in the neoliberal era in promoting economic expansions. However, the current expansion has not seen an asset bubble large enough to significantly affect the macroeconomy. This paper examines the expansion since 2009 by analyzing the movements of the rate of profit, and its determinants, and the role of aggregate demand, with the aim of determining the factors that have kept crisis tendencies at bay so far.

Revisiting the Investment-Profit Puzzle: The Role of Intangible Assets

Ozgur Orhangazi
,
Kadir Has University

Abstract

Starting around the early 2000s, the rate of capital accumulation for US nonfinancial corporations has slowed down despite relatively high profitability. While the literature mostly focuses on financialization and globalization as the reasons behind this slowdown, I suggest that we need to pay attention to the increased use of intangible assets by nonfinancial corporations in the last two decades. After discussing the ways nonfinancial corporations use intangible assets, I look at large corporations in the US and find that: i-) The ratio of intangible assets to the capital stock increased in general. This increase is highest for firms in high-technology, healthcare, nondurables and telecommunications. ii-) Industries with higher intangible asset ratios have lower investment to profit ratios. iii-) Industries with higher intangible asset ratios have higher markups and profitability. iv-) The composition of the nonfinancial corporate sector has changed and the weight of high-technology and healthcare firms has increased; but this increase did not correspond to an equal increase in their investment share. The decline in the investment share of durables, nondurables and machinery is matched by an increase in the investment share of location-specific industries with low intangible asset use, most notably firms in energy extraction. In general, these firms have steadier markups and higher investment to profit ratios. v-) Yet, intangible-intensive industries capture a larger share of the profits than that suggested by their share of investment or total assets. All in all, these findings are in line with the suggestion that the increased use of intangible assets enables firms to capture higher profits without a corresponding increase in investment.
Discussant(s)
Leila Davis
,
University of Massachusetts-Boston
Carolina Alves
,
University of Cambridge
JEL Classifications
  • E1 - General Aggregative Models
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights