Why Profit Margins are High

Why are profit margins so high?  I offer a few reasons:

1) Those that fund equity have high demands placed on them.  Many are pension plans and endowments, and they push firms to achieve higher profits.  This is true whether the business is public or private.

2) With globalization, there is downward pressure on wages for those in industries where goods are tradable internationally.  That downward pressure allows profit margins to stay fat.

That said, the big return is going to those who have scarce resources amid global growth.

Now will profit margins mean-revert? Certainly, but the proper question is when will it happen?  Profit margins will mean revert when, labor begins to be scarce again.  Given the changes in the world, that could be a long time.

If it is a long time, one could take heart that it means the world as a whole is developing.  It will mean greater opportunities for your children who will be able to sell to those who have developed.

Those are my summary thoughts; please feel free to comment below.