{"text":[[{"start":5,"text":"The writer is chair of Rockefeller International. His latest book is ‘What Went Wrong With Capitalism’"}],[{"start":11.75,"text":"Investors insist that today’s US stock market boom is justified by very strong corporate earnings and is nothing like the dotcom mania. They remember the late 1990s as a time of wild speculation on doomed, profitless companies such as Pets.com and say today’s hot tech stocks are different, built on solid earnings, not hype. A 28 per cent surge in the past quarter’s earnings — the kind of increase normally seen in a post-crisis recovery — reinvigorated faith that the US market can power through anything, including trade wars and real wars."}],[{"start":44.9,"text":"America’s profit machine seems extraordinary by historical and global standards. But look closer, and cracks appear. Rising government deficits explain a surprising share of recent US earnings growth. Moreover, the “profitless” dotcom era is a myth. Earnings growth is not dramatically stronger today than it was in the late 1990s. Since then, speculative excess has moved into private markets, making the public markets and the economy look more robust than they really are. In short, this expansion is more dependent on government and the earnings story is less exceptional than investors realise."}],[{"start":82.75,"text":"Overall corporate earnings have risen from 7 per cent of GDP in the late 1990s to 11 per cent today. The dynamism of American business has played a role, but so have tax cuts and government spending. Lately the US deficit has risen to more than 6 per cent of GDP and a deficit that high reflects a large transfer of income to households and corporations."}],[{"start":105.1,"text":"Under a well-established accounting formula, the Kalecki-Levy Equation, corporate profits are in part a mirror image of the government’s deficit. Based on this framework, deficits were the single largest contributor to the increase in earnings as a share of GDP since the late 1990s. And in this decade, deficits have accounted for more than half of corporate profits, twice the level of the dotcom era. Strip away government support, and US profits look less extraordinary."}],[{"start":133.7,"text":"To most investors, there is still no comparison between the mighty “Mag 7” tech stocks today and the hapless dotcoms, with their business plans written on cocktail napkins. But compare the past five years with the 1995-99 stretch. Corporate earnings for listed businesses averaged 11 per cent in the earlier period, 15 per cent in this decade. Growth was a bit slower, though still strong in the dotcom era. "}],[{"start":159.79999999999998,"text":"Zoom in on listed groups in the tech sector and earnings growth was equally fast in both periods, averaging just above 20 per cent. While it’s often said that the tech giants back then generated much slower earnings growth than their counterparts now, that is not true either. In the late 1990s, heavyweights such as Cisco, Intel, Microsoft, Qualcomm and Oracle posted annual earnings growth of between 30 and 80 per cent. The range for the Mag 7 is similar, from 89 per cent for Nvidia to 17 per cent for Apple. Of course, we know how the dotcom story ended, in even higher valuations for the stars and then a crash."}],[{"start":198.89999999999998,"text":"Since the dotcom bust in 2000, the number of publicly listed businesses has fallen by half, with many new companies remaining private for longer, funded by private equity and venture capital. This is the new home of excess and weak earnings. As a result, the profit growth of the average business listed in standard indices provides a misleading picture of the overall economy. Profit growth has been less impressive once the private companies are included in the data. Further, private firms planning to go public are much larger and less profitable today than in the 1990s. The biggest names in the IPO pipeline, including SpaceX, Anthropic and OpenAI, have little to no profits. "}],[{"start":238.45,"text":"Meanwhile in Europe, which often plays a stagnant foil to the dynamic America in this tale, much less has changed. Deficits are only slightly higher now than in the late 1990s. Earnings remain flat as a share of GDP. Private markets exist on the continent, but they are much smaller and less potentially troublesome."}],[{"start":257.95,"text":"America’s corporate earnings remain the envy of the world but there are faultlines — some buried in private markets, others masked by state support. They are likely to stay out of sight so long as the US continues to run large deficits. And it has little political incentive to cut spending or raise taxes unless the bond market forces the issue. If and when that happens, in the form of sharply rising bond yields, the fallout will be felt across the markets and the economy, exposing the flaws in what today appears to be an unstoppable American profit machine."}],[{"start":297.9,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1780315560_2557.mp3"}