
Profits are too high. America needs a giant dose of competition - bainsfather
http://www.economist.com/news/briefing/21695385-profits-are-too-high-america-needs-giant-dose-competition-too-much-good-thing
======
cs702
...and those profits are not being reinvested in new projects, new ventures,
and new markets.

Instead, large corporations have been accumulating historically high amounts
of cash, which is just sitting on their balance sheets, idle.[1]

It's definitely _not_ due to lack of greed. Corporations in the US are very
much driven by profit motives: whenever they identify an opportunity to make a
profit from customers, they take advantage of it.

Therefore, _it must be_ that they aren't identifying enough attractive
opportunities in which to invest that growing mountain of cash.

Meanwhile, the US middle class appears to be struggling with stagnant wages
and limited opportunity.[2]

We have engine trouble, and no agreement on how to fix it.

\--

[1] [https://www.stlouisfed.org/Publications/Regional-
Economist/J...](https://www.stlouisfed.org/Publications/Regional-
Economist/January-2013/Why-Are-Corporations-Holding-So-Much-Cash)

[2] [https://www.washingtonpost.com/local/happy-days-no-more-
midd...](https://www.washingtonpost.com/local/happy-days-no-more-middle-class-
families-squeezed-as-expenses-soar-wages-
stall/2014/04/26/f4a857f0-7a47-11e3-b1c5-739e63e9c9a7_story.html)

~~~
wheaties
Too much cash? Pay people more! Really that simple. Money has a momentum, a
speed by which it flows through an economy. Eventually those mountains of
capital will disappear because there is no one left to buy what is being sold.

~~~
madaxe_again
Indeed, but unfortunately everything has been set up to provide a strong
motive to hoard rather than spend cash.

The thing is, when you hoard wealth as numbers on a balance sheet rather than
spending it, _you are actually destroying that wealth_. Money which is not in
motion is not money.

I find it absolutely insane that we take the excess, the bounty, the benefit
of the efforts of centuries of technological and industrial progress, and
rather than enjoying those benefits, convert them into numbers in a ledger
that one can look at and go "uh huh", which provide no benefit to man nor
beast.

It's the biggest scam ever pulled, and we all willingly engage in it. Marx
pointed it out as "the accumulation and destruction of crystallised labour-
time by the owners of the means of production" (I paraphrase) in Kapital - and
absolutely bingo has changed since then.

UBI is in my mind the way to go - tax the ever living hell out of cash
reserves, which would promote re-investment and the use of cash - and use the
proceeds from that tax to pay a UBI.

~~~
Frozenlock
> The thing is, when you hoard wealth as numbers on a balance sheet rather
> than spending it, you are actually destroying that wealth. Money which is
> not in motion is not money.

Completely wrong.

It is insane to see this kind of basic communist rhetoric on Hackernews.

If I hide a billion dollar under my mattress for decades, it means that
there's that much less dollars chasing goods and services. The effect will be
as if those dollars had been destroyed : the total wealth will remain
constant, but the value of all the other dollars remaining in the circulation
will increase.

Let me repeat : the wealth remains constant, it is not destroyed. Cars in
driveways are not going to explode. Crops will not spontaneously catch in
fire. People will not forget the skills they have.

~~~
AnthonyMouse
> The effect will be as if those dollars had been destroyed : the total wealth
> will remain constant, but the value of all the other dollars remaining in
> the circulation will increase.

Which causes deflation. Specifically in this case wage deflation. And then
because people have less money, they can't use their cars and crops and skills
because people don't have as much money to pay for gas or food or the services
of others.

~~~
btilly
And in a world with deflation, putting money under the mattress is actually a
good investment strategy.

The resulting deflationary spiral is self-reinforcing. Fear of this state is
why central banks try to create a consistent level of inflation.

~~~
mindslight
And yet the bona fide purpose of economic competition is to always be lowering
prices through optimization, the technology sector being the strongest (most
meta) example of this. If the deflation doom sayers were as prescient as they
purport, we'd all still be using 386s waiting for Intel to announce they've
created the fastest chip they will ever be able to.

In fact, the system is bistable. Inflation has the same self-reinforcing
spiral, and we're living it! The moneyprinters' metric (CPI) has become the
goal unto itself - anything technological keeps getting ever-cheaper, so
anything that can be financialized (the quickest feedback path where printed
money returns to the CPI) shoots through the roof.

~~~
btilly
I have no idea where you're getting your opinion about "deflation doom sayers"
from.

But you're right that the system has some bistability. A deflationary spiral
with declining production and lifestyle can sustain itself for a long time. It
is also sustainable to maintain a moderate inflationary spiral with ever
increasing production and improving lifestyle.

Given that choice, isn't it obvious why bankers try to keep the latter option
going?

But it is not _actually_ bistable. Keeping moderate inflation going requires
continual intervention. It is easy to fall off the rails into a hyper-
inflationary disaster. It is easy to fall off the rails the other way into a
deflationary disaster. And continued success creates the moral hazard of
overconfidence in the stability of the system. This overconfidence leads to
risky behavior which in the end WILL result in disaster.

We came close to that in 2008.

It is unclear to me whether it is better to have regular smaller disasters, or
occasional large ones. But pushing off the next disaster is always better in
the short run.

