Over the years, my standard approach to analyzing corporate profits has been to think of them as the last slice taken from a big national income pie.  The growth of the pie itself is important.  But so is the size of the other slices, such as labor costs, interest costs and corporate taxes.  Once every one else has had their slice, what’s left over is corporate profits.

It’s a useful model for analytical purposes.  However, it has one glaring flaw, namely that it assigns to corporations a purely passive role, meekly accepting the slice left after all the other factors of production have taken theirs’. In reality, American corporations are muscular and sharp-elbowed, growing profits by enhancing productivity but also by beating back the demands of labor, lobbying for a more favorable tax and regulatory environment and seducing customers into buying more goods and services than they really should, based on sober calculation.