Home > Uncategorized > Sharing in the booty

Sharing in the booty

from David Ruccio


We’ve just learned that the corporate payouts—dividends and stock buybacks—of large U.S. firms are expected to hit another record this year. At the same time, John Fernald writes for the Federal Reserve Bank of San Francisco that the “new normal” for U.S. GDP growth has dropped to between 1½ and 1¾ percent, noticeably slower than the typical postwar pace.

What’s the connection?

Fernald, as is typical of many others who have concluded the United States has entered a period of slow growth, blames the “new normal” on exogenous events like population dynamics and education.

The slowdown stems mainly from demographics and educational attainment. As baby boomers retire, employment growth shrinks. And educational attainment of the workforce has plateaued, reducing its contribution to productivity growth through labor quality. The GDP growth forecast assumes that, apart from these effects, the modest productivity growth is relatively “normal”—in line with its pace for most of the period since 1973.

What Fernald and the others never mention is that American companies’ embrace of dividends and buybacks comes at the expense of business investment, which is an important contributor to worker productivity and long-term economic growth.

In other words, what they overlook is the possibility that the current slowdown—which, “for workers, means slow growth in average wages and living standards”—may be less a product of exogenous events and more the way the U.S. economy is currently organized.

When workers produce but do not appropriate the surplus, they are victims of a social theft. And then, when a larger and larger portion of of the surplus is distributed to shareholders (both outside investors and corporate executives)—that is, the tiny group at the top who share in the booty—workers are, once again, made to pay the cost.

  1. Neville
    October 18, 2016 at 11:55 am

    The cause of current low growth in the western world is that for the past 25 years, the portion of debt to GDP has risen to unsustainable levels. This happened as “unearned income” brought forward was used to inflate asset values like housing, healthcare, education and other high costs of entry ( high rents in shopping malls) into the market to make this too unfordable to new market entrants. They and current consumers/producers with maxed out debt levels cannot get jobs paying enough to provide security to obtain credit to enter the mainstream economy. This then becomes self perpetuating as retail income decreases, taxes then decrease and fewer jobs become available for the needed new entrants, who then have to rely on welfare.

    The only solution is a massive write down of asset prices (big recession) and thus the high debt levels, to reach a sustainable economic level of wealth earned to income and debt level.

    The western world has lived beyond its means of production and true wealth creation for far too long. In future; savings (with manageable leverage) = investment must be the norm. The growth of the financial economy where financial instruments are used just to make excessive money from money (Ponzi as Minsky called it) must not be allowed. Money works best when it is used primarily as a medium of exchange, not as a cash cow.

    • patrick newman
      October 18, 2016 at 9:10 pm

      It is not clear what, if anything, you are suggesting for economic/monetary policy or whether you think that a massive recession is the inescapable consequences of ever rising debt ratios. A conventional recession will of course mainly affect those at the bottom who are dependent on work and/or welfare. Furthermore given the extrordinary anger of the done downs with corporatism and the establishment expressed paradoxically through Trump it would be entirely possible that such a major recession would induce both widespread economic and political instability or worse!

      • Neville
        October 19, 2016 at 12:58 am

        As Minsky put it, interfering with market forces like interest rates that signal the misallocation of capital in markets and then the use of financial instruments for activities other than hedging for risk, (Speculation and Ponzi schemes) is the recipe for disaster. This Minsky moment happened with the sub prime crises. No lessons have been learned and the only result now is massive recession and asset re-adjustment to normal values vs economic output potential. Massive bail outs will not be able to be used again as the ammunition is spent, so all sectors at all levels will have to bear the brunt for a new beginning. Because all will suffer the consequences of the past unearned wealth binge, there may or may not be instability. The alternative is to chug along with ever decreasing real incomes, massive disparity in life styles and riots on the streets as poverty escalates for the non financially wealthy classes.

