
Too Many Companies Drain Value from the Economy - pseudolus
https://www.bloomberg.com/opinion/articles/2019-07-03/capitalism-in-trouble-when-companies-drain-value-from-economy
======
temp-dude-87844
Regulations are a double-edged sword and serve many lords, just like most
actions of government. It's possible for the same regulation to vastly
decrease the risk of harm to consumers, yet act as a barrier to entry for
smaller players. This can happen both intentionally and unintentionally. It
also doesn't help that drafting effective regulations requires domain
expertise, so the field is vulnerable to infiltration by industry to further
their own ends. Then there's the sort of regulations that account to little
more than elaborate CYAs, or data collections for some governmental official's
pet project.

On the other hand, it's bewildering to think that every area of life has been
subject to so much regulatory capture (in dozens of jurisdictions nonetheless)
that the year 2000 formed a tipping point of corporate profits in the US. Half
of the years have been under administrations more friendly to mergers, so the
vertical consolidations in the style of CVS-Aetna or Cigna-Express Scripts
could have gone on to become a tool for deep-pocket entrants to enter heavily-
regulated markets. Instead, horizontal consolidation mergers like
GlaxoSmithKline and Pfizer-Wyeth dominated. Don't forget AOL-Time Warner,
Comcast buying AT&T Broadband, or the saga where SBC bought Ameritech and then
the remnants of the original AT&T, renamed itself to AT&T, and then bought
BellSouth too. Or any number of big bank mergers. Or oil companies.

So, it seems instead of entering new markets during a time of favorable
regulatory environment, companies chose to buy out competitors instead, lay
off a bunch of newly-redundant staff, and pocket the profit. Hmm.

~~~
TomMckenny
You mention an excess of mergers over the decades which reminds me of a new
problem with the inverse: anti-trust enforcement.

It appears that anti-trust, which was rare to begin with, may now have been
politicized.

For example, it's hard to understand why favoritism is shown to ISPs yet
effort is put into breaking up large software companies. Especially in light
of the difference in campaign contributions in 2018.

~~~
quanticle
"May now have been politicized"? Anti-trust has been politicized for a long
time. It just seems like it's politicized now, because it's _our_ companies
which are being targeted. When the Obama-era Justice Department prevented the
T-Mobile/Sprint merger, that was considered to be a just and fair application
of anti-trust law, but somehow when the same scrutiny is applied to Google and
Facebook, that's considered "politicization".

To be clear, I'm don't disagree with the Obama Justice Department's blocking
of the Sprint/T-Mobile merger. Such a merger would certainly have reduced the
competition in wireless markets, and would probably have led to higher prices
and poorer service. But it's hard to characterize the decision to pursue
telecom companies (while ignoring big tech) or the reverse (pursuing big tech
while ignoring telecoms) as anything but political.

~~~
_emacsomancer_
> When the Obama-era Justice Department prevented the T-Mobile/Sprint merger

Wasn't it the ATT/T-Mobile merger? Which is a bit different from
T-Mobile/Sprint in various aspects.

------
rayiner
This is not a particularly compelling article.

First, it shows that corporate profits fluctuate between 5-10% of GDP since
1947? The article paints that as "less for everyone else"\--but it seems like
a lot for everyone else.

Second, it cites a study, but then immediately admits it "should be taken with
a grain of salt" because it refers to a hypothetical model without necessarily
connecting it to the actual economy or ruling out alternative explanations.
But then it proceeds to take the assumption that corporations are "extracting
economic rents" as a given.

It cites the decline in labor share of income:
[https://www.kansascityfed.org/~/media/images/publications/re...](https://www.kansascityfed.org/~/media/images/publications/research/themacrobulletin/2018/trendsinlaborshare/tuzemen_marshchart1.svg).
It tries to link that to rent extraction, but the timing is peculiar:
[https://www.mckinsey.com/featured-insights/employment-and-
gr...](https://www.mckinsey.com/featured-insights/employment-and-growth/a-new-
look-at-the-declining-labor-share-of-income-in-the-united-states).

Given the narrative of rent extraction, you'd expect the declines in labor
share of income to have happened during the long period of deregulation,
reduced antitrust enforcement, etc., starting in the 1970s. But labor share of
income was 65% in 1950, and 63% in 2000. It's 57% today, and the vast majority
of the decline happened in the last two decades.

Most of the decline is the result of a handful of sectors:
[https://www.mckinsey.com/featured-insights/employment-and-
gr...](https://www.mckinsey.com/featured-insights/employment-and-growth/a-new-
look-at-the-declining-labor-share-of-income-in-the-united-states). Half of
them are ones where technology has turned workers into commodities, like
retail, or where technology enables massive productivity without much labor,
like internet or software.

