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Thursday, November 28, 2013

Relay: Jonathan Weil with Arthur Levitt

Today a relay: Jonathan Weil as interviewed by Arthur Levitt. We're short of time this week, and possibly the next few, and we worry we're repeating ourselves, so today a break for both us us with a look inside the recovery air quotes on Wall Street.

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Stock prices hit new highs, and to hear the sell side, it is due to ever better economic prospects. Lean and mean corporations are producing excellent earnings. Restabilized banks -- never mind the enormous fines for what are apparently not individual frauds, but some sort of accounting problems, since nobody is going to jail -- are back in the business of making money for their stockholders. The indomitable American entrepreneur is back in the innovation business.

In fact, zero interest rates and QE injections are funding stock buybacks and dividend sweeteners. The rentier is hiding in liquid assets and the entrepreneur -- aside from the fad of the week -- is not being getting in front of the impending climate crisis. Stock prices are evidence not of strength, but of the weakness of capitalism pointed out by John Maynard Keynes so many decades ago.

Here is a short description of the euthanasia of the rentier which Keynes advocated then. This from the University of Missouri - Kansas City.
Euthanasia of the Rentier

A rentier is an individual who lives on interest income (rent) received in compensation for the loan of property held in the form of money, not to be confused with landowners who receive rent paid for the loan of property in land.

Today the term refers generically to the owner of any debt obligation, public or private, paying periodic, annual or semi-annual, usually fixed amounts of interest over a long term.

Ricardo’s early 19th century position that landlords’ interests were inimical to industrial expansion was replaced in the 20th century by criticism of the rentier as a brake on the dynamics of capital accumulation. Individuals who derived income from neither labor nor productive capital investment were viewed as parasites living off the efforts of the laborer and the entrepreneur-capitalist.

Rentiers have also been criticized for actively discouraging economic and social change in defense of their vested interests in property rights and money contracts. As well as defending the right to interest income and accumulated wealth, the rentier has to defend the purchasing power of his interest income and the capital value of his wealth. Inflation is thus the first enemy of the rentier living on fixed interest payments, for it reduces the real purchasing power of current income. As a class, rentiers will thus favor conservative government policies to balance budgets and produce deflationary conditions even at the expense of economic growth and high levels of employment.

But Keynes’s theory focused instead on the advantages that rentiers would find in holding liquid assets rather than in financing employment-creating investment in periods where they felt threatened by uncertainty over the future value of their income and capital. In such conditions, employment-generating investment would have to compete with the rentiers’ preference for liquidity, creating rates of interest far in excess of what entrepreneurs could pay from the expected earnings of productive investment. Further, rentier preferences might be so strong as to render the monetary authority powerless to reduce interest rates to stimulate activity. Keynes thus advocated a policy of direct intervention through the socialization of investment, accompanied by low, stable rates of interest which would eventually eliminate the power of rentiers to hinder policies for full employment.
The Fed's policy is to placate and protect the rentier. The historical split between the moneyed interests and the real economy is emerging again.

Lean and mean corporations mean no job growth. Restabilized banks have just added another coat of chicanery to the old fragility. The investment -- private and public -- is stymied by entrenched interests.

Jonathan Weil is a journalist, contributor to Bloomberg, and somebody with a willingness -- like Gretchen Morgensen of the New York Times -- to look into the corrupt marchinery of the financial sector.


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