Big Profits Drove a Stock Boom. Did the Economy Pay a Price?
Combined with evidence that large corporations are accounting for an increasing share of revenue and employment, Mr. Shapiro writes, “it certainly appears
that many large U. S. corporations are earning substantial incumbency rents, and have been doing so for at least 10 years, apart from during the depths of the Great Recession.”
This is particularly true in the tech sector, where a handful of dominant companies —
you know the ones I’m talking about — have sustained spectacular profits for years.
The average financial wealth of American households — the market value of housing, stocks, bonds, business assets
and the like, beyond their liabilities — has grown much faster than the nation’s income over the last half-century.
According to an analysis by Germán Gutiérrez and Thomas Philippon of New York University, the ratio of the market value
of American corporations to the replacement value of their capital stock has roughly tripled since the 1970s.
The scholars argue that the American economy is afflicted by “rents” — returns in excess of what investments
would yield in a competitive economy, where fat margins are quickly whittled away by competition.
The ratio of the capital stock — the value of factories, machines
and such — to the nation’s economic output has actually declined a little since the 1970s.
From wage stagnation to the depressed investment rates
that are holding back long-term economic growth, many of the fault lines running through the American economy can be traced back to the same root cause powering the rise of America’s overpriced stocks.