~~~
mindslight
The classic story about the deflation bogeyman is that if prices will be lower
tomorrow, people won't buy things today. This is demonstrably false with
regards to technology purchases, and obviously false with regards to
necessities like food. People may _delay_ purchases, but this is a _good_
thing if say you're concerned about resource depletion or general efficiency.

I'd say we're in the making of a hyper-inflationary disaster, as central banks
continue to apply their top-down prescription of "productivity", forcing
people to work full time make-work jobs (eg FIRE) rather than letting the
majority slowly build up savings and create economic conditions that naturally
lead to working less (as one would expect from uh, technological progress).
The message just won't be received until the petrodollar has completely
disintegrated though.

~~~
btilly
The deflationary spiral only starts to set in when the increase in wealth due
to deflation competes with the potential increase in wealth from trying to use
capital productively.

So it isn't necessarily a problem if you can wait a year and then buy a better
computer with the same money. But it IS a problem if your best investment
strategy for that year would have been to put the money under the mattress
instead of loaning it out, investing in stocks, or some other activity that
keeps money circulating.

As for a hyper-inflationary disaster, the exact monetary injection you use to
stave off deflation can also create inflation. This is why central banks have
such a challenge on their hands. They are trying to balance the economy
between nasty extremes, while trying to satisfy contradictory goals.

------
dkopi
"An intense burst of consolidation will boost their profits more. Since 2008
American firms have engaged in one of the largest rounds of mergers in their
country’s history, worth $10 trillion. Unlike earlier acquisitions aimed at
building global empires, these mergers were largely aimed at consolidating in
America, allowing the merged companies to increase their market shares and cut
their costs."

I suspect being "Too big to fail" is another major reason for these mergers.
Eric Dash actually let out a warning in the NY Times in 2008:
[http://www.nytimes.com/2008/11/01/business/01bank.html](http://www.nytimes.com/2008/11/01/business/01bank.html)

"As the government makes taxpayer funds available to banks weakened by the
financial crisis, the criteria being used to choose who gets money appears to
be setting the stage for consolidation in the industry by favoring those most
likely to survive."

Mega companies can make huge profits because they feel more confident taking
huge risks. If we succeed - we profit. If we fail - we're too big to fail.
This is commonly refered to as a Moral Hazard:
[https://en.wikipedia.org/wiki/Moral_hazard](https://en.wikipedia.org/wiki/Moral_hazard)

~~~
WalterBright
I've been investing for 30 years. My experience is, whenever a couple
megacorps announce a merger, SELL!

The deals always look good on paper, but the reality of trying to merge two
gigantic organizations is just an unrelenting, slow motion disaster.

The last time I got gulled into believing the hype was the AOL-TimeWarner
merger.

~~~
derefr
There are two kinds of mergers: those between roughly orthogonal businesses
that want to exploit some vague "synergies" between them (as in the AOL-
TimeWarner case); and those between companies that were previously
competitors, as in the constantly-growing brewery megacorp of Annheiser Busch.
The latter is both much safer for investors, and much worse for customers,
than the former; this type of merger has the direct goal of decreasing margin
pressure by decreasing competition.

~~~
jpatokal
But the second type can also fail quite miserably. Daimler-Chrysler, Kmart-
Sears, Sprint-Nextel...

~~~
charlesdm
Sure. But if it works, it's amazing for the shareholders. Just look at
Anheuser-Busch Inbev (and their history of merging/consolidating) and their
soon to be merger with SABMiller.

~~~
dkhenry
And if you don't have the appetite to risk the merged company, the reduction
in competition will spill over into other firms. So if you see a marketplace
consolidating and you think the reason is to decrease competition, then buy
one of the remaining independent firms.

------
gozur88
>The profit bit of the picture, though, has changed a lot. Last year America’s
airlines made $24 billion—more than Alphabet, the parent company of Google.

Wow, that's profound. An _industry_ with 600k employees made more than Google
last year! Next you'll be telling me the banking industry makes more than
Microsoft!

Airlines _need_ to make big profits in good years - they lose money like crazy
in bad years. I don't know if it's still true, but at one time if you
subtracted all the money US airlines lost from the money they made since the
beginning of the industry you'd have a negative number.

To the larger point, this is what happens when you pile on a bunch of
regulations and then allow industry to capture the regulators. The barriers to
entry are raised so high it's impossible to have real competition.

~~~
jernfrost
I think it is a myth that all companies want is light regulation and the evil
guvmint comes in an cover them in red tape. A lot of the regulations have been
lobbied for by companies to keep out competition. Just look at the recent
Tesla cases.

You can go hundreds of years back and companies and businesses were already
then busy at pushing through special privileges to keep their profits high.

It isn't a matter of whether you regulate or not, but about the quality of
regulation and who it is aimed at regulating. When politics can be bought by
power business interests you can bet there will be ever more regulations piled
on which don't actually help consumers much.