  2. Steven Phillips
    October 18, 2016 at 12:15 pm

    Thank you for this post that I agree entirely with and have recently witnessed example of the capture of excessive reward by a small number of people in control of such companies. Sometimes it is a small number of active shareholders who are in control such as private equity owners that benefit, sometimes it is the senior management but often it is the two together who propose and approve actions that result in large and currently legal transfers of wealth to those on the inside of the deal whilst those who undertake the day to day work receive very little reward for their labours. The situation is exacerbated by global Tax planning that results in only tiny levels of tax being levied – so wealth becomes ever more focused into the hands of a tiny proportion of the deal controllers at the expense of workers, society and a sustainable economy.
    Boards, Regulators and corporate governance practices need to wise up such potential practices and work out how to control it before it destroys our society.

  3. David Harold Chester
    October 18, 2016 at 3:11 pm

    If this analysis is correct then the way the money will be used is going to stop the big production organizations from having much more business, whilst the market for expensive luxuries will boom. However as profits fall off from mass-produced items, due to the reducing demands, a point will be reached (it may already have arrived) where these big organizations discover that without sharing the earnings in a better way they will subsequently get less business demands, and this will cause their OCE’s big salaries to be offensive to the shareholders. Thus eventually the situation will become self-correcting (negative feed-back) so that more equal distribution of the earnings will result.

  4. October 19, 2016 at 12:18 pm

    Lots of relationships mentioned here. Some even may be accurate in terms of what can be observed. But most do not accord with observations. For example, who is that steals from workers? At a party in Austin in 1994 George W. Bush said, what’s the point of being elected to office if you can’t help your friends? He did just that when he was elected Governor and later President. And much of that help consisted of helping those friends become richer. Equally so, much of that help consisted of making those who were not his friends poorer. This is a common way to decide one’s actions. No grand plan. Just helping your friends. Second, in a market-oriented economy the price of work and commodities is what those who purchase believe it to be. These beliefs are largely formed in the interactions with other potential buyers and with sellers. Much the same applies to “debt.” Debt derives its meaning and importance in these same interactions. As does the notions of “too much” and “too little” debt. Interviews and observations over the last several decades track the changing reality of debt and debt values. These show debt as good and bad, depending on the way debt is used. They also show debt as necessary. “That’s the secret of America. Everybody owes everybody.” This quote from James Cagney’s Coke Cola executive character in the movie, “One, Two, Three” sums well debt as it existed for the “person on the street” through the 1960s in America. The notion of debt as moral flaw began to emerge in the 1980s, mostly because of speeches by bankers, politicians, and economists. Later flaw was morphed into punishment. The interesting thing about this evolution of debt is that debt as moral punishment allowed creditors to both morally reprimand debtors and demand that the debtors still pay all debts and fees owed. Finally, is it possible to morally argue the way to greater equality in wealth and resources? Economists’ arguments about wealth and the distribution of resources are mostly moral, not technical. The most effective way to change the distribution of wealth and resources then is to usurp and modify the moral arguments now put in place by neoliberal philosophers, politicians, and economists. That’s grassroots work in small groups, as used by the early Christians and the Bolsheviks in Russia. Not massive intellectual campaigns or academic research/publishing. Academics and theoretical follow. They don’t lead.

    • Jeff Z
      October 20, 2016 at 7:17 pm

      Ken, Nice comment. I might add that even if we change regulations in ways that have been suggested, they will only be effective for a while because people can forget why they were put in place, so there is always political pressure to alter the law. And ‘helping your friends’ is often the way this gets done.

      • October 20, 2016 at 8:30 pm

        Thanks. I’m an anthropologist and historian. Anthropologists and historians recognize that relations are a prime factor in the actions people choose to take or not take. Economists seem stuck in the notion that rational (evolving meaning) factors and self-interest are the basis of actions. Even a cursory review of any anthropology, sociology, or historical research shows that is not the case. As a result economists miss most of the relationships involved in human actions, and misunderstand the rest. That’s a remarkably depressing record for a discipline that claims to be the prime science of economic actions.

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