Hygro
soundcloud.com/hygro/
It's as if economics can be applied generally.
Dow Jones dips by 666 points to cap off worst week in 2 years, sign of end times?
- Thread starter Archbob
- Start date
Sure, we can just go straight to the end and say "engaging in profitable commerce increases the economy", but it's still not completely true. Either how we spend our money matters, or it doesn't. Some spending will increase net supply, some will decrease it.
There are two major ways to view fiat money, either a way to collapse debt and pay taxes or as a signal and store of value. If you engage in profitable commerce, then (all else being equal), every participant in that exchange views it as a win/win. And that win/win leads to net growth.
But if we just view all spending as net benefit, we make a mistake. We know it isn't true, because of externalities.
Don't get me wrong, I think we have no choice but to save our money using financial instruments.
Sure, dollars in the market increases the amount of capital available to the market. But dollars aren't like hot dogs. Unlike dollars, people don't hoard hotdogs purely for fun. Once I have enough MREs to feed myself, I start looking for other things to buy. Not so with dollars. The main thing that is done with dollars in the capital markets is that it sloshes its way upwards.
If market savings were the most efficient use of a dollar, then all of 1970s supply-siders would be correct. The rich save more, ergo letting them have money is better. It's just not true, because there are too many supply-side spending options that are available that individuals will never take.
If you acknowledge that rent-seeking is parasitical, and remember that we live in a fiat money system (where the people decide the amount of capital available, not the rich), then the money pit of the stock market becomes a bit more obvious. Of course saving capital increases the supply of future capital and demand for present capital. But the market is a place where capital is also being accumulated and sequestered away. Those dollars aren't available to collapse debt, because they end up in the hands of people who only want more dollars/ownership.
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Sorry for the multi-posting, l'esprit de l'escalier, or (more accurately), the spirit of the shower.
I don't want people to mistake the value of saving vs the value of consumption. The value of saving is so much greater, and it's why I enjoy money. Supply/Demand; saving means that you're not consuming stuff that could alternatively be used in our economy to increase future output. It's reducing the price of stuff that people like, given how much natural capital is embedded in so much of our consumption.
I want to go back to first order, and my insistence that we don't know what the recipient of the capital will do with it. That's on them, not on us. It's a different conversation. The big difference in the hotdog stand and the house (waiving away my brainfart regarding short-term housing) would be that the hotdog stand is turning idle inventory into productive inventory, or (at least) trying to. Ostensibly, the price of the hotdog stand will just keep falling in price until the inventory clears, so buying it now (instead of someone else later) affects the timeframe at which the stand is brought online. It's not so much increasing the aggregate demand for hotdog stands, but actually increasing the supply of hot dogs. It's why I changed my mind on the housing, because my first instinct was that it was not increasing the supply of housing. But it is, in that it increases the supply of transient housing.
I don't want people to mistake the value of saving vs the value of consumption. The value of saving is so much greater, and it's why I enjoy money. Supply/Demand; saving means that you're not consuming stuff that could alternatively be used in our economy to increase future output. It's reducing the price of stuff that people like, given how much natural capital is embedded in so much of our consumption.
I want to go back to first order, and my insistence that we don't know what the recipient of the capital will do with it. That's on them, not on us. It's a different conversation. The big difference in the hotdog stand and the house (waiving away my brainfart regarding short-term housing) would be that the hotdog stand is turning idle inventory into productive inventory, or (at least) trying to. Ostensibly, the price of the hotdog stand will just keep falling in price until the inventory clears, so buying it now (instead of someone else later) affects the timeframe at which the stand is brought online. It's not so much increasing the aggregate demand for hotdog stands, but actually increasing the supply of hot dogs. It's why I changed my mind on the housing, because my first instinct was that it was not increasing the supply of housing. But it is, in that it increases the supply of transient housing.
Hygro
soundcloud.com/hygro/
Eventually the onion layers will be peeled and economics looks pretty solved.