~~~
DanielBMarkham
I don't disagree here, but I am concerned you may be overstating your point.

Regulation is rarely a case of being good or bad. Rather, various competing
interests have valid points and some arbitration must be found between them.
As the old saying goes (paraphrased), politics is about slogans. Governance is
about choices.

Political systems exist for political purposes. So what happens over time in a
democracy is that regulations that sound good get enacted while regulations
that don't sound good are not. In addition, regulations are enacted that sound
good even in cases that may not require any regulation at all.

To fix this, politicians use cartoonish slogans -- "all government is bad" or
"we need somebody to protect us from corporations"

This response, while great for the political system, does nothing to address
the underlying bug in the regulatory system.

~~~
adrianratnapala
It's good that this thread is pointing to quality rather than quantity of
regulation -- but remember that "we" (i.e. voters and chattering internet
posters) have no control over the making of regulation.

What we have _some_ control over, is the process that makes regulation. And a
process that makes it easy and convenient, will be easy and convenient for the
insiders who work it.

~~~
DanielBMarkham
Yes, agreed. Just trying to clear the field of all the straw men. I believe if
folks can grasp _why_ it doesn't work like that, they've got a better chance
of working out how it might work. Otherwise we're still in slogan territory.

------
strommen
Seriously? They're using _airlines_ as the example of too-profitable
companies? The industry was in total shambles for nearly an entire decade
after 9/11\. It's no wonder that they're hesitant to lower their margins.

I truly can't imagine an industry that would be more difficult to run a
company in:

* Everything is highly regulated.

* The dominant expense is a highly-volatile commodity controlled mainly by unpredictable/hostile countries.

* Your product has been totally commoditized by airfare-pricing websites.

* People get angry at your company when the weather is bad.

* Use of your product is inextricably linked to the abhorrent process of airport security.

* There is the continual potential of a terrorist attack decimating your sales overnight.

Any decently smart airline _is_ hoarding some profits, because if they don't
they will go bankrupt the next time fuel costs spike or something scary
happens during a U.S. flight.

~~~
guelo
> Your product has been totally commoditized by airfare-pricing websites.

That American made $24 billion last year without passing on anything to
consumers shows that that is wrong. Pricing websites are under full control of
the airlines at this point.

~~~
strange_quark
> That American made $24 billion last year without passing on anything to
> consumers shows that that is wrong. Pricing websites are under full control
> of the airlines at this point.

You misread the article. That actual quote:

> The profit bit of the picture, though, has changed a lot. Last year
> America’s airlines made $24 billion—more than Alphabet, the parent company
> of Google.

Which is a ridiculous comparison. They're seriously comparing an entire
industry to one company? If anything, the complaint should be that Alphabet
makes too much money.

~~~
zymhan
I totally read that the first time as "American Airlines", thinking it was a
single airline that made more than Alphabet. What the hell does it mean to
compare an industry to a company in another field?

------
drawkbox
The velocity of money has fallen off a cliff since 2008 [1].

Money is not moving, that is bad for the lower, middle and most of all upper
class and corporations.

Consumer driven economies with policies that kill off consumer buying power is
a bad mixture. Wage stagnation and money that moves like molasses isn't a
recipe for growth. Companies can only do buybacks for so long.

The trend is not good and CEOs don't see that changing [2].

 _About a third of respondents expect corporations to become more competitive
within three years. Assessments of every element of the U.S. business
environment improved between a 2011 survey and this latest one. The growing
optimism "seems to reflect the cyclical rebound of the U.S. economy," the
report said._

 _But what do business leaders see coming for workers in the next three years?
Only 27 percent expect workers to enjoy higher pay, while 41 percent said
wages and benefits would be falling._

Destruction of lower/middle consumer class since the 70s clearly charts in the
shares of gross domestic income to persons [3], the long slide.

[1]
[https://research.stlouisfed.org/fred2/series/M2V](https://research.stlouisfed.org/fred2/series/M2V)

[2] [http://www.npr.org/sections/thetwo-
way/2014/09/08/346902566/...](http://www.npr.org/sections/thetwo-
way/2014/09/08/346902566/harvard-study-says-economy-is-doing-half-its-job-
guess-which-half)

[3]
[https://research.stlouisfed.org/fred2/series/W270RE1A156NBEA](https://research.stlouisfed.org/fred2/series/W270RE1A156NBEA)

~~~
cryoshon
>But what do business leaders see coming for workers in the next three years?
Only 27 percent expect workers to enjoy higher pay, while 41 percent said
wages and benefits would be falling.

