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Shouldn’t we expect capitalists to already include growing perpetuity of earnings when pricing these kind of assets? If so, Blair’s ‘effective’ discount rate actually corresponds to [r-g]. And if the projected growth rate of earnings is 4%, than the ‘actual’ discount rate [r] is around 12% (instead of 8%). Or am I confusing something?
Thanks for this, Yoni. A few follow up questions:
1. Is the pharma PE ratio actually rising in absolute terms? I’m not sure if it’s directly evident from the graph.
2. Is the PE ratio rising diferentially (compared to the global PE)?
3. If it is, why assume it has to do with differential expected profits and not with differential risk reduction?
Well, something seems to be moving on that front. but is the focus on IP to narrow? This piece can be read as to suggest production is sabotaged (at least on the near to medium term) at wider (and maybe deeper?) levels – limitations on techno-scientific design and modularity of vaccines production, as well as the control of essential raw materials supply. Though stock prices have plummeted following the Biden administration declaration, they haven’t collapsed. Surely, investors know it’s all talk for now and the risk to IP might not materialize, but maybe expectations also take into account IP is only the first line of defense for profit, in the current circumstances.
A technical issue – is it possible to move a comment from a sub-thread to the main-thread? I didn’t know about the first option and mistakenly posted the above reply in a sub-thread (deleting and re-posting is not possible either for me).
Administrators, feel free to delete the current comment after reviewing it.
I agree, Yoni. This “business anthropology” doesn’t carry any positive value judgement. At times, the “micro” level seems to offer some concrete points useful for de-legitimization of the existing order in general, and sometimes it’s easier to locate those points outside of the general trend.
But since the 1980s, when top managers became large owners, the debate has cooled off
It’s a longshot, but maybe in declining industries (like oil&gas) it’s a resurgent conflict.
Insofar as the two complement each other, the question of whether owners receive their earnings directly or have the corporation retain them is irrelevant to them.
In that case, owners sentiment might be that allowing cash to accumulate in firms’ hands actually interferes with total returns (capital appreciation will be lower since investment decisions would favor own-industry/sector activity, not taking into account all investment alternatives, neglecting proper risk assessments, etc.). I sometimes think to recognize this sentiment in investors’ talk of giving preference to “high-yield dividends companies”.
This goes beyond relative distribution between owners and management. Managers might actually perform “their best” for owners, but they can still be limited to business decisions in a specific industry/sector and need to be “disciplined” with regard to the best benchmark available for re-investment of profits.
The systematic shift between the monies flowing to owners and the monies remaining with corporations suggests to me that owners view the distinction as relevant. The standard productivist conception would identify retained earnings as useful for investment in productive assets. A business/industry based analysis would draw other conclusions. I haven’t thought explicitly about the owner-corporation distinction from a CasP perspective. But I do think identifying how monies flow through the corporation is a good empirical starting point
Can we find here a start to a power analysis between owners and executives? Let say our corporation is considered Introvert. The owners, on the other hand, look for economy-wide investment portfolios (so dividends are required) . And on top of that, executives are making money using intenal-industry benchmarks for bonuses which the (much more universal) owners think is misguided.
Does it make sense to look on [dividends/retained earnings] as a proxy for the power of the two groups?What I failed to understand is why this reclassification should alter the magnitudes of GDP and national income in the first place. As far as I can tell, prior to this reclassification, the ‘in house’ production of software, R&D and artistic originals was already recorded as part of GDP and gross national income.
Right. If I understand correctly, not only ‘in house’ production but also ‘purchased IPPs’ are reclassified. And reclassification by itself doesn’t change GDP/income directly. But when you convert a part of ‘gross output’ from ‘intermediate expenditures’ to ‘investment’, it affects other components of gross output – part of which is not ‘expensed’/deducted anymore at the same amount (at the firm level that implies EBITDA will be higher because expenses are now recorded lower). So that now:
[Gross output] – [adjusted intermediate expenditures]= a recorded increase in GDP.On the income side the recorded increase is imputed automatically to GOS (gross operating surplus), as nothing changes for the actual income related directly to the relevant IPPs (it is split between wages, profits, etc. in the same way as before the reclassification). This happens because the additional income is treated as a residual, in a sense.
If I got it right, this article helps explaining it (look for tables 3 and 4 at the end).
Regarding ‘ambiguous income’, I think the BLS applies a somewhat subtler approach than Koh et al (here’s a published journal version of the article). But I don’t think it changes something dramatically. I find it pretty astonishing if indeed the latter are right, and this decade long debate between economists on the issue of declining labor share is based on an accounting “artifact”.
For us, this indicates perhaps that we would do better using ‘cash-flow’ based distributional national accounts, to get rid of the “productivist” bias. Is something like that available? Anyway, using net national/domestic income (instead of ‘gross’) seems preferable for now, since it excludes variations in the depreciation component, which are related to (some of) the above imputations and the problems they raise.
The political usefulness of the concept ‘rent’ also comes into question from the “outside” (analytically speaking):
Wage/salaries for the top 1% income bracket accounts for about 50% of its total income, and for the top 0.01% it accounts for about 20%-30% (depends on the exact type of measurement). Shouldn’t these income type (and possibly others more) be considered ‘rent’ as well, if what we want to denote are capitalistic incomes de-facto? And if so, where does it leave the effectiveness of the concept, now expanded?