Lexicus
Deity
My view is that saving ought to be discouraged by economic policy, and indeed I envision an economy in which saving is no longer a good choice even from the perspective of an individual.
In the past savings had an investment function. They do not anymore, so saving represents the deferral of present consumption for....nothing.
In the past savings had an investment function. They do not anymore, so saving represents the deferral of present consumption for....nothing.
Mise
isle of lucy
I was literally writing a reply that started with "is that not just an argument in favour of consumption over saving though?" I still don't understand how you square (a) your belief that basically all savings vehicles (including consumer banking products) are basically entirely rent-seeking with the idea that (b) there is not only value in saving but there is actually more value in saving than in consumption. (The way I square it is to reject (a).)
But all investment turns nothing into something. This is what I don't get. If a company raises some amount of dollars from the capital market, whether by issuing shares or by withholding dividends, and then invests that money in productive assets or labour, how is that not adding productive inventory from non-productive $? You're bringing forward the timeframe at which a productive asset is being purchased by a company, because the company doesn't have to wait until it has enough spare OpEx or cash to buy stuff. Companies do actually take their share price and investor return into account when making investment decisions. Companies do actually make the argument to shareholders that, by withholding a dividend, they can deliver a greater return in the future. And if you buy on that basis then you're giving them the go-ahead to do that. It really does happen! I understand that this doesn't feel as direct an impact as buying a hotdog stand and selling something tangible, but that's just how modern economies are now. They just aren't as viscerally connected as we humans are capable of intuiting, but they do in fact do something productive. When you buy a company's stocks, this really does impact investment decisions. When you add money to the stock market, you really do make companies invest more in productive assets.
The fact that the rich get richer from this whole process, that wealth consistently fails to trickle down, and that the proceeds of economic growth consistently fails to be distributed fairly throughout society is not evidence that the activity of investment is rent-seeking. It is instead an argument that we should tax rich people more and redistribute that wealth to the poor. In other words, it's an argument that giving poor people money is far more beneficial to humanity than investing in the stock market. I'm totally on board with this.
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Getting to a system where savings are discouraged has a hell of a social cost. You would have to model exceptional returns on that cost.
Savings don't defer consumption for nothing. We use them to purchase financial assets.
You are basically advocating a return to the old Malthusian economy where close to 100% of output was eaten and there was no real accumulation of technology or capital per capita in the long run. To me this sounds like a terrible idea, to hold back the whole world for the sake of punishing your ideological enemies, the well off.
Lexicus
Deity
This is all based on the idea that savings = investment, which as I already stated upthread is not true. Pay attention to my response to El_Mach below because you're about to learn something.
You're conflating analysis from the perspective of an individual with analysis from the perspective of the aggregate.
Savings have no investment function anymore because in the early 20th century technology advanced to the point that you no longer need to increase the capital stock to increase production. Indeed, productive processes became so efficient that increasing productivity and increasing production could actually happen at the same time as absolute decreases in the capital stock. Net investment in new capital has been falling since the 1920s yet this situation is accompanied by massive increases in production and productive capacity. Why? Think of how a factory full of robots can do the work of ten factories full of people. Look at how manufacturing employment in the US has dropped like a rock even as manufacturing output has increased steadily.
So this is the fundamental problem with much economic policy and discourse today. All our intuitions and folk knowledge come from an era in which increased production in the future required deferred consumption today. With this no longer the case, policies that are designed to grow the economy by inducing people to save inevitably backfire. The financial wealth created just goes to inflate a bubble rather than producing anything real. The bubble collapses and the workers don't have enough money to consume what they produce. This dynamic has occurred repeatedly since the end of the 1920s, with only a small break from the end of WW2 to roughly the mid-70s, where the financial sector was regulated tightly enough that bubbles didn't get out of hand. There was also an enormous array of institutions, policies, and so on designed to prevent inequality from getting out of hand (thus ensuring that workers could consume most or all of what they produced).
