ARNOLD KLING
January 8, 2012
An Answer to Truman's Prayer?
January 8, 2012
Devaluation and the Real Exchange Rate
January 8, 2012
Mark's Monetary Matters
January 7, 2012
Arguments in the Economics Blogosphere
January 7, 2012
Tyler Cowen Makes a Suggestion
BRYAN CAPLAN
January 9, 2012
Kahneman, Mental Effort, and the Scary Parole Study
January 7, 2012
How Egalitarianism Increases Inequality
January 6, 2012
Democracy: Worse Than I Thought
January 6, 2012
Macaulay on Signaling
DAVID HENDERSON
January 8, 2012
Bryan Caplan on Income Inequality
January 7, 2012
Sylvia Nasar's Grand Pursuit
January 6, 2012
Bastiat's Insight on Government Inaction
January 4, 2012
Ed Leamer on "Pure" Economics
January 3, 2012
The Interesting Political Economy of the Social Security Tax Cut
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Let's say you, Arnold, own a corporate bond. The interest on that bond shows up as a piece of GDP, the way GDP accounting is now done. If I understand the Wang article, to be consistent with her prescription for banks, none of that interest over the risk-free overnight rate should count. Extending this, it is hard to see how most asset income should count, including corporate profits.
What am I missing here?
My take is similar, but the angle I focus on are public companies in general. The rent seeking of Wall Street is in part supported by the rent seeking activities of public companies.
My premise is that public companies in general are run by managements who really have adversarial relationships with shareholders. The most egregious example of this was demonstrated by both Tech and Financial companies during the "options as compensation" scandels. There were some years when all "free cash flow" was laundered thru the stock market to pay employees.
For example, Microsoft or Goldman engages in stock repurchase programs, thus "paying shareholders". Then, employees exercise options at below market values, and resell shares back into the market---thus getting back what was paid to shareholders. So rather than paying cash directly to employees (equal in many years to more than income and free cash flow), they are paid thru this method, thus fraudently overstating income, although not according to GAAP.
These same companies "strategically" use Wall Street to engage in M@A, Buyouts, resales, biased research, etc.--moving "deck chairs" kind of stuff. But they also raise new capital. Wall Street does provide liquidity in general and that is an undervalued function. Even as their direct intermediation function has declined their indirect liquidity function has increased.
But I really wish all companies were permitted to be structured as MLPs. This way at least shareholders would have the option to force payouts of earnings pre-tax and eliminate the muddle we call earnings when it is not paid in cash. GAAP earnings are strangely flexible. I prefer the extra cost of firms having to continue come to the market to raise capital for new projects.
I am perplexed that there is no equivalent to a "Tea Party" style revolt among shareholders.