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Politicians Seek Short-Term Advantages By Lecturing Capitalists About The Long Term
Submitted by Gary Galles via The Mises Institute,
Hillary Clinton’s latest campaign salvo attacked “quarterly capitalism,” the supposedly irresponsible corporate focus on short-term results at the expense of long-term growth. She promised government fixes.
Short-Termism, Share Prices, and Incentives
Is there too much short-termism in business firms? To answer this, let’s look at participants’ incentives.
Shareholders own the present value of their pro-rata share of net earnings, not just present earnings. They do not want to hurt themselves by sacrificing good investments today which raise that expected present value. Owners often tarred as too selfish do not ignore those consequences. Critics also confuse short-term corporate results as the goal, when they are actually valuable indicators of the likely future course of net earnings. Just because good short-term results raise stock prices does not imply excessive short-termism.
Since share prices are both a primary metric for managerial success and basis for their rewards, and they reflect the present value of expected future net earnings, managers’ time horizons reflect shareholders’ time horizons, stretching far beyond immediate measures.
Bondholders, who want to be paid back, incorporate the future, where repayment risks lie, in their choices. Workers and suppliers are also sensitive to firms’ future prospects, and the prospect of those relationships being terminated if things start turning south forces consideration of the future in present choices.
Beyond misinterpreting share price responses to good short-term results as short-term bias, Clinton’s main proof of short-termism was that firms have increased stock buybacks, supposedly sacrificing worthwhile investments by returning funds to shareholders. She ignores that those funds will largely be invested elsewhere with better prospects. But she also ignores that the buyback binge reflects the Fed’s long-term artificial cheapening of borrowed money. When debt financing gets cheaper relative to equity financing, firms substitute toward debt. But a firm substituting debt financing for an equal amount of equity controls no fewer funds for future-oriented investments.
The Role of the Fed and Government Intervention
Confusing business responses to artificial Fed interventions as business-caused only begins the list of government created biases toward short-termism. Constant proposals to raise corporate tax rates and worsen capital gains treatment in the future reduce the after-tax profitability of good investments. Regulatory mandates and impositions pile up, with far more put in the pipeline for the future, doing the same. Energy policy threatens huge increases in costs, reducing likely investment returns. And the list goes on.
That government regulators will put more emphasis on the future than the private sector is also contradicted by political incentives. Owners bear predictable future consequences in current share prices, but politicians’ incentives are far more short-sighted.
Government Is More Short-Term Oriented Than the Private Sector
An election loser will be out of office, and capture no appreciable benefit from efforts invested. So when an upcoming election is in doubt, everything goes on the auction block to buy short-term political advantage. And politicians’ incentives drive those facing the DC patronage machine. That is why so much “reform” meets Ambrose Bierce’s definition of “A thing that mostly satisfies reformers opposed to reformation.” The mere passage of bills in the political nick of time, even largely unread ones, can be declared victorious legacies, with harmful consequences never effectively brought to bear on decision-makers.
Not only is politics inherently more short-sighted than private ownership and voluntary contractual arrangements, there is a cornucopia of examples of government short-termism at the expense of the future, whose magnitude dwarfs anything they promise to reform.
Unwinding Social Security and Medicare’s 14-digit unfunded liabilities will punish future generations, caused by massive government overpromising to buy earlier elections. Other underfunded trust and pension funds threaten similar future atonement for earlier short-term “sins.” Expanding government debt similarly represents future punishment for short-term political payoffs. Foreign and military policy have similarly turned away from dealing with long-term issues. But serious long-run issues like immigration escape serious attention because “public servants” are afraid of short-run interest group punishment.
Political attacks on short-termism, and reforms to fix it, are beyond confused. They ignore financial market participants’ clear incentives to take future effects into account. They are clueless about what provides evidence of short-termism. They treat private sector responses to government impositions as private sector failures. They ignore far worse political incentives facing “reformers.” And they act as if the most egregious examples of short-termism in America, all government progeny, don’t exist.
