Re: 14,000 reasons to be skeptical
On Jul 21, 2007, at 4:39 PM, michael perelman wrote:
I have some questions regarding Doug’s answer — not criticisms, but questions that puzzle me.
Doug Henwood wrote:
- The pressure not to invest but to ship surplus cash out to stockholders isn’t the spontaneous desire of corporate managers - it’s been shaped by the increased shareholder assertiveness of the last 25 years. If a firm invests too much for Wall Street’s liking, its stock price will sag, and attract takeover targets. In other words, industry does not “dominate the banks.” If investment is so profitable, why wouldn’t rational shareholders support investment? Could it be the expectation that speculation will have higher payoffs?
Again, what’s “speculation”? The shareholders want the cash now, in
size. Investment carries a lot of uncertainty.
I don’t know what the profit rate on new investment is (not that
anyone does). If you buy Shaikh’s argument that the stock market is
driven by the profitability of new investment, then it’s been rather
high for, oh, 25 years. But I don’t buy that argument, in part
because no one can observe the profit rate on new investment.
In the two-way traffic that you mention below, is it possible that the US is a net exporter of capital? Does anybody really have a handle on exports and imports of capital, especially when investments can be parked in tax havens?
With a savings rate of less than zero, how else could we finance
imports without an inflow of capital?
Does anybody have a measure of how much capital is moving back to
China in the form of real investments? I doubt that it equals $1 trillion, but I assume that it is substantial.
No doubt it’s substantial, but the data show that FDI is not the
major source of Chinese investment.
Doug