[lbo-talk] Fitch and Brenner

SA s11131978 at gmail.com
Sat Feb 21 02:55:55 PST 2009


Doug Henwood wrote:


> Until around 1982, nonfinancial corps were net issuers of equity;
> since then, they've retired stock in the aggregate - $3.7 trillion of
> it since 1982. Yes there are the proceeds of IPOs, but a lot of those
> go poof, and they're not all that important in quantitative terms to
> investment.
>
> So that's a mechanism by which capital has been shifted out of
> production and into the markets. It happened because Wall Street, with
> people like Michael Jensen to think for them, pressed CEOs to maximize
> profits and pass along as much as possible to shareholders. Part of
> their argument was that managers invested too much - and from the
> shareholders' point of view, they were right.

Just to be clear, I don't think Jensen (by all appearances a prick, btw) would say capital should be shifted out of production and into the markets. He would say efficient companies weren't investing enough because all the capital was being hogged by the inefficient companies. He thought the distribution of investment across companies was inefficient because owners didn't exercise enough discipline over managers. The managers should return the money to investors so that it can be reallocated to more efficient companies.

As for whether capital was shifted out of production, the proof is in the pudding. Here are the numbers I got for private fixed non-residential investment as a share of GDP:

Inv/GDP 1930s 6.5% 1940s 6.7% 1950s 9.4% 1960s 9.8% 1970s 11.1% 1980s 12.1% 1990s 10.9% 2000-2007 10.7%

SA



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