That disaffection now extends to language. Frank Luntz, a well-known right-of-centre pollster, made that clear in a presentation he gave at the Milken Institute's global conference in Los Angeles.

He counselled his audience, composed mostly of capitalists, that Americans these days trust The Truth, but not The Evidence or The Facts. If not a post-truth world, this may be a post-factual one. He also counselled against using the words metric ("an MIT word"), or process-driven (implying that you get computers to do things for you, not people), or bottom line (which implies that you put profits over people). One set of initials that everybody dislikes is CEO. "They're the people who fire people."

Most shockingly, Mr Luntz counselled attendees not to use the word Capitalism. Young adult Americans now tell pollsters that they actively prefer socialism. Capitalism in general is found by many to have rather negative connotations. Unlike "liberty" — which still gets Americans' pulses racing positively — capitalism is no longer very popular.

Now re-read the sentence with which I opened this column. Every word of it, according to Mr Luntz, will jar with the average American and show that companies are ripping them off.

People in America — and in other parts of the developed world where the same effects are at work but less pronounced — are fed up with CEOs chasing the bottom line and they are fed up with capitalism.

That might give us a warning that in base political and social terms, bumper profits are not sustainable. The reaction, or lack of it, of stock markets to the great first-quarter US profits makes sense only if these profits cannot last.

In particular, the widening of margins demands analysis. Can it last? If "capitalism" is really a dirty word then there is a chance that direct political action could peg back corporate profits. Such an event is unlikely in the US before 2020 at the very earliest, but the rise of harder left-wing parties elsewhere, particularly the UK Labour party of Jeremy Corbyn, might act directly to cut profits.

Assuming this does not happen, what is the chance that capitalism does the job itself and brings margins back to earth? After all, profit margins have shown a strong tendency to revert to the mean in the past.


Binky Chadha, Deutsche's chief asset allocation strategist, points out that the first quarter saw record US margins, even after adjusting for the effects of the tax cut. He estimates the S & P 500's operating margin at about 12 per cent. It had topped at 9 per cent in 2006 before the crisis.

Margins can come down either from upward pressure on costs or downward pressure on prices. The latter has been present for years as much of the Western world has seemed to teeter on the edge of deflation. It has not dented margins and, if anything, it may now be loosening as inflation takes over as a concern.

As for cost pressures, rising output prices should eventually show up as rising input prices. Oil prices are up. Rising materials and wages costs were the two negative factors that were cited most by CEOs in their earnings calls. Such concerns are presumably animating stock market investors.

Almost no executive seemed optimistic that pressures on inputs or wages would reduce — and that is in line with the data, which shows the highest proportion of companies raising wages and prices since the Clinton era of the 1990s.

But despite this, more were optimistic about rising margins than fearful of a tightening. And if sales growth continues, history suggests they should be right — while sales are growing, historically, companies take the chance to widen their margins. It is when times grow harder than companies try to bolster sales at the cost of lower margins.

Meanwhile, the bond market "yield curve" — the gap between long- and short-term yields — is at its flattest since 2007. That implies low inflation, contrary to the stock market.

Americans no longer seem to like capitalism and the behaviour it entails. But unless populist politicians goad them into doing something about it, profits growth could continue to outstrip growth in wages.

Financial Times