~~~
kaycebasques
The Tobin Q measurement mentioned in the article is also suspect:

> But in most industries, economists Germán Gutiérrez and Thomas Philippon
> believe, this process has broken down. In a new paper, they attempted to
> measure how much new business entry responded to the market opportunity
> available in an industry. Gutiérrez and Philippon used a measure called
> Tobin’s Q, which represents the ratio of a company’s market value to the
> book value of the company's assets. When Q is high, it should mean that new
> competitors have an opportunity to come in and take some of the profits in
> that industry, thus reducing existing companies’ price premium and bringing
> Q down. Indeed, the authors found that this was common up until the late
> 1990s. But after 2000 -- right around the same time that profits started to
> rise to unprecedented levels -- the relationship broke down. High Q levels
> no longer seem to attract new market entrants.

It's the ratio of market value to book value. Hasn't book value become less
reliable in the age of software? They mention 2000 as the somewhat mysterious
starting point of unprecedented profit levels. Doesn't seem so mysterious if
2000 was when companies starting adopting technology more intensively.

~~~
colechristensen
I would guess it has something to do with intangible assets linked to fad
usage. There are ten thousand people that could made a usable clone of
Instagram in a day but none of them would likely come close to competing.

Untrue if you're entering say the car repair, grocery stores, heavy machinery,
food production, etc etc.

So many days business are branded and everything that isn't has had it's
margins shrunk to zero. You can't drop in replacements for FAANG or Microsoft
or a whole lot of consumer products because they aren't and can't be
commodities as they have set themselves up as walled gardens.

Good for business, investors, and valued employees. Bad for consumers.

Lack of interoperability or replacibility is the monopoly of the 21st century
and when we get past it we'll be in the beginnings of a post scarcity economy.

~~~
TheOtherHobbes
They're not just walled gardens - they're choke points on important global
data flows, and silos for distilled intelligence that can be abstracted from
those flows.

Closed Data - controlled by monopolies, and generated by the enclosure and
privatisation of user activity - is far more of an issue than Closed Source
ever was.

------
socialdemocrat
Observing this American debate from Norway, one of the supposed big government
types of countries, I notice an inability to distinguish the size of a
government in terms of employees and taxes on one side and the complexity of
the legal system and regulations on the other side.

Norway as many other Nordic countries have high taxation levels and many
government employees, but this is primarily because education and health care
and a lot of child care is run by the government. It does not imply a larger
bureaucracy.

However this does not stop us from having efficient and simple government. We
have much simpler tax code than the US e.g. Despite health care being public,
our health care bureaucracy, regulations and rules are much simpler.

You actually need some regulations to stop complex regulations from creeping
in. E.g. we have strict rules regarding political advertisement and campaign
contributions which means money is not an important thing in Norwegian
politics. Consequently politicians are not bought and we have much less of
this business initiated regulations and red tape that the US has.

Yet we have stronger regulations with respect to workers rights, unions,
environment etc. But that does not mean it is more complex.

Having a "bigger government" does not necessarily mean a more complex one. In
fact it often reduces complexity by setting more common standards.

~~~
testpostpls
The US has 60x the population of Norway on 25x the land.

Honest question: given what you know about politics in Norway, do you
personally believe Norway’s complexity reduction through agreement on common
standards can scale to a country the size of the US?

Could 60 Norways mutually agree on common standards?

~~~
geezerjay
The US is a federation of 50 states and in theory is highly liberal. Therefore
at most your example should scale at the state level. As most states have
fewer inhabitants than Norway then I don't see your point.

~~~
JBlue42
People always bring out the population or area size of the US as an excuse
against why we can't try to do better.

