In a “Bloomberg View,” Noah Smith says America’s Superstar Companies Are a Drag on Growth.
Amazon is gouging consumers? Walmart? Google?
The article did not mention a single superstar company that is gouging consumers. Instead, Smith cites studies that also fail to mention a single company that is gouging consumers.
Amazon, Walmart, etc., real “superstars” are huge deflationary forces. The Fed wants no part of it.
The Fed is hell bent on forcing prices up in an inherently price-deflationary world. With near-zero interest rates, it’s no wonder profits are high (until of cousre the bubble collapses).
Here is a snip from a research paper, by Gustavo Grullon, Yelena Larkin and Roni Michaely that takes another look at industrial concentration.
I call that economics gibberish just as the Phillips Curve is economic gibberish.
The article Investment-less Growth: An Empirical Investigation by Germán Gutiérrez and Thomas Philippon claims companies are not investing enough. Here is a snip.
Such economic bullsh*t goes on for pages as if the authors know how much companies should be investing.
I propose that if companies invested more, it would be in ways to get rid of more workers.
Smith also links to a paper by economists Jan de Loecker and Jan Eeckhout, that allegedly caused “quite a stir” in the economics press and on the blogs.
The “stir” was little more than Smith’s own “Noah Opinion” blog comments that in turn links to claptrap that ends with this disclaimer: “The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests.”
Noah, Please Get a Grip on Reality
I agree with Noah Smith regarding buybacks.
But why are buybacks happening?
The primary answer, and none of these studies ever look at the obvious, is the Fed and central banks have cheapened interest rates to the point that speculation looks more attractive than expansion.
When Did This Start?
It’s perfectly obvious when this all started. I have talked about it many times.
Explaining Balance of Trade
The seeds of trade imbalances were sewn in 1971 when Nixon closed the gold window. The trade deficit rose, then skyrocketed.
Total Credit Market Debt Owed
Following Nixon closing the gold window on August 15, 1971, credit soared out of sight to the benefit of the banks, CEOs, the already wealthy, and the politically connected.
- Trump blames Mexico and China.
- Larry Summers blames “Secular Stagnation”.
- Ben Bernanke blames a “Savings Glut”.
Scapegoating Mexico and China helped get Trump elected. Scapegoating also allows the Fed and central banks to blame anything and everything but lack of a gold standard.
“Our Currency but Your Problem”
The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% is Nixon closing the gold window.
At that time, Nixon’s treasury secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the “dollar is our currency, but your problem.”
Balance of trade issues, soaring debt, declining real wages, and the demise of the US middle class are now our problem.
The Fed, ECB, Larry Summers, Paul Krugman, Donald Trump, and economists in general, cannot figure out what caused the problem. Instead, Bernanke, proposes a “savings glut”, and Larry Summers proposes “secular stagnation”.
BIS Deflation Study
The BIS did a historical study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Smith and others cite useless studies. Not a single one of the studies trace the problem back to the root cause.
The amazing thing in all of this is Smith’s bandwagon claim that companies are gouging consumers. Smith never said where, nor did the articles he referenced.
I will tell you precisely where: Everywhere government interfered in the free markets, especially healthcare, education, and housing.
In places where the government did not interfere, we have downward price pressures. Amazon and Walmart are key “superstar” examples.
- Secular Stagnation Theory: Challenge to DeLong, Summers, Bernanke, Krugman
- Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold’s Honest Discipline Revisited
- Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?” Mish Reading List
Smith is blind to the obvious. He needs to be. He has to be. Why? Because the obvious does not mesh well with his socialist plus inflation-supporting claptrap.
Smith hasn’t a clue about how much companies should be investing or what interest rates should be. Neither do I. Nor does anyone else, especially the Fed.
Mike “Mish” Shedlock