So, @ls612, I am certainly not advocating a return to the "Malthusian" economy. I'm advocating a recognition that the economy today is driven fundamentally by consumption rather than by saving. Consumption is the the driver of production because an investment in production will be "successful" only if people end up actually having enough money to consume what is produced. And if people aren't consuming, capitalists will respond by not producing.
Virtually every mainstream politician in the United States, yea even unto Bernie Sanders, believes this basic story about the economy. We produce more in the future by working hard and putting away our savings now. This is how it works for individuals, so almost everyone simply assumes that it will work for the economy as a whole. The truth is the opposite. The Bush tax cuts didn't stimulate any real productive investment, they inflated a bubble. The Trump tax cuts will work similarly and given the other draconian cuts to consumption that are likely with Republicans in charge of the federal government, the resulting economic crisis will be far worse than the Great Recession. But Democrats share this idea with the Republicans, which is why the Democrats' "Better Deal" policy package was basically a bold proposal to reduce inequality by...issuing tax credits to small business owners. The basic logic that if you rub the lamp of the job creators, the genie of economic growth will pop out is the same, the Democrats just think the Republicans do it wrong.
Economic crisis, and ultimately economic contraction, is the inevitable reward of those who attempt to grow the economy by encouraging saving. It can't be done, it shouldn't be attempted, it's time to just shoot the whole idea that savings are good for the economy in the head and bury it out back.
I would be curious as to whether you have any actual examples of this happening.
https://www.ineteconomics.org/uploa...lliam_Profits-without-Prosperity-20140406.pdf
This is one of my favorite papers to cite because it's an illustration of what I'm talking about above. Giving money to rich people doesn't make them invest in anything, it makes them give themselves more money. If you want rich people to invest in things, you have to give the poor people money so they can buy the things the rich will then invest in producing.
So there you have it. This is what corporations actually use profits for. Given that only about 9% of corporate profits are left over from stock buybacks and dividends, I have to say that I don't think this phenomenon of corporations arguing that not doing a dividend now will result in greater returns later is particularly common or important. I know this data is from the US but I would be pretty surprised if the situation in the UK or elsewhere were very different.
While this sounds great it is dead wrong. First of all, the capital stock in the United States has increased every year since 1950, including the worst of the '83 and '08 recessions, and is almost 10 times what it was in 1950 in constant 2011 national prices. [1] This addition of $45 trillion to the stock of capital in the united states by definition didn't come from consumption. It came from years and years of savings and investment, exactly the thing you seem to oppose. Furthermore, all of that additional capital creates trillions of dollars more output per year and materially raises living standards in America.
Second, you seem to ignore another destination for savings; research and development. Your argument implicitly assumes productivity growth is generated for free and isn't correlated with "investment" by anyone (I put investment in quotation marks because in economic literature investment is generally only refering to capital expenditures, but your definition would also include R&D). The US spends half a trillion dollars per year on R&D, with the private sector providing a whopping $350 billion each year. [2]
Financial bubbles happen when too many dollars find too few good homes. This was the case in the early 2000s when a ton of foreign capital was moving to the US in response to a weak dollar and the result was a housing bubble, but when the US has good homes for 2-3 trillion dollars per year (and this isn't including paying for depreciation, which is another several hundred billion), an aggregate savings rate of 20% is far more appropriate than an aggregate savings rate of 0.
[1]https://fred.stlouisfed.org/series/RKNANPUSA666NRUG
[2]https://www.aip.org/fyi/2016/us-rd-spending-all-time-high-federal-share-reaches-record-low
Lexicus
Deity
I never said the capital stock has actually decreased, though since that is a monetary measure of the capital stock it is arguable that it is kind of irrelevant to my argument. Ie, the replacement of ten factories each staffed by hundreds of human workers with one factory staffed by three workers who oversee the activities of robots would be considered an increase in the capital stock if the robots in the one factory cost more than all the machines in the ten factories.
I am not sure that is the best way to measure things but it's the only way we've got so whatever.
You'll notice I didn't actually say that the capital stock has decreased; only that it is possible for total production to increase while the capital stock decreases.