~~~
citrablue
I think people bring out the population or area size in order to explain where
facile comparisons fall down. Scale matters.

~~~
geezerjay
This fictional scaling problem makes as much sense as correlating the effect
of some public policies on the height of the political leader or average
temperature. It's a silly scapegoat that makes no sense at all.

------
thorwasdfasdf
This is the key problem right here:

"They also found that lobbying expenditures in that industry are correlated
with increased regulation, higher profits and lower entry. Unsurprisingly,
they found that lobbying and regulation tended to keep out smaller companies
to the benefit of larger ones."

~~~
GordonS
Brit here, so I don't really understand lobbying in the US, and how such huge
sums of money can be involved without blatant corruption - googling reveals
~3.4 billion USD spent on lobbying during 2018.

Let's say I'm Boeing and I pay a lobbying firm 15M USD - what happens next?
Where does the money go?

~~~
Ididntdothis
A good lobbyist will help drafting laws or regulations and bring them in front
of lawmakers. A lot of laws are written directly by lobbyists.

They may also start a PR campaign for your case.

~~~
mattigames
The language we use tends to shape our views, having that in mind "good
lobbyist" is an oxymoron, is like saying "good mass murderer", it's better say
"effective lobbyist" or similar wording that can't be confused with a moral
judgement.

~~~
Symmetry
So, I've donated money to the Nature Conservancy and the ACLU both with the
intent that they would engage in lobbying on my behalf, both of which I
consider to be "good lobbying".

~~~
mattigames
Nah, is good only in a very narrow specific sense but is still damaging in the
big scheme of things; by perpetuating the "lobbying-based-democracy" instead
of trying to achieve actual democracy (as in vote for nature conservancy, vote
for better education, etc)

------
11thEarlOfMar
There is a cycle in a 'free' economy that runs in the long term, typically
over decades. That cycle is in many senses, related to technical developments:
Something emerges that fundamentally changes the way we live and work (steam
power, electricity, gasoline engines, mainframe computers, mini-computers,
micro-computers, smart phones, ...).

At each emergence, new enterprises are born and start an arc of relevance.
Amplitudes and periods vary greatly, but companies like Sears & Roebuck have
their days of high growth, maximum employment, then stagnation and decline as
successor WalMart transpires through its cycle and takes the reins for a
while.

These companies pay varying amount of taxes, but can't get away from paying
wages. Consider how many families are supported by MacDonald's or Bank of
America. They contribute to society by employing people and enabling them to
pay income taxes much more than their employers pay through corporate tax
payments.

Society gets into trouble when a pair of declining and ascending firms create
a discontinuity for employees. If an employee of WalMart loses their position
because WalMart has lost market share to Amazon, that employee is not likely
able to move their employment to Amazon. Distribution centers are not in the
same places as WalMart retail stores, and, the skills they need are not the
same. Both are selling the same items to the same customers, but due to the
different business models, the employees of one do not map onto the needs of
the other and you have a discontinuity.

On the one hand, Amazon is more efficient than WalMart and delivers more goods
dollars for the same wage dollar (revenue per employee). So fewer workers are
needed and there will be workers left unemployed or underemployed during the
transition. On the other hand, Amazon should, over all, be therefore able to
charge lower prices, benefiting all consumers.

My point is that getting to the bottom of the question about how much and what
type of value an enterprise delivers to society is a deeply complex question.
Bloomberg's opinion seems superficial.

~~~
chii
> [corporations] contribute to society by employing people and enabling them
> to pay income taxes more than their employers pay through corporate tax
> payments.

I can't let this point go undebated.

The taxes paid by workers cannot be counted as the corporation's contribution
to society, because this tax would've been paid regardless of the employer -
it is a contribution from the worker to society.

A corp that does not pay enough corp taxes is a corp that doesn't contribute.
Providing employment is not a form of contribution, since the employment makes
profit. Unless the corp employs people at a loss (in which case, it can be
called a contribution - provided they do not reclaim tax credits to offset the
cost).

~~~
nearbuy
> The taxes paid by workers cannot be counted as the corporation's
> contribution to society, because this tax would've been paid regardless of
> the employer

This only makes sense if you're assuming the total number jobs, salaries, or
GDP can't change. If you decrease the number and/or size of businesses, income
tax collected will absolutely go down. That's what happens in a recession.