I read this, and I am at ease, because it means that the end is in sight.
Eventually, the system will collapse under its own horrid weight, and we can
have another go at making a good society.

~~~
philovivero
I think you underestimate how much a revolution sucks.

~~~
cryoshon
Nah. A revolution will suck a ton, just that it's inevitable if the current
system of "rape the poor so that the rich can buy more vacation houses"
continues.

------
cm3
To anyone who wants less government and more free markets, unfortunately greed
works in such ways that price fixing and market segmentation is very
prevalent. Everywhere, even Western Europe. You'd probably not expect it, but
take backpacks as an example. German backpack manufacturers hold retailers to
fixed prices, disallowing anything lower than the set price. Same for
mattresses (the kind you sleep on). The result is an illusion of free markets
but where those who try to sell cheaper either get their supply cut off or get
bullied in other ways. Same racketeering goes on with ISPs, and these are
strong arguments why regulation bodies need to exist and impose hefty fines.
Why am I mentioning this? Well, unfortunately without regulation there's no
real competition because companies will split up a market and also agree on
unofficial pricing structures to keep it expensive.

~~~
namlem
Absolutely. Deregulated systems are every bit as vulnerable to greed and
corruption as regulated ones. With regulation, you have to be careful to avoid
rent-seeking schemes by established interests trying to raise barriers to
competition. With deregulation, you have the obvious health, safety, and
environmental risks, but you also have the issues of collusion that you
mentioned, like price fixing and market segmentation.

Fwiw though, there are online-only mattress brands that bypass the
establishment by delivering directly to the consumer.

~~~
cm3
But what other choices than regulation do we have? The regulation has to be
regulated and fully transparent. I hope that as long every penny crossing the
table is visible we'll have a positive outcome. e.g. US judges feeding inmates
to private prison companies they have shares in is an extreme instance of
where regulation and oversight failed.

> Fwiw though, there are online-only mattress brands that bypass the
> establishment by delivering directly to the consumer.

Yeah and there's one online-only mattress firm that is now shifting to making
their own mattresses and selling them as "Anti-Cartel Mattress" and promptly
the firms that tried to prevent them earlier from selling their products
cheaper than fixed have been trying to sue them for the product name.

In German: [http://www.tagesspiegel.de/wirtschaft/streit-um-eine-
matratz...](http://www.tagesspiegel.de/wirtschaft/streit-um-eine-matratze-wie-
ein-matratzenfabrikant-gegen-den-marktfuehrer-kaempft/11945698.html)

------
rubber_duck
People around here might not like it because in large our industry (SW) is
based on IP but intellectual property is a huge artificial monopoly created
under some economic rationalizations - but the reality is it's getting reduced
to rent seeking and concentration of power/wealth.

I'm not sure abolishing the concept of IP (patents, copyright, etc.) is the
right way to go about it - but I'm 100% certain that there are hideous abuses
of the current IP laws and they need to be rewritten with a much more liberal
and modern foundation.

Having software patents is questionable, having software patents last 20 years
is straight out retarded - even if you could argue that some edge case
software R&D would not get funded without patents (which is hard to believe
because most of the time when something is patented people come up with
alternatives and give them away for free simply to avoid patent issues - and
that's arguably even more work because the solution space is smaller). A far
more realistic software patent would be between 5 and 10 years.

Likewise for copyright - copyright claims should expire waaay before the 95
years.

~~~
nwah1
That's part of it. Another part is old-school rent-seeking via real estate
trolling (speculating), which is exactly like patent trolling.

But a lot of tech profits are just "network effects" and vendor lock-in and
not really a result of any kind of government privileges.

Yet, if we had policies which fostered competition and open standards then
we'd have less vendor lock-in.

------
justsaysmthng
I find it odd that economists generally ignore the field of human psychology /
behavior in their assessments.

Things like mental and physical health, addictions and substance use, thought
manipulation and mind control, the fears and desires, sexual fantasies, even
popular movies and music affect the economy greatly.

Not just a little bit, but _greatly_. A CEO's addiction to cocaine or
promiscuity will have an impact on his company's bottom line. A young man
starts a disrupting startup because he got inspired by a sci-fi movie a couple
of years earlier.

Adam Smith's "invisible hand" is "invisible" because those forces can't be
explained by the mechanistic rules of economics or mathematics. We just need
to look elsewhere for a comprehensive picture.

What makes customers choose a product over the other ? Why do some companies
retain great talent better than others - and hence reap greater profits ? How
does pop music affect industrial design ?

Of course, human behavior and psychology is hard to quantify, that is why it's
being left out, but I think we can start to make these connections now that we
have the tools and information available.

Take Google and Facebook - these companies make their profits from
advertising. Tens of billions. Add the profits of the media market - print,
tv, radio.

Now consider how all that advertising affects the demand curve in all the
other industries.

And it's not just the quantity, it's also the _quality_ of advertising -
today's ads are scientifically designed to drill their way into our
subconsciousness. The colors, the sounds, the motions, the emotions - all of
these are carefully weighted so as just to make you want a certain brand over
the other.

And now my favorite part - is there a connection between advertising,
corporate profits, pollution and climate change ?

I think there is and it's a great one. To conclude, I think regulators should
look at all these factors much deeper, determine the connection between mind
and economy and exercise their influence by tuning other parts of society, not
just traditional economic levers.

Of course this is a monumental task for humans, but AI might just be perfectly
suited for this type of analyses.

