Saturday, March 9, 2019

Mike Konczal - The Failures of Neoliberalism Are Bigger Than Politics

This is a really good article on how neoliberalism brought about the complete opposite of what they said it would. They said that there maybe a bit more inequality, but overall, most people would become better off as companies would be become more innovative and therefore more profitable. 

The second was also a sense that if the government took shackles off of business, they would innovate and grow our way out of social problems. Relaxation of antitrust enforcement would lead to more competition and innovation, as was told. Unions would no longer get in the way of businesses. An unleashed financial sector would fund and lead the entire enterprise. The idea of market power, or concentration, was seen as laughable concepts stacked against the disciplining power of markets themselves.

We saw what happened with the financial sector. But there are two broader things that happened alongside it. First, at the level of individual firms, is that firm dynamism has fallen dramatically. The rate of business startups has fallen. In turn, this has shifted the age curve of businesses further out, with firms over 11-years-old accounting for 70 percent of workers in 2000 but 75 percent of workers in 2014. Labor market dynamism has fallen as well, with workers less likely to quit and move their jobs over the past two decades.

But what is most telling is the effect on the economy overall. Tobin’s Q is a measure of equity over the book value of a firm. If it is ever over 1, it means that firms are too profitable and they should invest more to bring it down back to 1. Tobin’s Q has doubled to well over 1 and shows no sign of slowing down. More broadly, there are several other puzzles that, taken together, point to extensive market power in the economy. As economist Gauti Eggertsson and others have summarized, there’s been a sustained increase in markups, a decrease in the real rate of interest, falling by roughly half since 1980, even while the measured average return on capital is relatively constant, and a break in the link between profits and investments. Another way to look at it: Corporate profits remain high, even as real interest rates have declined over the past several decades. That profits remain so high in nominal terms even as interest rates decline has brought economists to discuss a “profit share”that has increased at the expense of both capital and labor share. All of these factors together—high markups and profits, low interest rates, weak investment—point to a significant market power problem that impacts the macroeconomy.

Mike Konczal is a Fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy. 

 Roosevelt Institute

Mike Konczal - The Failures of Neoliberalism Are Bigger Than Politics

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