The graph in question is Figure 12.2 (p.238), a version of which is reproduced in Figure 1 below.
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Figure 1: ‘Capital income’ vs. Unemployment
Notes: Series are shown as five-year moving averages. Capital income consists of corporate profits plus net interest.
Source: Income shares are calculated from the Bureau of Economic Analysis’ National Income and Product Accounts (http://www.bea.gov/national/nipaweb, accessed 23/09/09). Unemployment rate for 1931-39 from US Bureau of the Census (1975: Series D-85-86), and for 1940-2006 from the US Bureau of Labor (ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt, accessed 23/09/09).
The graph shows two relations. During the period 1931-42, there is a strong negative correlation capital’s share of national income and the rate of unemployment. In other words, when unemployment was high, capital’s income share was low. By contrast, during 1943-2006 the relation was reversed, as capital’s share became positively correlated with unemployment. Nitzan and Bichler give the following account of this:
The data clearly show the negative effect on business – both of excessive industrial sabotage until the early 1940s and of insufficient sabotage during the Second World War. ‘Business as usual’ was restored only after the war, with growing industrial limitations helping capitalists move up and to the left of the chart [the upper right of the graph above], toward their ‘optimal’ income share. (2009: 238-9)
The purpose of this post isn’t to question this interpretation, just to offer some observations on the data used.
As Nitzan and Bichler explain, their measure of ‘capital income’ is not conventional:
In their empirical work, many radical political economists consider as capitalist all non-labour income – including profit, interest, proprietors’ income and rent. We find this encompassing perspective deeply misleading for two reasons. The first is technical. Many proprietors work for a living, while a significant proportion of rent is imputed to owners’ occupied dwellings. As a result, it is never quite clear what part of these incomes is ‘capitalist’. The second and perhaps more important reason is that the bulk of profits and interest is earned by large capitalist organizations, while most proprietors’ income and rent is earned by individual owners. The former exercise enormous power, while the latter have little or none. (2009: 238, fn.15)
This all seems highly reasonable, although it should be noted that for most countries other than the United States, it would be impossible calculate this narrow measure of capital income due to the higher level of aggregation in the national accounts. This is a shame because there can be a significant difference between the two measures. For instance, in the case of the United States, the correlation coefficient between the ‘broad’ and ‘narrow’ measures of capital income is just .3. Moreover, what correlation there is, is negative. In other words, to the extent that the two series moved together, they moved in opposite directions. (For the period 1929-2008. Both were calculated as percentages of national income and smoothed as five-year moving averages. The base data were from the Bureau of Economic Analysis’ National Income and Product Accounts.)
There is, however, something that Nitzan and Bichler don’t mention about their chosen measure of capital income. Namely, that its two components have quite different relations to unemployment.
Figure 2 illustrates that there is no positive correlation between corporate profits and unemployment. In both periods there is a negative correlation between the two series:
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Figure 2: Corporate Profits vs. Unemployment
Note: Series are shown as five-year moving averages.
Source: See Figure 1.
By contrast, as Figure 3 illustrates in the case of net interest, there is a negative correlation in both periods:
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Figure 3: Net Interest vs. Unemployment
Note: Series are shown as five-year moving averages.
Source: See Figure 1.
Immediately, there is a puzzle: what explains this difference between the two forms of capital income? As I said before, I'm not sure, which is why I'm posting this here. Hopefully, someone else will be able to help me with this puzzle.
[Part 2 to follow...]