~~~
blfr
_I find it odd that economists generally ignore the field of human psychology
/ behavior in their assessments._

Psychology, especially social psychology, is an epistemological disaster
area[1][2] and everyone would be better off ignoring its "findings", not just
economists.

[1] [http://www.nature.com/news/over-half-of-psychology-
studies-f...](http://www.nature.com/news/over-half-of-psychology-studies-fail-
reproducibility-test-1.18248)

[2] [http://michaelinzlicht.com/getting-
better/2016/2/29/reckonin...](http://michaelinzlicht.com/getting-
better/2016/2/29/reckoning-with-the-past)

~~~
lgieron
Economy is similar (though perhaps not as horrible) - economic Nobel laureates
have profound disagreements w.r.t. basic "laws" of economy.

~~~
listentojohan
Out of curiosity, could you give an example?

~~~
lgieron
Keynes vs Hayek (well Keynes didn't get a Nobel, but is nevertheless regarded
as a seminal thinker in the field) - their views on the role the state can and
should play in shaping the economy are totally opposite. The debate is
unresolved to this day, with Keynesians taking an upper hand post-2008.

------
padobson
Wages are flat, buy and hold strategies are decimated by bubbles, and any job
can be eaten by globalization.

At the same time, profits are up, access to capital has never been cheaper,
and global market access has never had fewer barriers to entry.

The question is not how do we create living-wage jobs for the American worker,
the question is how do we get the American worker to quit his job and start a
business?

The economy is quite clearly slanted toward the entrepreneur. We need to start
getting Americans to invest their labor accordingly.

~~~
adyus
If every employee quits their job to start a business, who will all these new
businesses employ?

~~~
lmm
Transaction costs have fallen far enough that businesses can be small enough
to be run by one person, or at least a small number of people.

Twenty years ago a small ad agency (say) might have been a couple of
sales/client-management types who did a bit of writing, a dedicated
copywriter, a dedicated graphic designer, and an accountant who also did
payroll and basic HR/legal and handled the office lease. Today each of those
sales/client-management types could have their own business, working out of a
managed shared office, outsourcing writing and graphics as necessary to the
copywriter and graphic designer who have their own businesses (because the
Internet means there's much less overhead outsourcing and communicating with
freelancers), with payroll/legal outsourced to service companies (which
probably means less people - maybe 3-5 people handling 10 companies - but each
company actually ends up with better access to dedicated specialists than when
they had to have one person handling all of those).

~~~
pc86
Meanwhile the supply of full-time copywriting/design/accounting jobs is
decimated and wages plummet.

------
jokoon
I'll always see that phenomena as a societal failure. It seems that overall,
the country prefers to be divided with everyone not helping the government,
not pay taxes (because for some reason, "government is the problem and can't
get things done" (C) Reaganomics libertarians), and not even throwing money at
scientific research.

It seems that wherever you look, things revolves around the accounting of
money, but not around the thing that money can do, like run society and build
things.

It's weird because now companies like Tesla and SpaceX are seen as disruptive,
but the only thing they do differently is just avoiding business as usual and
expanding markets. Ideally, capitalism should be dedicated to creating new
markets all the time, but for some reason it stopped. Just like Neil Degrasse
Tyson talked about NASA, it seems that without public agencies like NASA,
nothing gets done.

~~~
namlem
Given the mountains of evidence for the economic evidence of science funding,
it baffles me how little we spend on the NSF. Their entire annual budget is a
measly $7 billion. NASA, at least is not doing so bad, and have seen an
increase in public support and funding. The NSF, unfortunately, is a much more
behind-the-scenes bureaucratic organization, and doesn't have sexy images of
Martian sunsets and Plutonian topography to generate PR. Yet I would argue
their work is much more essential, as the academic breakthroughs of today
create the game-changing technologies of the future. The most depressing part
is that we even have a surplus of PhD's who would make good use of NSF funds.

------
adventured
Profits are unusually high almost entirely due to two factors. First, the
massive expansion of the global economy the last ~20 years has particularly
benefited the top Fortune 500 companies, along with the artificially cheap
dollar from ~2003-2014 (which has now reversed and is wrecking profits for
that same club). The global economy has grown far faster than the US economy
since the late 1990s, companies that had exposure to that were obviously going
to benefit tremendously vs domestic oriented companies. Second, the
substantial margins and profit of the top US tech companies, which have boomed
more than any other companies over those 20 years.

Apple, Microsoft, Google, Oracle, Intel, Cisco, Qualcomm, etc

That's about $130 billion in profit, between those seven companies.

Oracle produces five Caterpillars worth of profit.

Apple's profit is nearly Berkshire Hathaway + Johnson & Johnson + Boeing +
General Electric.

Or even more dramatic, if you were to do a three year average on profits,
Apple would just about add up to these companies combined:

Union Pacific, Visa, 3M, Caterpillar, McDonalds, CVS, Walgreens, Costco,
Target, Honeywell, GM, Ford, Lockheed, Boeing, UPS, Fedex, Delta, America
Airlines

Microsoft is Goldman Sachs + Disney + Procter & Gamble.

Google's profit is roughly greater than the top 50 US defense contractors
_combined_. You might as well just say it's equal to the entire US defense
contracting industry combined.

Now strip out just Apple, Google and Microsoft, and then inflation adjust the
remaining Fortune 500 back to a 1995 dollar and compare the group with the
Fortune 500 of the mid to late 1990s. What you'll see, is US corporate profits
are not that unusual and the top tech companies are producing a very large
warping of the picture.

