Sports analogies don’t usually capture my imagination but I found this post at City Journal on the “James Harden economy” included some valuable insights, namely:
More serious than the decline in base hits in baseball or elegant passing in basketball is the frayed connection, in our market economy, between optimal competitive behaviors and the social goods that they are supposed to support. Corporate profits and stock-market valuations have surged for decades, while the incomes of typical workers have stagnated. Growth and wealth have concentrated in ever-narrower geographic areas. Productivity barely rises.
A report released in May by Republican senator Marco Rubio highlights a fundamental shift underlying some of these trends: businesses are no longer the nation’s long-term investors. “Developing productive, long-life capital assets,†the report argues, is “the primary task required of any successful economy.†Market capitalism presumes that the business sector, borrowing from elsewhere in the economy, will fund the creation of these assets. But that “money circuit†has short-circuited: in aggregate, the business sector now lends more than it borrows, a practice “quite at odds with traditional models of corporate finance,†as Federal Reserve economist Roc Armenter observes.
Rubio quotes economic historian Alfred Chandler: “The continuing productivity, competitiveness, and profitability of these enterprises and of the industries and nations in which they operate depend on constant reinvestment.†But this “constant reinvestment†isn’t happening. The data show instead a “financialization†of the economy: “Nonfinancial companies’ balance sheets look increasingly like financial institutions’ balance sheets: that is, they increasingly borrow and lend for profit.†Firms generate profit growth through arbitrage opportunities like the offshoring of labor, by “rationalizing†their workforces, and by investing in financial assets or just buying back their own stock.
These are the modern economy’s “step-back threes.†They lie within the rules and they put wins on the board, but they aren’t yielding the broader benefits for which the game exists. Firms have found a new way to win, and it isn’t pretty.
Don’t blame the companies. They are merely seeking the incentives they have. If you want things to change, we’ve got to change the incentives. What “rule changes” should we implement?
Zero immigration. Very high, protectionist import tariffs to force industry back. Strong unions. Greatly reduced military spending, say 75% reduction, and no troops outside the US. Isolationism.
Prices will rise, but our working class will benefit. Drug abuse will be reduced.
As I’ve shown in previous posts, that will take more than tariffs. Just to name a few it would require prohibitions on intra-company transfers from abroad and domestic content laws.
We would do well to cease the impotant gnashing of teeth about “financialization,†and focus on something we can effect: policies that reduce the returns to labor.
It’s like the environmentalist who disavows nuclear, I can’t take seriously anyone who doesn’t want to deal with immigration etc labor policies.
Or policies that subsidize banks, other financial institutions, and companies earning money through buying and selling financial instruments. Example: next time there’s a financial crisis, let the banks fail and their stockholders lose their investments.