On 2/6/2011 8:55 PM, Doug Henwood wrote:
> U.S. corps have accumulated vast amounts of cash over the last couple of decades, much of which they've passed along to shareholders through dividends, buybacks, and takeovers. So a lot of money has passed from the "real" sector to the financial. Part of the reason for this is that shareholders have demanded very high rates of return on new investment, and if it's not likely to be forthcoming, they want the money themselves. Some of this flow has doubtless gone to the expansion of financial assets. For the U.S., financial assets of all kinds were under 500% of GDP in the early 1980s to a peak of over 1,000% in 2007.
Yes, but the part I don't buy is the connection between bigger payouts and speculative fever. I can't see any causal link. The notion that a dividend payout (or buyback or whatever) represents money going "from" the real sector "to" the financial is true at a micro level, but I think this argument confuses the micro with the macro. At a macro level, lower investment/GDP means higher consumption/GDP (or govt, or exports), not larger financial volumes. Larger financial volumes can be caused by asset inflation brought on by feverish expectations. Or maybe by institutional changes that free the financial sector to do more engineering. But not by a drop in real investment.
Mike Beggs makes a somewhat different point, which I'll respond to soon.
SA