The relevant measure here is net (as opposed to gross) investment, which indeed has been falling (as a percentage of GDP) since the 1920s.
I can't make the FRED site produce the data I want, but fortunately I found a blog post from an economist posted almost exactly a year ago that has it:
http://conversableeconomist.blogspot.com/2017/02/declining-us-investment-gross-and-net.html
Quoted at length:
This blue line on the graph shows gross investment by private domestic firms, while the red line shows net investment by private firms, both divided by GDP. You can see that from the 1970s and up into the 1990s, high levels of gross investment exceeded 14% of GDP. But since 2000, high levels of gross investment don't reach 14% of GDP. Interestingly, the drop-off in investment seems more visible in the red line showing net investment.
In the next figure, net domestic investment by private domestic firms is divided by gross investment: in effect, this calculation shows what percentage of total investment is actually adding to the capital stock, rather than just replacing earlier investments that have depreciated. The striking pattern is that from the 1960s up to the early 1980s, it was common for about 40% or more of total investment to be "net" or new investment. But since about 2000, it's been common for about 20% of total investment to be "net" or new investment, while the other 80% is replacing older capital stock.
I just want to quote this bit too to show that this isn't some dude I'm only quoting because he agrees with me:
See, he's on your side of this debate. Here's my side, put better than I can:
Look at this stuff carefully because it's quite important. The mere fact of economic growth as a function of declining net investment disproves the idea that savings are required for investment. It's capital disaccumulation - growth proceeding from the mere replacement or maintenance of the capital stock. We obviously have not reached that point yet because we still have net investment over and above investment to address depreciation, but we're getting there.
There is another angle of argument here of course that I haven't really gotten into, and it's the post-Keynesian angle. The idea that banks are like hoards of cash, taking in people's money in the form of deposits and then lending that money out to other people, is wrong. Deposits don't "go anywhere", much like tax payments to the federal government don't "fund" anything. Loans create deposits, not the other way around. This makes it fairly obvious that saving is not required for investment. All that is required for investment is the creation of new money via the issuing of a loan.
Well, sure, in a literal sense, this addition to the capital stock "came from" investment. But that investment actually happened because of the expectation of future consumption, signaled by present consumption.
I have already shown that US corporations are spending a combined 9% of their profits on everything that's not either stock buybacks or dividend payments. This includes R&D. So I consider this point to have already been addressed.
Yes, this is exactly right. But you're missing that what determines what a "good home" for a dollar is, at least partially, the ability of people to pay for the future output generated by that dollar. My argument would be that that ability to pay is actually the decisive factor, more important in the aggregate than any other.
The housing bubble was the result of several intersecting processes. The first and most important was that the inability of the US population to consume what it produced, due to the increasing inequality since the 1980s, which led to consumption growth being financed almost entirely by debt for the 2000s and I think for the 90s as well though I am less certain of that. This was unsustainable. The second dynamic is of course the criminogenic corporate governance environment in the finance sector which created perverse incentives. Fraudulent inflation of asset values (in the case of the 2008 bubble, the asset in question was of course housing) contributed bigly to the bubble.
By comparison with these two trends foreign capital chasing a weak dollar is not even worth mentioning as a cause of the recession or the bubble.
I am wondering just how big a percentage of the actual american public has stocks on the Dow Jones. Or if cheering or caring about how that does is somewhat similar to how hooligans with no job cheer when some player in their football (soccer 
) team scores; you know, a player getting paid millions of euros/pounds. For him it makes perfect sense to care. For his supporters... not so much.
) team scores; you know, a player getting paid millions of euros/pounds. For him it makes perfect sense to care. For his supporters... not so much.
Yeah, it's not like I am saying that consumption is superior to saving. But to square a with b, I am not saying that all savings vehicles are rent-seeking, but that they're best expressed as 'savings' and not 'investments'. But a lot of my usage of this language is because I really want to increase people's understanding of the supply-side opportunities for investment (a filling now saves a root canal later, you can outright model this as "spending that decreases future costs")
I'll forgo a longer reply, because I have to integrate my thinking with the rest of your post and mull Lexicus's feed back even lower. I'd just be kneejerking, and end up positing positions I won't hold in a few weeks.