There is little to Clinton’s criticism and alleged solutions beyond misunderstanding and misrepresentation. We should recognize, with Henry Hazlitt, that “today is already the tomorrow which the bad economist yesterday urged us to ignore,” and that expanding government’s power to do more of the same is not in Americans’ interests.
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going long in this environment has some similarities to going full retard
Short term capitalism? Like going from "Dead Broke" to 100 million in the bank in a few short years and not creating one fucking job...that kind of capitalism?
Fuck you you obese hillbilly trailer trash bucked toothed money grubbing inbred leaky tramp
Capitalism hasn't failed us. The Fed has screwed us. Anyone who says otherwise is ignorant or working for NWO.
Term limits now!
Kabuki
They just want what they see as power and will do any and all to get elected to dance for the real puppet masters.
Real power is blowing up the financial system and never even hearing a whisper of indictment. Then making yet more on the aftermath they created through the Fed.
That is power.
From Hillary=FULL OF SHIT
LOL!!! "capitalism" and "capitalists" are long dead.
Stupid fucks.
free market enterpise is a pixie dust fairy in la la land, never gonna happen in an Oligarchistan
les r'tards
I just love these assholes twisting themselves into knots trying desperately to give their pathetic narratives some traction.
In the history and reality of it all, capitalism wass perhaps the most short-term strategy one could have had.
It's been a long time since it's been about generating capital, rather than wealth, or worse, sociopolitical power.
I need a reminder on what "capitalism" is. I'm not sure I've seen it in this country in my lifetime.
it's where fewer than 1000 people call all the shots and you drink your trickle and say thank you
I'm not sure I've seen it in this country in my lifetime.
http://cdn.meme.am/instances/500x/62064629.jpg
Yesterday's forecast of
today's premonition is deferred until
tomorrow's outcome.
The only good thing coming out of the "Hillary Campaign" that can possibly help America pull out of it's nose dive into oblivion is the horrid thought of the vile Clintscum at the helm, which in turn, could snap the masses out of their complacency, potentially waking them up, once and for all, to the ONLY runner who has the guts to tell the truth, that being the honesty exhibited by The Trump, thus far.
the "trooth" meme is up and running again and you're ALL falling for it, AGAIN!
just sayin.
Hillary speaking about capitalism is like Hugh Heffner speaking about chastity
Kuddos to the Democrats for initiating a debate about short termism, and low interest rates, it's important subject matter for the USA electoral circuit IMHO. One will NOT encounter a Republican't mentioning anything about Central Banking, or Wall Street, frankly.
Up yours, Jeb.
But how does that help when their solution will be more govt?
When a politician, or political party, starts talking about a serious issue it matters little to me what their party is compared to the issue being discussed. Democrats are showing intellectual honesty if they attempt to discuss long term planning to de-incentivize short-termism on Corporate stock buybacks due to the one simple fact that those Corporatist COCKSUCKERS are not reinvesting back into 'plant & R&D' with that malinvested money. Presidential Candidate Hillary Clinton gets MAJOR effing' points from me if she just tackles the issue head on and that is exactly what the Democrats have done with this discussion. The Republican'ts would not dare discuss short-termism regarding stock buybacks, and Wall Street largesse.
no shit.
Call me when she starts aiming for the shylocks hiding behind the Fed that are also bankrolling her and everybody else's campaign. no shit.
Monica Lewinsky's ex boyfriends wife really gives old washed up lying cunts a bad name.
Ahhhh. The mighty hilary. (No Caps for her, does not deserve it due to the fact on how much of a TRAITOR she actually is to the people. Obaaaamamamama, bbbbbbbushh (Not bad of a beer.), or, or, or.
YET. Anything that comes out of her mouth is now "FULLY SUSPECT". The damage that she has done. It cannot be suppressed.
Pens,