Whether you consider income tax to be a worker's contribution or their
employer's contribution is a meaningless distinction. Any policy that attacks
either side (causing fewer or lower paid workers, or fewer or worse paying
employers) will reduce the amount of income tax collected.

------
JMTQp8lwXL
I thought the goal of companies is to return value to shareholders, not
necessarily add value to the economy. I don't mean to sound cynical, but it's
a fair statement with regards to how things are today.

~~~
__jal
"Only shareholders matter" has been gospel for about a generation. And I do
think that attitude is responsible for a lot that is wrong with the US.

But it is, I think, fair to note that corporations are not responsible for
making sure the rules under which they function work for everyone. That
particular failure belongs to government, or in the alternative, all of us for
allowing such a shitty government.

~~~
deogeo
Corporations spend a lot on lobbying to make sure those government rules work
only for them. They should absolutely not get to avoid blame for corrupting
the government with the tired excuse that government is supposed to be
incorruptible.

------
pochamago
It is difficult to fight back against anti competitive regulations, because
most are viewed as important safety precautions. As always, the pharmaceutical
industry is the best example of these conflicts and breakdowns relating to
monopolies

------
snappyTertle
Blames free markets. Describes non-free markets.

~~~
munk-a
"Free Market" is a terrible term, the freedom of the market needs to be
defined. Does the market a business exists in give you the freedom to not be
burgled? Does it give you the freedom to not have to pay for healthcare for
your employees? Does it provide some level of free training to those
employees? If you're a fisherman and there's another fisherman does the market
ensure that other fisherman won't exhaust the ecosystem?

~~~
Toine
Exactly, free markets do not exist in a vacuum.

To simply exist, free markets require a ton of government-backed regulations,
the most obvious one being the right to private property.

There's this dichotomy between the Good free markets and the Bad big
government. They're actually two sides of the same coin : they need each other
to exist.

Radical advocates of free markets (and anarchists) always seem to forget the
violent nature of humans.

~~~
BurningFrog
> _To simply exist, free markets require a ton of government-backed
> regulations, the most obvious one being the right to private property._

Actually, that's pretty much the only one.

~~~
asark
Realistically, if you stop there you're gonna have information asymmetry
problems so damaging that if you don't fix them the torches and pitchforks
will come out.

------
kazinator
> _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. In some
> industries, like semiconductors, this still happens._

Not proprietary semiconductors from a single vendor, only maybe decades-old
commodity parts that are drop-in substitutable, either due to numerous
implementations of the same signaling, or outright licensing of the original
IP to many vendors.

The entry barrier to competing with a silicon vendor that has a complex, well
established proprietary product stack is extremely difficult.

(Which is not to say it constitutes economic rent.)

Silicon vendors don't want to offer lower prices; they want to produce
something differentiated from the rest, and then charge as much as they can
get away with.

(BTW, good luck offering lower prices and higher wages at the same time. That
is only possible if it can be made up for in volume.)

------
refurb
The graph that shows the percentage of corporate profits versus GDP seems like
it shows nothing. GDP goes up, profit goes up at the same rate, so profit as a
percentage remains static.

