Even a Time Finance Columnist Is Now Questioning American Capitalism [View all]

http://inthesetimes.com/article/19017/in-the-grip-of-greed

Indeed, citing a 2015 report from the Office of Financial Research, Foroohar notes that since the great crucible of the 2008 meltdown, corporate earnings “are rising” even as “sales growth for most public U.S. companies is not.” Astonishingly, as Democrats and Republicans alike have nonsensically preached austerity to the nation at large, the investor class—the real layabout “takers”—has sunk into an ocean of red ink, with corporate debt ballooning from $5.7 trillion in 2006 to $7.4 trillion today. Most of this dosh is repackaged into exotic new financial instruments designed to maximize short-term shareholder returns. In the 1970s, American companies invested more than 15 times what they paid out to shareholders; now that ratio is below 2 to 1.

Behind these dismal trends, Foroohar observes, is a whole complex of perverse incentives that have worked since the deregulating heyday of Ronald Reagan to stoke greater returns for Wall Street at the expense of the broader economy regardless of which party happens to be in power. The landmark repeal of the 1933 Glass-Steagall Act and the passage of the disastrous Orwellian Commodity Future Modernization Act were the handiwork of New Democrat Bill Clinton, whose economic legacy was well to the right of Richard Nixon. Meanwhile, the anemic phalanx of federal regulators charged with policing Wall Street have turned law enforcement into little more than a kabuki ceremony.

Foroohar characterizes Washington as being in a state of “cognitive capture,” such that the overall mindset of the regulatory state is a wholly owned subsidiary of the financial sector. To her credit, she traces this development not to some heavy-breathing cabal in the Senate cloakroom, but to broader forces. Business school curricula, to take one powerful example, have long been in thrall to econometric models aiming to maximize short-term investor returns at the expense of all else. And corporate raiders and arbitrageurs—who had formerly (and justly) been derided as destroyers of economic value for the sake of paper returns—are now regarded as “shareholder activists,” prodding corporate boards to continually bid up quarterly returns via stock buybacks, mergers and other shortsighted manipulations.