Everyone knows there is a cost of living crisis; real wages are 8.5% lower than they were in 2008. However, the fact that workers are doing badly does not mean that capitalists are doing well. Today's figures from the ONS show that the return on capital is still well below its pre-crisis level and even further below its late-90s level.

I fear that this might actually overstate how well capitalists are doing. The ONS measures the capital stock at current replacement cost. But what matters for companies is the money they actually spent on capital - that is, its historic cost; if you paid £10m for IT equipment that costs £8m a few years later, your profits haven't thereby increased. And as Andrew Kliman has pointed out for the US, historic cost-based measures of profits have trended downwards by more than current cost measures.

The fact that capital is suffering as well as labour should be no surprise. It's a product of the fact that labour productivity has fallen; a smaller pie means smaller slices for everyone.

But there's something else going on. One feature of this recession has been an absence of large-scale capital scrapping. Even at their peak, company liquidations were much lower in the crisis than they were in the milder recession of the early 90s. This tends to depress the profit rate not only because of simple maths - if the capital stock doesn't fall then ceteris paribus the ratio of profits to capital is lower - but behaviourally. The more capitals there are competing with each other, the more prices will be held down, implying that profit margins don't rise; the share of profits in GDP was lower in Q1 than in 2008. And if businesses aren't liquidated, surviving firms can't buy capital cheaply from their failed rivals.

Now, I don't say all this to suggest we hold a whip-round. Instead, I do so to point out that the cost of living crisis is not due simply to capital exploiting labour by more than usual. It's deeper and more intractable than that.

Worse still, a recovery in the rate of profit might require a painful round of capital scrapping. If, however, Bank of England and OBR forecasts are right (and the fact that profitability is relatively low is a reason to doubt them) we'll see the opposite - an increase in capital. This could spell trouble. This paper finds that:

Higher aggregate investments...precede greater earnings disappointments, lower short-window earnings announcement returns, and lower macroeconomic growth.

With profits already low, this could mean that the next downturn will prove especially painful.