The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
(big block quote unfortunately, but important:)
Secular stagnation, bubbles & inequality | ToUChstone blog: A public policy blog from the TUC
The factors linking all of these outcomes is change in corporate behaviour since the 1970s. As Reuters' James Saft wrote this week: On one side stand households and investors who are responding to the very strong liquor which the Federal Reserve is putting in the punch. By buying up bonds and keeping rates low, the Fed encourages risk taking and drives prices for assets - real and financial - higher. That's leading to record prices for everything from art to social media companies to Manhattan real estate. This isn't just a phenomenon for the rich, though the rich do get the cream. Real estate is going up fairly strongly in a wide variety of markets, as are the stocks owned in so many people's retirement funds and accounts. On the other side are corporate executives, who don't seem to have read their economics textbooks. Rather than responding to high profit margins by investing and competing, they seem happy to milk their cows without adding much to their herds. He does on to quote research from Andrew Smithers. Smithers contrasts the early 1970s with today. Then companies invested about 15 times more in new equipment and ventures than they returned to shareholders via dividends. Now the ratio is less than two. As recently as the 1990s, this number was as high as six. Why? The change toward ever greater executive pay, doled out in share options which are highly sensitive to short-term stock price movements, has changed how CEOs behave. That, in combination with the market obsession with making quarterly earnings targets, has resulted in a corporate landscape in which legitimate long-term projects can't get a hearing because they are not in the best interest of those making the decisions. Why fund a project which will only bear fruit when you, the CEO, are out of office and no longer getting huge yearly allocations of shares? We have stumbled into a system whereby corporations are often run not for their own long term benefit but for the benefit of top staff. As Mariana Mazzucato has argued with are all too often rewarding value extraction rather than value creation.
The factors linking all of these outcomes is change in corporate behaviour since the 1970s. As Reuters' James Saft wrote this week:
On one side stand households and investors who are responding to the very strong liquor which the Federal Reserve is putting in the punch. By buying up bonds and keeping rates low, the Fed encourages risk taking and drives prices for assets - real and financial - higher. That's leading to record prices for everything from art to social media companies to Manhattan real estate. This isn't just a phenomenon for the rich, though the rich do get the cream. Real estate is going up fairly strongly in a wide variety of markets, as are the stocks owned in so many people's retirement funds and accounts. On the other side are corporate executives, who don't seem to have read their economics textbooks. Rather than responding to high profit margins by investing and competing, they seem happy to milk their cows without adding much to their herds.
On one side stand households and investors who are responding to the very strong liquor which the Federal Reserve is putting in the punch. By buying up bonds and keeping rates low, the Fed encourages risk taking and drives prices for assets - real and financial - higher.
That's leading to record prices for everything from art to social media companies to Manhattan real estate. This isn't just a phenomenon for the rich, though the rich do get the cream. Real estate is going up fairly strongly in a wide variety of markets, as are the stocks owned in so many people's retirement funds and accounts.
On the other side are corporate executives, who don't seem to have read their economics textbooks. Rather than responding to high profit margins by investing and competing, they seem happy to milk their cows without adding much to their herds.
He does on to quote research from Andrew Smithers.
Smithers contrasts the early 1970s with today. Then companies invested about 15 times more in new equipment and ventures than they returned to shareholders via dividends. Now the ratio is less than two. As recently as the 1990s, this number was as high as six. Why? The change toward ever greater executive pay, doled out in share options which are highly sensitive to short-term stock price movements, has changed how CEOs behave. That, in combination with the market obsession with making quarterly earnings targets, has resulted in a corporate landscape in which legitimate long-term projects can't get a hearing because they are not in the best interest of those making the decisions. Why fund a project which will only bear fruit when you, the CEO, are out of office and no longer getting huge yearly allocations of shares?
Smithers contrasts the early 1970s with today. Then companies invested about 15 times more in new equipment and ventures than they returned to shareholders via dividends. Now the ratio is less than two. As recently as the 1990s, this number was as high as six.
Why? The change toward ever greater executive pay, doled out in share options which are highly sensitive to short-term stock price movements, has changed how CEOs behave.
That, in combination with the market obsession with making quarterly earnings targets, has resulted in a corporate landscape in which legitimate long-term projects can't get a hearing because they are not in the best interest of those making the decisions. Why fund a project which will only bear fruit when you, the CEO, are out of office and no longer getting huge yearly allocations of shares?
We have stumbled into a system whereby corporations are often run not for their own long term benefit but for the benefit of top staff. As Mariana Mazzucato has argued with are all too often rewarding value extraction rather than value creation.
by Cat - Jan 25 14 comments
by Frank Schnittger - Jan 22 1 comment
by Frank Schnittger - Jan 26
by Oui - Jan 9 19 comments
by Frank Schnittger - Jan 13 28 comments
by gmoke - Jan 20
by Oui - Jan 15 90 comments
by gmoke - Jan 7 13 comments
by Cat - Jan 2514 comments
by Frank Schnittger - Jan 221 comment
by Oui - Jan 219 comments
by Oui - Jan 21
by Oui - Jan 20
by Oui - Jan 1839 comments
by Oui - Jan 1590 comments
by Oui - Jan 142 comments
by Frank Schnittger - Jan 1328 comments
by Oui - Jan 1212 comments
by Oui - Jan 1120 comments
by Oui - Jan 1031 comments
by Oui - Jan 919 comments
by NBBooks - Jan 810 comments
by Oui - Jan 717 comments
by gmoke - Jan 713 comments
by Oui - Jan 68 comments
by gmoke - Jan 48 comments