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by Zyst
2547 days ago
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I didn't understand what the article wanted to say. I feel than rather than explaining what a source wanted to say, it namedropped 4 papers (and 1 with conflicting results with one of those 4 for intellectual honesty), and tried to fit some narrative to it, which I didn't understand very well. I did understand that the title means "A great number of companies drain value from the economy", rather than "Having too many companies drains value from the economy". Did anyone understand the message the article wanted to communicate aside from the title? What was it? Is it a valid message based on the sources it linked? |
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The phenomenon:
"in recent years, stock valuations have increased faster than either profits or the economy itself"
The explanation:
"They found that redistribution from workers to shareholders accounted for 54% of increased stock wealth. Falling interest rates, rising investor appetites for risk and economic growth comprised the remaining 46%."
Additional information/context:
"But their finding is consistent with evidence by economists Loukas Karabarbounis and Brent Neiman showing that labor’s share of income has declined all over the world. It’s also consistent with work by economist Simcha Barkai, who found that business profits have increased much faster than the value of the capital they own."
The previous theory:
"But this leaves the question of how shareholders have managed to extract increasing rent from the economy. In a healthy economy, competition should get rid of rents, because new companies will enter the market and vie for a slice of that pie, offering lower prices and higher wages until the rents mostly disappear."
Evidence that previous theory is wrong:
"But Gutiérrez and Philippon estimate that increasing returns to scale aren’t correlated with the breakdown of the relationship between Q and new business entry, casting doubt on this explanation. Instead, the authors point the finger at increasing regulation. They found that the higher the volume of new regulation in an industry -- measured by analyzing the text of the Code of Federal Regulation -- the less new entry is driven by high Q. "
To summarize, stock valuations have increased. Several studies support the idea this is due to an increase in the proportion of profits going towards shareholders instead of laborers. Previously people might have thought that in a free market new competition would appear which prevents this from happening but other studies suggest this isn't happening because of increasing regulation, possibly due to increased lobbying.