That said, we're keeping our discussion pretty Austrian. I really do find it amusing how much our current fiat system screws things up when shoehorning theory.
"Failing to spend your money slows inflation, which means that the Central Banks will keep their main interest rates low." Compare that to the (easily mainstream) "lending your money to companies means that you're helping keep interest rates low".
Now that I've typed it, this might be part of the concern. By lending money into the financial system, I keep real interest rates low by (firstly) failing to consume and (secondly) increasing the availability of liquid capital. That said, I have NO idea what I am pulling from that thought.
Mise
isle of lucy
First I'm going to talk first about the article itself. Then I'm going to answer your question directly, because I do have actual examples of this happening, it is not an uncommon phenomenon, and it is a decision made by companies literally all the time.
The Article
Thanks for sharing this - it's a really interesting article that makes a number of arguments that I hadn't considered. It also puts numbers to stuff, which of course was missing from this conversation this whole time.
The article focusses on 11 year period between 2003 and 2012, during which time corporations engaged in massive share buybacks. It contrasts this to other periods of the stock market, where corporations operated a "retain-and-reinvest" strategy, where there was a roughly even distribution between retained earnings and dividend payments, with ~5% share buybacks making up the remainder. It goes on to say that various regulatory changes introduced by the Regan administration (and, I assume, exacerbated by successive Republican governments, though it doesn't state this) skewed this further in favour of share buybacks over dividend payments. During the period the article examines, dividend payments fall from 50% to 41%, while share buybacks rise from 22% to 50%. The article criticises this shift for two reasons: (1) because "retain and reinvest" is its preferred strategy for corporate profit allocation (authors assert without saying why particularly, but I agree with them, so....), and (2) because dividend payments are its preferred means of paying back shareholders (authors argue that it rewards holding stock, whereas buybacks reward selling stock). I hope that's a fair summary of the parts of the article relevant to this discussion.
Firstly, the article provides evidence of long periods of time where corporations favoured retaining earnings for investment over paying back shareholders. Indeed, the article's primary focus is a surge in buybacks in the 11 year period from 2003 to 2012, with a secondary focus on the 1980s to present. Outside of these two periods, buybacks were "not a thing", accounting for ~5% of profit allocation in surviving S&P500 companies. Outside of the 11 year period, dividend payments were the primary means of paying back shareholders. So you have plenty of evidence of companies retaining earnings to invest -- the authors are criticising a narrow and anomalous period of corporate history, and argue for a return to the conventional wisdom of the entire rest of all time.
Secondly, nobody here is going to defend Regan-era deregulation, or say that regulation doesn't skew what corporations decide to do with their earnings. I have no idea whether the author's argument is true or not; if it is then of course I agree with it. I assume that there are also tax reasons why corporations are buying back stock rather than issuing dividends; I assume it is more beneficial both to the company and to the shareholder. Obviously I am in favour of taxing rich people more and getting rid of these distortions.
Thirdly, the %s are, in my opinion, not a useful metric for looking at stock buybacks or dividends vs retained earnings, because they're using total net profit over the period instead of ignoring loss-making companies/years. For example, let's say there are 9 companies that earn $10m and pay out $1m in dividends in that year. Then, there is a 10th company that makes a $50m loss and pays no dividend. On the authors' calculation, adding up the total dividend payments and dividing by the total net profit gives you a dividend ratio of 9/40 = 22.5%, even though no company ever paid out dividends greater than 10%.
A corollary of this is that you can't simply assume that the % of earnings retained by the company is 100% - dividend% - buyback%. In the above example, retained earnings add up to $81m, which is 202.5% of total net profit in that year. You can see why the authors did the calculation this way -- since they are only interested in the fact that share buybacks go up and dividends go down over the period, they don't need to worry about reconciling the total retained earnings. They just need to look year-on-year at the two ratios and compare them. This is a much easier calculation and all the data is readily available, so they just went with that. But you can't then draw conclusions about retained earnings.
