Dr. William Lazonick, co-founder and president of The Academic-Industry Research Network, sits down with Real Vision’s Max Wiethe to dissect the evolution of the stock market and the modern American economic system. Citing Boeing as an example, he contends that the stock market is being used to loot previously innovative corporations as insiders and outsiders alike are incentivized to push stock prices higher. He also argues that American competitiveness is being sapped as companies prioritize stock buybacks over investing in research and development, building new infrastructure, and paying off debt. Lazonick explains how this focus on short-term profits has led to unstable employment, sagging productivity growth and a loss of international competitiveness. Filmed on December 6, 2019 in New York.
Ben Hunt joins Michael Batnick and Downtown Josh Brown at The Compound to explain what he’s so angry about – he sees wealth inequality as being driven by hijacked narratives about capitalism, stock buybacks, central banks and the managerial overclass orchestrating it all.
Dimon, Iger, Cook, Nadella, Pichai, Fink … they’re not founders like Gates or Bezos. They’re not investors like Buffett or Dalio. They’re management. And now they’re billionaires. And all their captains and lesser brethren are centimillionaires. And all their lieutenants and subalterns are decamillionaires.
And everyone is perfectly fine with this. No one even notices that this is happening or that it’s different or that it’s a sea change in how we organize wealth in our society. It’s not good or bad or deserved or undeserved. It just IS. This is our Zeitgeist.
This Is Water
One day we will recognize the defining Zeitgeist of the Obama/Trump years for what it is: an unparalleled transfer of wealth to the managerial class.
It’s the triumph of the manager over the steward. The triumph of the manager over the entrepreneur. The triumph of the manager over the founder. The triumph of the manager over ALL.
If TXN is the poster child of financialization, where are the owners? Who should be voting against all this bullshit? Where’s the corporate raider coming in to unlock shareholder value.
Here’s a quick google search.
Mutual fund holders 51.33%
Other institutional 37.52%
Individual stakeholders 0.55%
The finance industry is having it’s own “god is dead and we have killed him” moment.
Many speculate what the end game of “passive” investing looks like.
This is a preview.
But that’s what everyone in finance does. Don’t look at individual investments, build a portfolio. Hurray indexing. Hurray diversification. Hurray diversified portfolio across asset classes because you can’t make alpha without private information.
Are you investing in a way that supports more of this shit? Then going to your favorite forum “let’s ban buybacks”.
Don’t buy TXN stock(directly or indirectly).
Question for Ben: Is there any TXN under your management?
Yet if many workers still feel not entirely secure, there’s a reason: investment. Several policy improvements of the Trump era have buoyed business investment compared with the recent past. But America is nowhere near reversing long-run declines in business investment that continue to stress many households notwithstanding the good economic times.
A suggestive exploration of the problem emerges in a recent report released by Mr. Trump’s erstwhile rival Sen. Marco Rubio. It describes an American economy that somehow has forgotten how to invest.
Net private fixed investment (expenditures on equipment, machinery or property minus depreciation) averaged around 8% of gross domestic product between 1947 and 1990, with significant spikes during booms—it hit 10% of GDP under Ronald Reagan. It has lagged since then, however. As of late 2018, amid another burst of GDP growth, net investment was barely half the Reagan level.
The cause of this is not a lack of cash in corporate America. Since 2000, nonfinancial firms have become net creditors in most years rather than net debtors. This is astounding. For most of our history the sole purpose of a nonbanking company was to receive capital from others so as to invest productively. Now on aggregate they distribute capital to others so that those guys can invest somewhere else. This phenomenon underlies the recent trend toward aggressive share buybacks.
This long-term downward trend in business investment raises a question about how well America will sustain its recent productivity gains. Absent sustained productivity growth, voters will be right to question the potential longevity of the current boom. Without parsing earnings press releases, employees can tell when their companies seem to have a plan to invest in long-term growth. A sense of directionless management can contribute to a gnawing unease about job security. This can produce unpredictable political consequences, whatever the GDP data say.
What to do about this is open to debate. The Rubio report’s ruminations about poor market incentives for longer-term investment are fine so far as they go, although its complaint about shareholder short-termism is partly belied by two of the corporate success stories it cites. Tesla and Amazon are conspicuous net debtors that continue to invest heavily back into their businesses. It can be done, and investors will tolerate it.
The 2017 tax reform and Mr. Trump’s mammoth deregulation drive are necessary conditions for an investment revival, as the recent investment uptick shows. But comparing recent trends with the historical norm, it’s clear these policies are not sufficient to restore the level of investment America needs. Can Mr. Trump figure out what is? Since he’s a longtime businessman you’d think so, except that his business experience lies exclusively in real estate and marketing—one of which features low productivity and the other low fixed-asset investment.
Nor do Democrats have any more of a clue. The common refrain from the left, with many melodic variations, is that if the private economy won’t invest in productivity enhancements, the government must.
Did these folks sleep through the past decade? With business not investing, government already has become the “investor of first resort” via its own deficit spending. The result has been a mix of social-welfare blowouts driven by political short-termism (indistinguishable, in productivity terms, from the worst charges laid against shareholders) and such crackerjack business plans as Solyndra.
Politicians continue casting about for productivity solutions. The danger is that 2020 becomes merely another contest to decide whom voters distrust the least to deliver one.