~~~
tonyedgecombe
The point the article makes is that global companies make much more in their
home markets than abroad.

------
DrNuke
It is not a problem if the money is somewhat recirculated within the economy
(make projects for the general public, rejuvenate cities, create jobs, pay
salaries). It is a big problem if the money is simply drained out of the
economy and funnelled into fiscal havens.

~~~
protonfish
Especially because this decimates the consumer base. When you've impoverished
your nation's people, who will buy your products? The dysfunctional focus on
short-term profits at the expense of overall economic health makes the economy
sicker each year and this disease will continue to ravish the world as long as
greedy children hold the power to do so.

------
tmaly
The best way to keep out competition is to create barriers to entry. The
onslaught of new laws and new regulations in any industry is the perfect
barrier.

Think about it, how many startups can afford to hire a compliance staff that
ensures they are keeping up with all the laws and regulations passed?

Look at how many pages were added to the Federal Register in the US last year,
I think in total there was something like 60,000 pages.

------
ThomPete
Profits are "too high" because productivity is up due to technology and
digitalization which means that less people are required to take advantage of
tech and make more money.

Competition can't solve this because in tech most is a winner takes all so if
anything competition will create even stronger few winners.

~~~
drzaiusapelord
This is my thinking as well. Everyone worries about robots taking their jobs
in the future, but we've had "robots" since office automation began in the 70s
and 80s. Its a bit more obvious in the blue collar sector where a literal
robot can take your welding job or whatever, but in the white collar sector,
its still the same. There's so much more efficiency that people aren't in high
demand anymore. It used to be even a "small" company was a few dozen people.
Everyone needed an assistant, you had a whole team of people to do graphic
work, a whole team of people to make copies, etc. That's a pretty far cry from
a handful of people, a handful of computers, and a decent laser copier.

There's no fix here. The genie is out of the bottle from an economic
perspective. We just have this long slog ahead of us of working with this new
reality. I imagine things like guaranteed minimum income will be the fix here
as these jobs are never coming back, nor will new jobs come and replace them
as things become more and more efficient.

~~~
maxerickson
Between 1970 and 2000 there was also a massive expansion of the global
workforce. Both in absolute numbers and in the percentage of the planet that
was participating in global markets.

In many countries, women started working a lot more in that period. Other
countries entered the global market (notably hundreds of millions of Indians
and Chinese).

People talk about the rise of Africa being the next cheap source of labor, but
that is a smaller number of people that is less uniformly educated than the
above cohorts.

I don't think it is really all that strange that wages stagnated where they
started out the highest. Maybe we in the US are actually on track for things
to get better rather than worse.

~~~
ThomPete
The US is in just as bad shape. Many of the jobs created are actually
freelance jobs which means no healthcare plans, more temp work less money
(because more competitition)

The app market is a good example of a market where it looks like all this
value is created, the problem is when you then look at who actually make a
living there it's very few people.

This is the reality everywhere.

Uber is working on replacing their drivers. Truck Driver is the most common
job in a majority of US states. What do you think is going to happen to them
when trucks don't need them anymore.

~~~
maxerickson
There's ~ 2 million truck drivers in the US.

In 1970, the US work force was ~100 million.

Today it is ~150 million (~140 million in 2000).

My point isn't that things will be great tomorrow, it's that there were some
really huge forces at work in recent decades too. Compared to the number of
jobs created just in the US in the last 1/2 century, 2 million truckers isn't
that big a deal (and there were hundreds of millions of jobs created outside
the US too).

Of course it is individually a big deal to those truckers if they cannot find
new jobs with equivalent pay, but I'm trying to take a step back and decide
how much impact it will have on the broader economy.

~~~
ThomPete
First of all Truck Drivers are just fraction of the drivers fleet. There are
cab drivers, schoolbus drivers and so one. The number is much higher.