The comparison to the S&P500 is confusing. Why would GDP be linked to the
S&P500? GDP is a static measure of what the economy is producing, where the
S&P500 is a measure of expected future profits. You wouldn't expect them to
track the same.

~~~
hn_throwaway_99
> The graph that shows the percentage of corporate profits versus GDP seems
> like it shows nothing. GDP goes up, profit goes up at the same rate, so
> profit as a percentage remains static.

Assume you're referring to the second graph. That graph starts in July 2009,
which is just the very-rightmost section of the _first_ graph, which starts
all the way back in ~1947. And while corp profits as a percentage of GDP
hasn't changed much since 2009, this percentage is much higher than post-war
average right up until the Great Recession.

Regarding S&P not tracking to the GDP, while yes you would except them not to
line up 1-1, long term equity valuations can't grow faster than GDP without
some other fundamental economic change,e.g. a permanent reduction in the risk-
free rate (and rates over the past ~30 years _are_ significantly lower -
remains to be seen how permanent this ends up being). For more info google
Buffett ratio.

------
cheriot
With markets, "free" is orthogonal to "competitive". Yet all the political
rhetoric is about free or not, regulated or not. What we really need to be
talking about is how competitive a market is and whether regulations make it
more or less competitive.

Free and uncompetitive: social networks

Free and competitive: breakfast cereal

Unfree and competitive: stock markets

Unfree and uncompetitive: comcast, san francisco landlords, NFL

------
Ericson2314
It sometimes feels that more and more economic activity (in the USK is totally
pointless, or zero sum like advertising. Suppose this is true, heterodox as it
may be. Certainly as a programmer consultant it seems that so much technology
work is pointless searching for a profit and problem, never meeting a pre-
existing demand.

In such a low stakes weird economy, it's really hard to compete because nobody
needs anything. For your corporate desk worker, keeping the existing deal is
inertia while changing it is work and career risk. So rather than effort ~
dMoney, effort ~ d^2Money. That's alread explanes so much even before saying
deals are corrupt steak dinner affairs or whatever.

The right is correct in saying that the things people really need, housing
food and healthcare, are super regulated. But the left right in that land use
and especially ealthcare are totally unsuited for a free market anyways.
(Though LVT is more powerful and magical than any healthcare rule.)

------
soniman
The Tobin Q ratio is market value / replacement cost of assets. The problem
is, what is the replacement cost of an Twitter or Uber of Amazon? The cost of
the software itself is trivial, and yet it would be near impossible to replace
either. The whole notion of valuing new-era (or whatever you want to call it)
companies using "replacement cost" doesn't make sense. The proponents of Q say
that ultimately the profit margins will be so juicy that somebody will start
to compete for those dollars. Maybe. There's no evidence of that yet.

------
thisisit
Interestingly, the article doesn't look at its own chart carefully. When
economy is booming, everyone becomes an expert in everything. Companies which
have no business existing or entering certain segments do anyways because -
why not? They need to earn yields above and beyond the market normal.

When there is a recession, many companies are wiped out and/or acquired,
thereby reducing the overall tax numbers.

Honestly, all these articles bemoaning current state of the market tell me
that we might be nearing a high.

------
ptah
another issue is companies that profit from exploiting the commons and push
their costs to the general population e.g. shale gas and oil as well as other
mining operations.
[https://www.theguardian.com/environment/2013/dec/11/taxpayer...](https://www.theguardian.com/environment/2013/dec/11/taxpayers-
fracking-pollution-companies)

~~~
anonymous5133
Also nuclear power. Run a profitable fleet of nuclear reactors and when the
reactors get too old to operate you decommission them and then eventually the
company goes bust...leaving the government to fund the never ending legacy
costs of depleted fuel storage/containment.

------
akulbe
One of the comments in the article was "They found that redistribution from
workers to shareholders accounted for 54% of increased stock wealth."

I wonder if the same premise still applies with employee-owned companies? or
does that turn the article's premise upside down?

------
tehjoker
You've gotta be skeptical of an article in the financial press that
hearteningly acknowledges the blindingly obvious macroeconomic problems and
proceeds to suggest the solution is some kind of reduction of regulation. They
didn't even offer a single convincing mechanism by way of example.

I am 100% on board with the idea that large companies have captured key
agencies. You don't need a scientific study to note the antics of Ajit Pai or
the hostile takeover of the CPFB by a guy that just showed up and just sat in
an office there until people started doing what he said. However, the idea
that somehow cutting regulations will cause monopolies to be less monopolistic
is laughable.

Look at Uber, the poster child for dysregulation. They openly and actively
thwart any kind of rule of law that would constrain them, and they can fund
their operations at shocking losses in the mere hope that they can corner the
market permanently. Look at the arms manufacturers that openly lament that
there isn't enough of a left wing ruckus to scare people into buying more
guns. Look at the right wing rebellion in Oregon over a nothing cap-and-trade
bill that called for armed militia to protect the interests of oil.

When you have money, the fewer constraints you have, the more you can do. It's
the golden rule.

~~~
solidsnack9000
_Look at the arms manufacturers that openly lament that there isn 't enough of
a left wing ruckus to scare people into buying more guns. Look at the right
wing rebellion in Oregon over a nothing cap-and-trade bill that called for
armed militia to protect the interests of oil._

What do either of these examples have to do with monopolies?

