Thread by @Noahpinion

1/Today's @bopinion post is about something weird going on in the corporate world.

Since the turn of the century, companies have been making enormous, unprecedented profits. Why??

bloomberg.com/opinion/articl…

2/Remember the 80s and 90s, when Reagan and Clinton and deregulation and neoliberalism and low taxes ruled America?

Well, corporate profits were less than 5% of the economy back then.

Today they're 10% or more.

3/And the stock market has gone up by even more than profits!

(This could represent expectations of even more profit extraction in the future.)

4/Here's a paper that claims that most of the increase is due to rents -- i.e., to the reallocation of corporate value creation to shareholders, rather than to the creation of more real value.

nber.org/papers/w25769

5/And here's a paper showing that labor's share of the total value created in the economy has gone down all over the world.

nber.org/papers/w19136

6/And here's a paper claiming that the share of pure profits in the economy - as opposed to profits that are really just normal compensation for owning a bunch of capital - has increased a lot.

home.uchicago.edu/~barkai/doc/Ba…

7/Why the heck aren't new companies popping up to grab a piece of that action? Why aren't those excess profits being competed away?

In a few industries, they still are!

https://twitter.com/adam_tooze/status/1145776585783402498

8/But in most industries, the relationship has broken down. A new paper by Germán Gutiérrez and Thomas Philippon suggests that market entry stopped responding to market opportunities right around...the year 2000.

nber.org/papers/w26001

9/And here's a paper showing that the entry of new high-growth companies into U.S. markets declined precipitously right around...you guessed it...the year 2000.

nber.org/papers/w21776

10/Gutiérrez and Philippon say that reduced competition isn't due to increasing returns to scale -- fixed costs, network effects, or any of that stuff. (Of course, this conclusion depends on their estimation methods...)

Instead, they say, it's due to CORPORATE LOBBYING.

11/They find that more lobbying and more regulation are correlated with a decrease in the sensitivity of market entry to Tobin's Q.

In English, that means that lobbyists get the government to write lots of regulations that help big companies keep out small competitors.

12/That fits with the finding of a 2016 paper by law professor James Bessen.

papers.ssrn.com/sol3/papers.cf…

13/Although it's worth noting that some papers find a different result.

academic.oup.com/economicpolicy…

14/Anyway, if Gutiérrez and Philippon are right, it means that CORPORATE SPECIAL INTERESTS - the same people Bernie Sanders warns us about in every speech - really are sucking the value out of the U.S. economy through their lobbying efforts.

15/If corporate lobbyists and regulation that protects big incumbent players really ARE sucking the lifeblood out of the U.S. economy, it means that capitalism is in grave danger.

(end)

bloomberg.com/opinion/articl…