Second of all you need to factor in that many of those jobs are not actually
providing a full salary but are instead temp jobs with no special security
attached to them.

Thirdly. The use keeps moving the goalpost on what they consider a job.

A job is not just a job. It comes with an income. An income which for most
people is decreasing or stagnating.

[http://www.npr.org/sections/money/2015/02/05/382664837/map-t...](http://www.npr.org/sections/money/2015/02/05/382664837/map-
the-most-common-job-in-every-state)

------
jrbapna
I don't think it's that simple. There are few more factors at play:

For one, the markets are risky. Let's not forget that just a few years ago,
bonds which were supposedly rated AAA were nothing but air. The entire
economic system collapsed quite literally overnight. Many people lost faith in
the "system". Currently our debt levels are higher than any economist is
comfortable with, and just like in the case with the subprime mortgages, there
is huge political pressure to keep the government's AAA rating, whether
deserved or not:
[https://en.wikipedia.org/wiki/United_States_federal_governme...](https://en.wikipedia.org/wiki/United_States_federal_government_credit-
rating_downgrades)

Additionally, over the past decade we've seen an huge rise in the number of
startups, and the number of companies looking to "disrupt" entire industries.
In 2016, it's not completely unreasonable that a billion dollar company could
go bankrupt within a few years due to whatever disruption comes from left
field. Hoarding cash is a hedge against this type of risk, as it allows large
companies to be flexible, acquire smaller, potential threats, or go on the
offensive if/when it becomes necessary. i.e. Facebook's acquisition of
Whatsapp for 19B

------
antr
I don't think this is a competition issue. After the 2007-2010 credit crisis,
US corporates have gone through a considerable effort of delevering, taking on
less debt/financing risk. Consequently this has, and will continue, to
increase net income.

If lack of competition is real, this should be reflected at the EBITDA level,
and The Economist has not discussed this at all.

As a long-term subscriber of The Economist I'm a bit disappointed in this
piece.

------
HelloRipley
I like The Economist, but as a subscriber I notice two common trends:

1 - They really, REALLY, love to criticize America. 2 - They often have a
really crappy understanding of micro-economic theory.

~~~
massysett
I can't speak to 2, but they often praise America. They say America has an
unparalleled ability to assimilate immigrants. They also praise other odd
things, like the entrepreneurial spirit of American religion, or the power of
technology transfer between government researchers and industry, or the high
productivity of American freight railroads. One reason I read the Economist is
because they see beyond the daily noise to pick out the news that requires
digging and thought.

------
InclinedPlane
When profits are too easy there's not much incentive to innovate, there's no
hunger. You can see this in google who have dominated their niche of the
market so strongly that they've lacked the drive to seriously pursue other
markets and to invest in their products to bring them to true maturity. Or
look at Apple, who have been coasting on their momentum for years. Initially
the iPhone was ahead of the curve in every way, now they are in the
traditional Microsoft space, adapting innovations from around the industry
and, one hopes, implementing them well and integrating them into a cohesive
experience. Yet you have some major design missteps that haven't caused them
to stumble.

Though you could look at the entire smartphone/tablet industry in general as
exemplary of the problem of easy money. Tablets have only slowly adapted to
the role of content creation and work, because selling toys has been so
insanely profitable there hasn't been a drive to do so.

------
mc32
The US industry needs a big dose of healthy taxation. I don't mean treat it
like a windfall to trip over, I mean sensible taxation where the excess goes
into infrastructure like bridges, roads, rail and urban planning and
development as well as rural planning and development.

Of course something along these lines would require restructuring how we tax
foreign earnings (being more in line with the rest of the world) and regulate
inversions to make them less attractive.

It's a daydream and it won't happen but that's what we should do with the
money, rather than pay fairly compensated employees more, with the exception
of their hourlies, but that's more up to the states to decide.

The gist is if we have extra earnings use them in a way that will create long
term benefits for all citizens --who are living with infrastructure past its
designed lifetime, in many cases.

~~~
tsax
Do you know how much is spent on US infrastructure per year? Do you think it's
the lack of funds responsible for sub-par US infrastructure?

~~~
mc32
No, but it looks like since after WWii we've been mostly reactive rather than
forward looking and proactive.

There are tens of thousands of bridges in need of repair or replacement, for
starters.

------
golergka
This article seems strange. Why does analysis include only american companies?
Capital moves freely between state borders now, and shareholders of companies
of that caliber can decide to invest in China, Europe or other regions all
around the globe— but there's not even a hint of that information in the
article.

~~~
jernfrost
It was partly about pointing out the lack of competition in the US. The
airline business was mentioned as an example. European airline industry e.g.
experience much harder competition and that shows in American relation to
opening up the American airline markets. American airlines are terrified of
European carriers because they know they are far more competitive.