~~~
tehjoker
Mainly that there are players that are big enough, with enough concentrated
power to care about politics and influence it. When such large industries
lament that prices are falling because there's not enough fear, the logical
question to ask is "What are they thinking of doing in response?" I don't
think there's a constituency of ordinary people that's willing to go to war
over cap-and-trade by itself (they will defend right wing politicians though),
but what interests would be willing to push their puppets to take such drastic
action? The energy companies of course.

------
jopsen
Could it also be consumers are less cost sensitive and more brand sensitive?

------
thisrod
_Game of Mates_ gave a detailed explanation of how this process happened in
Australia.

[https://gameofmates.com/](https://gameofmates.com/)

------
known
[https://en.wikipedia.org/wiki/Tragedy_of_the_commons](https://en.wikipedia.org/wiki/Tragedy_of_the_commons)

------
ptah
it sounds like they didn't take into account strategies like Amazon selling
books for below cost to starve competitors and then getting an effective
monopoly as a result

~~~
anonymous5133
Or companies like Adobe creating PDF format to allow anyone to sell their book
on their website or give it away for free direct to the consumer.

------
Zyst
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?

~~~
rifung
> 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?

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.

------
WalterBright
I don't think it's any coincidence that one large market with essentially zero
regulation, software development, has pushed prices to literally $0.

------
tomp
I agree that corporations taking bigger share of GDP is a good point (possibly
because of technology / automation / information economy?), but “stock
valuations have increased faster than either profits or the economy” is a red
herring.

The fair value of a company is the net present value of future profits. To
calculate NPV, you take some profit in the future, and discount it to the
present by dividing it with the _discount rate_ (usually inflation or risk-
free rate), and repeat. Due to FED’s quantitative easing, the discount rate
has been historically low for the past decade!

~~~
jacques_chester
This is true, but there were runups like this before the Federal Reserve.
Quite a few, as it happens.

What, for example, is the NPV of a tulip bulb? Or a share in the South Sea
Company?

------
lwb
I don't understand the second graph. If corporate after-tax profits are only
10% of GDP, how come they have the same number in the second graph?

------
ctack
If the economy had to completely take negative environmental externalities
into account, would any company add value?

------
roschdal
Let the Great Depression of 2019 begin! Caused by an overvalued stock marked
compared to the underlying economy.

~~~
JMTQp8lwXL
Not that you're suggesting this, but I fail to see how a stock market
correction could improve things for the common worker. I think some people
cheer on the idea to buy stocks at a discount -- that ignores quite a bit of
pain caused to people. There's real, tangible consequences. Workers lose jobs.
Most don't, but some do. In fact, the '08 crisis helped the investment class
scoop up working class wealth at bargain real estate prices, when people
couldn't hold on.

~~~
andrekandre
not only do workers loose jobs, but people turn to hard drugs, families break
up, kids grow up with out a stable family, generational wealth declines,
social mobility is hurt... for millions of people. then you get the “populist”
politicians with “easy answers” like blame the immigrants etc and more
political instability...

economic downturns are looked at like they are just numbers on a chart, but
they have real visceral and sociological results for millions of people and
can be felt for a generation or more

------
cyrksoft
So who decides which company stays and which goes? Merge them all? This is a
classic example of Hayek’s “The Fatal Conceit”. There is no way any government
or person would know everything or be able to see the future so as to manage
such economy of monopolies.

------
nannePOPI
"So it’s possible that big companies are increasing their market power by
using lobbying to capture politicians and regulators. If this is true, it’s
very bad news for free markets and capitalism."

So, they managed to blame capitalism and the free market for the effects of
lack of free market and the will of politicians and the public to accept
regulation that causes less free market? What the hell!!!! This is the kind of
culture that makes it possible for estabilished companies to lobby for
increasing regulations. If there were a "free market at all cost" approach,
maybe even punishment for those who attack the free market with lobbying,
there would not be this kind of problem. There would be other problems, of
course, but not this one. Of course, they had to blame even the lack of free
market on the free market. Come on!

------
quanticle

        So it’s possible that big companies are increasing their market power by
        using lobbying to capture politicians and regulators. If this is true, it’s
        very bad news for free markets and capitalism. It would validate the claims
        of Senator Bernie Sanders, the socialist presidential candidate who has
        blamed corporate interests for the woes of American workers.
    

I'm not sure how the conclusion follows from the premise. The rest of the
article talks about how increased regulations, rather than helping the
consumer, just give corporations more avenues by which to lobby the government
and suppress competition. But somehow that supports the claims of Bernie
Sanders, whose platform calls for massive increases in corporate regulation?
That seems like dubious logic to me.

