Has capital lost clout in world?

[Dover]

Floyd Norris: Has capital lost clout in world?

By Floyd Norris International Herald Tribune
Friday, March 25, 2005

There is too much capital in the world. And that means that those who own the capital - investors - are in for some unhappy times until the world works through the excess.
.
That thesis may sound inherently unlikely, but it explains a lot of what has happened in recent years. Those with capital find that they must pay a lot for investments that are likely to produce only a little income. The relative importance of things other than capital, like commodities and cheap labor, has grown.
.
Evidence of the capital glut can be seen in interest rates around the world. Market rates are low, and even when central banks set out to raise short-term rates, longer-term rates are slow to move.
.
Investors who buy risky bonds are offered very little extra yield for taking the risk, another indication that there is lots of money chasing a paucity of good investments.
.
For the same reason, stock prices are high in many countries. There the disappointment will come later as relatively low profits are recorded by the companies. If capital remains in excess, profit disappointments may not cause share prices to plunge, since the capital will have to go somewhere. But the rates of return on the underlying investments are likely to be below what investors have expected.
.
With capital in a weakening position, returns that would once have gone to owners of capital now are redirected. That is one way to explain the surge in management compensation over the past two decades. In the early 1980s, when interest rates were high and stock prices low, the average U.S. chief executive got no stock options in any given year. Now nearly all get large grants, and one study found that chief executive pay rose faster than that of any group save for professional athletes and movie stars. Those who provided the capital had less power to demand the profits from the enterprises they financed....cont'd

http://www.iht.com/articles/2005/03/24/business/norris25.html

[gumby]

1. Is that a gobbeldygook way of saying

the Crash is near?

[mcscajun]

2. Sure does sound like it.

When you've got money all over the place looking for a decent investment with which to make some profit, and you can't find one, well...

Kinda means the whole freakin' place is devalued, overvalued, fucked over, etc.

[gumby]

3. "decent investments"

that is probably the sound-byte of the century.

The problem with capitalism is that it's always implosive. Worse that that, capitalism has proved that it hardly ever produces the best solution to the problem at hand.

So now we are left with a system that is self destructive and that has bought out any notion of alliterative solutions.

Egads!

[bemildred]

4. Duh! You think?

This idea borders on being a cliche in "leftist" political
analysis. I remember it being discussed at length in Hardt
and Negri's "Empire" from 2000 for one. But the problem isn't
going to work through for the simple reason that we are
running out of cheap energy and places to dump the waste.

[dcfirefighter]

5. Too much capital, huh?

There's no such thing as too much capital. I don't hate capitalists, I hate the way they've given free trade a bad name.

Microeconomics: Labor + Land + Capital = Wealth.
The austrians claim Entrepreneurship is separate from labor, and land is capital, they're wrong on both parts.

Obviously labor isn't scarce, or we wouldn't be talking about cheap labor, and the speculation is that there's too much capital.

Seems to me that the choke point is land.

Since we can't make more of it, we've got to make better use of it.

The only way to do that is to get it out of the hands of those who hold it and don't use it. You do this by taxing it. When you do this you can start rolling back taxes on labor, progressive indeed! (it also has neat effects on sprawl and energy use)

Energy? Most of that comes from burning Land. Tax it (extraction, pollution) and it becomes more economic to make it from other sources, requiring more labor and capital. Need more labor & capital? Pay higher wages and give better returns to capital. Everybody wins.

Bottom line is, that great piemaker in the sky gave the Earth to all of us: owning a piece of it is a fiction, you can only rent it from the rest of us.

[bemildred]

6. You sound like a communist.

Generally, the way the "analysis" is put, the problem is that
one cannot get the desired return on investment, that is what
is meant by "too much capital". It's not that having plenty of
the "means of production" is a bad thing as such.

It is monopoly capital and the desire to get exorbitant returns
on it that is a problem. One cannot have exponential growth
forever in a finite world, and we haven't really put much work
into what a sustainable modern economic system would look like.

I approve of your tax policies, and I think you point of view on
the the nature of property is the correct one.

Edit: Welcome to DU BTW.

[dcfirefighter]

7. Nah, not a communist...a geo-classical liberal

Communists believe(d) you couldn't own a piece of capital, I do.

Thanks for the welcome. I'm a recent convert to the DP. The times, they are a changin'.

Yep, monopoly capital is the problem with capitalism as we know it. Thing is, it's impossible to have a monopoly on built capital, because someone else can always build it. Pretty much leaves land monopolies and government-granted monopolies.

[bemildred]

8. Pretty much. nt

[Rapier2]

9. notes

From Doug Nolands Credit Bubble Bulletin this week.

"Yet I will take exception with the excess “capital” thesis bandied about these days. I actually rarely use the word “capital,” choosing instead “finance” or “liquidity.” In my view, “capital” is holdover terminology from a bygone era when a close relationship existed between the amount of finance (including “liquid” balances) and underlying economic assets (“capital”). “Money” was largely backed by intrinsic value (gold) and/or constrained by reserve requirements. And new Credit (“finance”) was predominantly generated from the process of funding capital investment through the expansion of bank liabilities (Credits). “Capital” in the Financial Sphere corresponded to – was virtually synonymous with - “capital” in the Economic Sphere. As I said, a “bygone era”…

http://www.prudentbear.com/creditbubblebulletin.asp

Scroll half way down the page to get to the meat of the article. Speculator and Liquidity Unfriendly


This addresses exactly the question you raise and the answer isn't just semantics. The word capital is obsolete in the historic sense. So is the word capitalism. What we have now does not apply.

[dcfirefighter]

10. I still maintain that economic 'land' is the key

But I will concede that huge changes in how money / credit is created need to occur.

Limiting myself to the attention span of the average citizen precludes a full discussion here, but I highly recommend anyone with a sense of 'something is wrong' educate themselves about the creation of money, and historical forms of money. Wiki is always a good place to start.

As to my opinion on how money should be created, it should be done of, by, and for the people of the issuing nation. I think that money should be backed merely by the faith of the government, in that the government will accept it for taxes due. There is absolutely no good reason to back our currency with debt issues, they merely allow the holders of the bonds to benefit from the taxation of our countrymen.

http://www.themoneymasters.com/ This link might be a bit 'out there', but having investigated it, folks with more economic knowledge than I seem to support the idea that it is possible, though we'd have to give up interest-bearing banking accounts (though not interest bearing investment accounts). In exchange, we'd end the national debt, secure a stable money price, and reduce taxes for a given level of expenditure.

"If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people. " - Thomas Edison, The New York Times, December 6, 1921