Tag: short-termerism

The “Short-termism” Myth

 

A number of pundits, including Ricochet’s own James Pethokoukis, have picked up Hillary Clinton’s “short-termism” meme and run with it. Clinton is claiming that U.S. CEOs are looking no further than the next quarter or two and — instead of making long-term investments in research and capital equipment — are repurchasing company shares, buying up other companies, or paying higher dividends to shareholders.

The hidden assumption is that there are lots of long-term investment opportunities out there to which the nation’s CEOs are blind. Individual companies often make mistakes, and those that make them too often usually don’t stay in business for long.  If there truly are profit opportunities just waiting to be snapped up by entrepreneurs, then you’d expect lots of people to be taking advantage of them. Yet the country’s economy remains moribund. When most companies are retrenching rather than expanding, the explanation may be “animal spirits,” mass delusion, or shared stupidity as Clinton and Pethokoukis seem to be implying. However, before reaching for such vague reasons for large-scale trends, I tend to look for systemic causes — and “systemic” all too often translates into “government.”

Just Because Hillary Clinton Thinks Corporate ‘Short-Termerism’ Is a Problem Doesn’t Mean it Isn’t

 

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The FT’s Ed Luce takes a look at the “quarterly capitalism” or “short-termism” issue, concluding that it has merit as well as political legs. He points out that “US investment is at its lowest since 1947″ but that last year “S&P 500 companies spent more than $500bn on share buybacks.” He doesn’t, however, think further raising the capital gains tax rate for short-term investment is an effective solution — as Hillary Clinton wants to do — versus reforming executive pay:

It is doubtful such tinkering would be enough to alter investors’ time horizons. The lure of a bird in the hand would still outweigh two in the bush. Many big investors, including pension funds, are already exempt from taxation. Nor is [Clinton’s] proposal likely to deter shareholder activists, whose gains from holding C-suites to ransom will outweigh any new penalties. As long as chief executives’ compensation packages are set by the share price, little is likely to change.