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January 16, 2012



would it not be easier to show this at a micro level by showing what happens after a new CEO arrives? This macro stuff is deeply unconvincing at a real level. I have seen group profits increase during the tenure of a CEO. Sometimes they collapse when he leaves, because risk has been put onto the balance sheet, but sometimes the profit growth continues. For example, look at the continued, long-term success of a group such as Halma plc., under numerous CEOs.

Ralph Musgrave

There was a letter in the FT recently saying that one of Sweden’s most successful banks, Svenska Handelsbanken has operated with no need for a bonus culture. See:



Only good bosses increase profit!


Strange to claim there is no "export drive" in the UK - export volumes have bounced back about 20% since the trough in 2009, and are running higher than in '07/08. Net trade has also been a huge contributor to real GDP growth.


Niklas Smith

Fair cop to nodder re. wanting micro evidence, but I think Chris' point is that if bosses do increase profits at their own company they can only do so by effectively snatching another company's profits.

On an aggregate level I found Chris' rearranged national income equation an eye-opener: it helps to explain how US companies' profits are at near-record levels as a share of GDP. The answer that jumps out of the equation is that consumption has increased relative to wages. Median real wages have been virtually stagnant for years but expansion of credit has enabled Americans to keep increasing their consumption anyway. At the same time Reagan and George W. Bush financed spending on defence, wars and prescription drug benefits by borrowing.

The scary message to shareholders in US companies is that this cannot go on for ever - at some point households and government will need to reduce their debt burden, meaning that profits will have to be squeezed back towards their historic mean as a share of GDP.

Niklas Smith

P.S. The only way to avoid a profits squeeze would be for a big surge in US exports. But is anyone willing to bet on that offsetting falls in (C-W) and (G-T)?

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