~~~
BLKNSLVR
The article specifically only says that:

    
    
      It would validate the claims of Senator Bernie Sanders,
      the socialist presidential candidate who has blamed 
      corporate interests for the woes of American workers
    

It doesn't mention his platform of regulation, just his "blaming corporate
interests". Which is quite the bland statement overall, no matter where it
lies on the truthiness scale.

------
solidsnack9000
_So it’s possible that big companies are increasing their market power by
using lobbying to capture politicians and regulators. If this is true, it’s
very bad news for free markets and capitalism. It would validate the claims of
Senator Bernie Sanders, the socialist presidential candidate who has blamed
corporate interests for the woes of American workers. Why exactly big
companies and their lobbyists might have become more successful in bending
regulation to their will since 2000 is still a mystery, but it’s a phenomenon
that deserves more attention and investigation. The future of capitalism could
be at stake._

I'm not sure how that author makes the segue from regulation being a problem
to _more_ government control being the answer.

~~~
socialdemocrat
It is, if you actually understand the nuance of the argument. The world can't
be dumbed down to "more" or "less" government. It is ACTUALLY important HOW
government works.

I could use my native Norway as an example, where corporation has not taken an
increasing share of the economy and workers are better compensated.

We have been run for many years by Bernie style guys. However we tend to have
much simpler regulation than the US, which has been run mostly pro
business/capitalism types of people.

Size of government and regulation complexity is NOT the same thing. The amount
a country taxes its citizens and the complexity of the tax code e.g. is not
remotely related. But conservative rhetoric implies that it is. In Norway we
have considerably higher taxes than the US, but our tax code is far simpler.

Likewise our health care system is mostly government controlled, but US health
care system while mostly private is encased in far more complicated
regulations. Our health care rules and regulations are far simpler. The
bureaucracy surrounding US health care is mind boggling.

Although this is hard to impress on an American, a more powerful government
often means LESS and SIMPLER regulations not more complexity. A more powerful
government less influenced by special interests can simplify things by
creating common standards for things.

We have a lot of that in Norway, where the US has lots of incompatible
standards, because government is weak or heavily influence by business
interests. E.g. there is a standard for electronic prescriptions, so I can get
a prescription with any doctor and that will automatically be available in any
pharmacy regardless of the company operating that pharmacy.

It isn't hard to explain why things are this way. US politicians can easily be
bought, and companies pay them to create complicated regulations which benefit
them by keeping competition out.

Why do you think the most complicated bureaucracies exist in developing
countries? It is because government is so corrupt. Corruption drives
complexity. If you want simpler rules you need cleaner government. Then you
need to get money out of politics. Bernie Sanders is the guy to do that.

~~~
solidsnack9000
They unfortunately do not make a detailed argument like that in the article.

What prevents government from being influenced by business in Norway? What
keeps it “strong”?

------
jbottoms
It is not just companies. There are agencies of the government that make a
practice of using consumer money first to accomplish things for the benefit of
enterprises.

------
BurningFrog
So Noah Smith has discovered that the economy is over-regulated.

Conservatives and libertarians have said this for decades, but they don't
exist in his world, so he treats it as a brand new independent discovery?

------
wtfrmyinitials
> So it’s possible that big companies are increasing their market power by
> using lobbying to capture politicians and regulators. If this is true, it’s
> very bad news for free markets and capitalism.

A market where companies engage in regulatory capture is not a free market.
The word you're looking for is "corporatism", Noah Smith.

~~~
firethief
Isn't that kind of a no-true-Scotsman point? Starting from a totally free
market, regulatory capture is inevitable (or other anti-competitive practice
destructive to free markets). Achieving a persistently "free" market requires
at least enough regulation to prevent that transition.

~~~
antidesitter
> Starting from a totally free market, regulatory capture is inevitable.