I believe their point about "scant profit remaining for investment or wages" is in error, but it appears the vast majority of the article is simply about share buybacks, rather than drawing a causal link between share buybacks and wage growth or investment. Indeed, during the pre-crisis, post-Dot Com bust period they're talking about, CapEx spend was abnormally high throughout. Hard to see how they can argue that there was less retained earnings for investment during a period famous for enormous growth in CapEx!
Finally, that the authors prefer dividend payments over share buybacks is again favourable to my broader argument. The authors argue that dividends are beneficial because they reward investors who hold shares, since this permits companies to take long term decisions rather than chase short term share price increases. I hadn't thought of this but it's a pretty good argument.
Anyway, thanks again for sharing, interesting stuff!
The Question
1) The company I work for withheld dividend payments entirely for 2 years to invest in long term capital projects. This is an extreme example, but it is hardly unusual in corporate finance.
2) The company I work for justifies retained earnings by reference to investment in long term capital projects; specifically, it justifies capital projects by demonstrating that the value of the company will increase by a greater amount than the dividend yield on the same investment. This is precisely the equivalent of withholding dividends on a portion of profits in order to invest in capital projects. It's just another way of saying the same thing.
3) Furthermore, if you invest $ in the company I work for, this will reduce the dividend yield, lowering the hurdle rate, and giving more new capital projects the green light. Again, my company is not unusual; this is fairly standard for most big corporations (the type that get listed on stock markets).
4) This is what all start-ups, especially tech start-ups, do all the time. They take VC funding and invest. Then they take IPO funding and invest. Then they take their own profits and invest. They literally don't return any money to shareholders. In fact, they almost always go even further than this, and take profits that they haven't even made yet -- future profits -- in order to invest. They don't make any money at all for years and years, constantly borrowing from shareholders, secured on future earnings.
5) These are two extreme ends of the spectrum: My company (a very old company in a mature industry) must justify withholding dividends in order to invest; A tech start-up must justify paying dividends (or even making a profit at all!) rather than just investing for growth. In either case -- and in all cases in between -- the choice for a company is whether to pay dividends or invest in growth. In either case -- and in all cases in between -- increasing the total quantity of capital available by investing in the stock market either reduces the dividend yield, making it easier to justify capital investment; or increases the value of the stock, making it easier for companies to provide a return to shareholders that doesn't depend on dividend payments (and therefore retain more earnings for investment).
I feel like you think I'm talking theoretically, when in fact I'm basing it on my own experiences. Companies really do decide to retain earnings in order to invest. They really do prefer that you buy their stock, so that they can retain more earnings for investment. People who work in big corporations and make these decisions would much rather invest than give money back to shareholders. It's just much more exciting. Economics likes to divide itself into Micro and Macro. I personally feel that this is a Micro question couched as a Macro question. The best way to answer it is indeed to look at what companies actually do in the real world, how they make those decisions, how they justify those decisions, what inputs into those decisions, and so on. In my experience, weighing retained earnings against dividend payments for capital projects is a real thing, and the more money there is in the stock market, the more these decisions skew towards capital projects.
Lexicus
Deity
So first off this post is probably going to be pretty disorganized and quote you out of order and I'm sorry for that in advance
Well, naturally another important reason is that corporate executives are frequently compensated with stock options that amount to much more than their actual salary, so CEOs who make a decision to buy back corporate stock are basically paying themselves too.
In a post after the one you're quoting, I showed data demonstrating that net private domestic investment as a percentage of GDP is slowly decreasing over time. I think the reasons for this are much deeper than the regulatory changes made under Reagan and subsequent administrations (by the way, it is a mistake to assume that it is only Republicans who deregulate. The most significant deregulation of the financial sector in the US took place under the Clinton administration).