As a European I must say I have always been puzzled by American airlines. Why
is e.g. the services and standards so terrible on American airlines when it is
a country which in all other aspects seems so service obsessed. Even Air
France has way friendlier and helpful staff than American airlines :-D

I guess this article explains some of the discrepancy. American airlines
simply don't face much competition.

~~~
adrianratnapala
I wonder if this is bad news for Europe in the long run. America has had an
integrated economy for a long time, and so the oligopoly has had time to form.

Might we see the same thing after 50 more years of the EU?

My guess is that it depends on how far the political unification goes.

------
abcampbell
The question isn't 'are profits too high?' But rather 'where do profits come
from?'

------
swasheck
I believe this to be one of the primary causes of stagnation of innovation by
larger companies. The bottom line on the balance sheet _now_ is more important
than long-term viability.

It's a bit depressing, honestly. A myopic focus on the self's now without
regard for the future of what could be.

------
delinka
How does this thesis fit with manufacturers of 'premium' products? 'Premium'
being those products that indeed compete with other products but are perceived
as somehow better by consumers. Tablets are a good example: Though Android has
all the market share, iOS generates all the profit. Does Apple need a giant
dose of competition? Looks to me like they have it and _still_ keep raking in
the profits.

------
diego_moita
It is tricky to relate high profits to low competition. Sometimes both can
happen together.

The histogram on the article shows IT/Technology and Finance as being 2
sectors with high profits, but these are sectors with a fierce, cut-throat
level of competition.

Also, as Peter Thiel argued, healthy profits are vital to finance innovation.

------
jack9
Competition has driven down (non-union) wages and increased profits through
aggregation/consolidation. Why compete for 20 years when you can borrow and
spend to buy the competition and double your market with no chance for a
startup to compete at the same level in a regulated market.

------
Shivetya
This isn't really about too much profitability, its about corporations getting
large enough, diversified enough, and still having the ability to relocate
their home, so that politicians cannot rely on them as cash cows for either
political contributions or taxation.

------
cm3
I suppose if double-dutch and similar schemes wouldn't exist and they had to
pay taxes like everyone else, there would be automatic reinvestment via
government spending.

------
disposeofnick9
Maybe it's not that the profits are too high, but inequities of distribution
are causing tangible, social externalities (Carrier moving to Mexico,
undocumented workers rights abused in meatpacking facilities)? Perhaps more
companies need worker representative groups with equity and voting board
stakes as in Europe (even though investing in an employer is doubly risky)?
When interests align, things toward working out compromises... treat people as
just another disposable automaton, expect adversarialness, sabotage and/or
rebellion.

~~~
fennecfoxen
> Maybe it's not that the profits are too high... Perhaps more companies need
> worker representative groups with equity

Or perhaps that money could just go back to the American consumer in the form
of lower prices? That would be a far more equitable way to distribute it.

~~~
kuschku
That has been tried for a few decades now, it doesn't really help.

Lower prices are useless when a lot of the money goes into rent.

Higher wages and better working conditions are required, so that people have
more money they can spend.

It also helps in a global context, as the prices of imported products won't
change much just based on your national policies.

~~~
Futurebot
This is still a terribly underappreciated point. How helpful is it to have
$199 TVs rather than $399 ones if most of your money is going to servicing
student loans, credit cards, insurance, and apartment rent / housing. The
gains in the form of lower prices are vastly outstripped by FIRE-related
expenses.

~~~
kuschku
> How helpful is it to have $199 TVs rather than $399 ones

Something I didn’t mention in the comment, but which is important:

This is a terribly regressive strategy. Those who profit the most are the rich
– for them their expenses just went down by 50%.

But the poor don’t profit.

Yet again continuing to destroy the middle class, and making the american
dream even more impossible.

~~~
fennecfoxen
> Those who profit the most are the rich – for them their expenses just went
> down by 50%. But the poor don’t profit.

Nonsense. The Rich spend a _smaller_ portion of their income on manufactured
goods, household necessities and household entertainment than the poor.
Instead they send their money to things like real estate, fine dining, and
travel.

------
abcampbell
The question isn't are profits too high...but rather, where do profits come
from?

------
emodendroket
What a surprise. The Economist thinks the solution is more markets.

------
pinkwolf
genrally america is being run by lobbies, so naturally, those "lobbies" get
all the profits.

------
macu
TODO: Create brand and company with open source designs, versioned products,
and sell just above cost!

------
known
Unfair competition
[http://www.zerohedge.com/print/502779](http://www.zerohedge.com/print/502779)

------
swehner
I usually stay away from economist "writing."

Here some laughing points from this article:

* according to polling by Pew, a research outfit....

* Return on capital is at near-record levels, too (adjusted for goodwill).

* Together they own 10-20% of most American companies

* The spectre of very big online travel sites dominating the purchase of hotel rooms has led the hotel firms to consolidate, too

~~~
BCM43
Care to explain the problems with those statements?

~~~
swehner
You're sure they are not obvious?

~~~
alienasa
I'm pretty sure they're not obvious. What are the problems?

