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Duncan Weldon adds some really interesting thoughts about mechanisms:

(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.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Nov 21st, 2013 at 10:25:37 AM EST

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