You're in the UK, no? I wonder whether the situation might be somewhat different there than it is here. I find it generally unlikely that the situation described in that paper where corporations are using much more of their revenue to reward shareholders has changed in the US since 2012. We've experienced some wage growth in the last few years, I suppose. If you look at the data on investment that I posted above, (post #132) you will see that the level of investment is basically following the business cycle, with each expansion period showing a slow growth of investment until the crash which always seems to push it down further to levels it's never been before (at least since 1960, which is where the data starts). Then there's a recovery but the past heights are never reached.
No, I understand that you're talking from experience. What interests me is why your experience seems to differ from the picture painted by the aggregate data as I understand it. And I think you've done a fairly good job of answering by showing the use of corporate profits in the period dealt with by the paper to be anomalous. 5) would also appear to confirm my guess that there is a substantial difference in how young corporations in new or expanding sectors of the economy spend money vs how well-established corporations in mature industries do.
So this is probably the most important objection to the argument here. I think the issue may be the difference between "earnings" and "profits" ie the surplus that results after you subtract losses and expenditures from revenue. As I read the paper, part of the point is that corporations don't need profits to invest in production or R&D - they can do it as part of their operating expenses. So in this sense we no longer require 'social savings' to increase future production (ie, to grow). This distinction between gross revenue and profits is highly important to my overall point here which is that savings serve no investment function. In this sense profits are sort of like social "savings" which we entrust to the capitalist, and in return he (almost always a he, because of gendered power imbalances) invests those "social savings" in production that makes society as a whole wealthier. That has been the sort of "bargain" that has characterized capitalist society since the 19th century. The problem is that the circumstances underlying the bargain changed under our feet, and now when society upholds our part of the bargain - entrust "social savings", ie profits, to the capitalists - the result is actually economic crisis and economic contraction. It means that profits slow down growth that otherwise could be faster if that money instead went to wages. But I think that the net investment data I posted above shows that we're actually headed toward a point where entrusting profits to capitalists could end up making us poorer in absolute terms, if private investment ends up dropping low enough.
Well, naturally another important reason is that corporate executives are frequently compensated with stock options that amount to much more than their actual salary, so CEOs who make a decision to buy back corporate stock are basically paying themselves too.
In a post after the one you're quoting, I showed data demonstrating that net private domestic investment as a percentage of GDP is slowly decreasing over time. I think the reasons for this are much deeper than the regulatory changes made under Reagan and subsequent administrations (by the way, it is a mistake to assume that it is only Republicans who deregulate. The most significant deregulation of the financial sector in the US took place under the Clinton administration).
You're in the UK, no? I wonder whether the situation might be somewhat different there than it is here. I find it generally unlikely that the situation described in that paper where corporations are using much more of their revenue to reward shareholders has changed in the US since 2012. We've experienced some wage growth in the last few years, I suppose. If you look at the data on investment that I posted above, (post #132) you will see that the level of investment is basically following the business cycle, with each expansion period showing a slow growth of investment until the crash which always seems to push it down further to levels it's never been before (at least since 1960, which is where the data starts). Then there's a recovery but the past heights are never reached.
No, I understand that you're talking from experience. What interests me is why your experience seems to differ from the picture painted by the aggregate data as I understand it. And I think you've done a fairly good job of answering by showing the use of corporate profits in the period dealt with by the paper to be anomalous. 5) would also appear to confirm my guess that there is a substantial difference in how young corporations in new or expanding sectors of the economy spend money vs how well-established corporations in mature industries do.
