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Response to Richardo (Original post)

Tue Jan 31, 2012, 06:38 PM

16. the top of the heap have been, for well over 1000 years, rentiers

 

Rentier capitalism is a term used in Marxism and sociology which refers to a type of capitalism where a large amount of profit-income generated takes the form of property income, received as interest, intellectual property rights, rents, dividends, fees, or capital gains. (Wikipedia)

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On Short-Termism and the Institutionalization of Rentier Capitalism

http://www.nakedcapitalism.com/2011/05/on-short-termism-and-the-institutionalization-of-rentier-capitalism.html


Andrew Haldane and Richard Davies of the Bank of England have released a very useful new paper http://www.bis.org/review/r110511e.pdf on short-termism in the investment arena. They contend that this problem real and getting worse. This may at first blush seem to be mere official confirmation of most people’s gut instinct. However, the authors take the critical step of developing some estimates of the severity of the phenomenon, since past efforts to do so are surprisingly scarce. A short-term perspective is tantamount to applying an overly high discount rate to an investment project or similarly, requiring an excessively rapid payback. In corporate capital budgeting settings, the distortions are pronounced:


First, there is statistically significant evidence of short-termism in the pricing of companies’ equities. This is true across all industrial sectors. Moreover, there is evidence of short-termism having increased over the recent past. Myopia is mounting. Second, estimates of short-termism are economically as well as statistically significant. Empirical evidence points to excess discounting of between 5% and 10% per year. The result is that projects with long-term payback, beyond the 30 to 35 year timeframe, are treated as having no value. No wonder we don’t fund basic science, infrastructure, or climate change related projects.

The writers point out the first order bad effects: good projects don’t get funded, and those projects are often the ones with the highest potential for broad social impact (would we ever build the US highway system now?). But the knock-on effects are if anything more pernicious. The fact that most investors employ overly high discount rates produces is the same result you’d see with oligopoly pricing: overly high returns with restricted output. And this is consistent with the picture we see in most of the world. Perversely, the corporate sector has been a net saver for nearly a decade in the US, longer than that in some other economies. As we wrote with Rob Parenteau last year:


snip


We have a peculiar desire in America to pretend that we have unfettered capitalism when, even before you consider the banking industry boondoggle, we have a remarkable amount of industrial policy by accident, via lots of special interest receiving subsidies and tax breaks. We’d do much better to try to put some of it on a more rational footing and implement broad-based programs of the sort Haldane and Davies suggest. But we may need to lose more ground to advanced economies before complacent CEOs and their various message validators are willing to consider more radical changes in how we do business.

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Richardo Jan 2012 OP
PuraVidaDreamin Jan 2012 #1
hfojvt Feb 2012 #21
xtraxritical Feb 2012 #22
Itchinjim Jan 2012 #2
liberal N proud Jan 2012 #3
xchrom Jan 2012 #4
limpyhobbler Jan 2012 #5
City Lights Jan 2012 #6
mother earth Jan 2012 #7
FailureToCommunicate Jan 2012 #8
EC Jan 2012 #9
Richardo Jan 2012 #10
jwirr Jan 2012 #11
Uncle Joe Jan 2012 #12
Richardo Jan 2012 #14
JDPriestly Jan 2012 #13
lumberjack_jeff Jan 2012 #15
LineNew Reply the top of the heap have been, for well over 1000 years, rentiers
stockholmer Jan 2012 #16
TahitiNut Jan 2012 #17
Canuckistanian Jan 2012 #18
WillyT Jan 2012 #19
Citizen Worker Jan 2012 #20
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