How?

~~~
firethief
Companies obtain money and power. Companies use money and power to secure
their position, because "make the best product" is usually not the best
investment whenever "prevent competitors from reaching the market" is on the
table, and regulation is one of the popular ways to achieve the latter.

~~~
antidesitter
> whenever "prevent competitors from reaching the market" is on the table

So when you _don’t_ have a free market?

~~~
firethief
I think you are confusing the possibility being present with the possibility
being realized. In a free market, that possibility is present but unrealized.
The _possibility_ doesn't make the market non-free (and anything that would
_prevent_ such possibility would make the market strictly speaking non-free),
but when entities choose to _act_ on that possibility the market is no longer
free.

~~~
antidesitter
You didn't say it was _possible_ (which almost anything is in this context).
You said it was _inevitable_.

------
g_langenderfer
Are companies acting in their interest the problem or is it the system that
allows incumbents to lobby and close the doors to new entrants behind them?

The status quo is a bastardization of capitalism.

------
dandare
This article is one huge strawman fallacy. How is monopolies or lobbying the
fault of capitalism? If this was an assertion in a random blogpost, so be it,
but I would expect more from Bloomberg.

------
o_p
Its almost as if capitalism was made to extract as much surplus value from the
worker to the capitalist as possible! (shareholder I mean I forgot its the
21th century)

~~~
chrisco255
It's almost as if most Americans depend on 401Ks for their retirement and
therefore are the shareholders you decry.

~~~
cmmeur01
March 2016 US Bureau of Labor Statistics says that 44% of private industry
workers participate in a 401k.

So no, most Americans do not have a 401k and seeing as that would be one of
the easiest / most common ways to access the stock market, therefore have no
shareholdings.

~~~
refurb
Add in pensions as well. Where do you think CalPers invests their money? Under
their mattress?

------
blackhole
Given the number of corporate apologists floating around this site, I fully
expect that the top voted comment here will be some form of "rent-seeking
behavior isn't always bad". Someone will point at the GDP going up and say
this justifies literally everything that corporations do. Someone will draw
comparisons between two lines on a graph and say this is why Facebook never
did anything wrong.

Is this really what we've sunk to? Is this really what everyone thinks? Are we
so jaded by the failures of our economic system we can't even tell when it's
falling apart?

Surely, even the most staunch supporter of the free market can admit that at a
bare minimum, capitalism in this country is in desperate need of better anti-
trust regulation to stop monopolies from crushing all competition. Surely we
can admit that simply making a bunch of tech startups with weird website URLs
is not going to fix the economy by themselves, and might even be making the
problem worse.

Of course, given that we can't even agree that global warming is a problem as
the arctic permafrost melts, I'm not particularly hopeful.

~~~
KKPMW
> Surely, even the most staunch supporter of the free market can admit that at
> a bare minimum, capitalism in this country is in desperate need of better
> anti-trust regulation to stop monopolies

Not taking the position, but free market supporters typically point to
regulations as the main reason why monopolies exist.

~~~
dredmorbius
And they're somewhere between wrong and disingenuous to do so, though it's an
awfully common trope.

Contrast the treatment of monopoly in Marshall's _Principles_ (the leading
text from the 1880s through the 1940s) -- a full chapter, plus numerous other
mentions -- with, say, Hazlitt's _One Lesson_ , where it escapes mention
entirely, save a note at the end. Hazlitt's book is corporate propaganda.

[https://archive.org/details/in.ernet.dli.2015.217841/page/n5...](https://archive.org/details/in.ernet.dli.2015.217841/page/n515)

[https://archive.org/details/in.ernet.dli.2015.217841/page/n9...](https://archive.org/details/in.ernet.dli.2015.217841/page/n907)

[https://fee.org/resources/economics-in-one-
lesson/](https://fee.org/resources/economics-in-one-lesson/) 9full text in one
page)

~~~
Gibbon1
I think Martin Gardner when writing about bad science roughly said unless
there are strong countervailing forces orthodoxy eventually becomes a
reflection of cultural biases. I feel modern economics is if anything about
generating obsequious corporate propaganda.

~~~
dredmorbius
That tendency goes way back. To the point of coopting anticorporate texts as
corporate propaganda, such as _Wealth of Nations_.