So this is probably the most important objection to the argument here. I think the issue may be the difference between "earnings" and "profits" ie the surplus that results after you subtract losses and expenditures from revenue. As I read the paper, part of the point is that corporations don't need profits to invest in production or R&D - they can do it as part of their operating expenses. So in this sense we no longer require 'social savings' to increase future production (ie, to grow). This distinction between gross revenue and profits is highly important to my overall point here which is that savings serve no investment function. In this sense profits are sort of like social "savings" which we entrust to the capitalist, and in return he (almost always a he, because of gendered power imbalances) invests those "social savings" in production that makes society as a whole wealthier. That has been the sort of "bargain" that has characterized capitalist society since the 19th century. The problem is that the circumstances underlying the bargain changed under our feet, and now when society upholds our part of the bargain - entrust "social savings", ie profits, to the capitalists - the result is actually economic crisis and economic contraction. It means that profits slow down growth that otherwise could be faster if that money instead went to wages. But I think that the net investment data I posted above shows that we're actually headed toward a point where entrusting profits to capitalists could end up making us poorer in absolute terms, if private investment ends up dropping low enough.
civvver
Deity
- Joined
- Apr 24, 2007
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I am wondering just how big a percentage of the actual american public has stocks on the Dow Jones. Or if cheering or caring about how that does is somewhat similar to how hooligans with no job cheer when some player in their football (soccer
Quick google search says about half of americans own stock either individual stocks, through mutual funds or retirement accounts. Also says about 2/3rds between 30 and 64, which makes sense since those are prime working years where people contribute more to retirement funds. Those younger may not have a high enough paying job yet to contribute anything and those older may move money to something less volatile.
http://www.chicagotribune.com/business/ct-americans-dow-22000-investing-20170803-story.html
http://money.cnn.com/2017/10/20/investing/trump-stock-market-americans/index.html
10% of americans own 84% of the market.
http://time.com/money/5054009/stock-ownership-10-percent-richest/
onejayhawk
Afflicted with reason
Now that the trading month is over, we can say, "Wow. What a ride." For the moment, it suffices to say that this is the most fun time, because it's also the scariest. But, there was no Black Monday (1987, down 22%) or Black Tuesday (1929, actually two days totaling 24%), nor an October Collapse (2008 22% over eight consecutive days). Instead we had two separate 1000 point drops and the best week in half a decade. Down sharply on the last day, change for the month was -4.3% for the Dow, -3.9% for S&P 500. That's the worst in (wait for it) almost two years.
Here are reviews on the whole month (some mid-day)and more will be coming.
http://money.cnn.com/2018/02/28/investing/stock-market-february-dow-jones/index.html
https://www.marketwatch.com/story/u...d-selloff-2018-02-28?mod=MW_story_top_stories
https://www.washingtonpost.com/busi...eecfa8741b6_story.html?utm_term=.4283f666076f
http://www.nydailynews.com/newswire...timents-dragged-wall-street-article-1.3846547
https://www.wsj.com/articles/top-20-of-earners-pay-84-of-income-tax-1428674384
J
Here are reviews on the whole month (some mid-day)and more will be coming.
http://money.cnn.com/2018/02/28/investing/stock-market-february-dow-jones/index.html
https://www.marketwatch.com/story/u...d-selloff-2018-02-28?mod=MW_story_top_stories
https://www.washingtonpost.com/busi...eecfa8741b6_story.html?utm_term=.4283f666076f
http://www.nydailynews.com/newswire...timents-dragged-wall-street-article-1.3846547
The top 20% also pays 84% of income taxes. Coincidence?
https://www.wsj.com/articles/top-20-of-earners-pay-84-of-income-tax-1428674384
J
Last edited:
civvver
Deity
- Joined
- Apr 24, 2007
- Messages
- 5,855
I would have to say yes since capital gains tax rates are a lot lower than income tax rates and 10% doesn't equal 20%. I don't really know what you're getting at but they seem to have no correlation.
And it was just an observation not an opinion. Rich people have higher incomes and thus pay more taxes. Rich people also have more disposable income to buy stock. Makes sense to me.
onejayhawk
Afflicted with reason
But, how do you explain the 84% in each case? Coincidence?
Of course
has its uses. There is no 
here, just 
. It was a wild month and the ride is not over yet. Inflation fears are well founded. Full employment is inflationary after all. it will not come soon enough for the midterm elections, but it might help the Democrats in 2020. Now, if they could only find a candidate...
J
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