What, if anything, should we do about corporations' increasing market power?

[voce]

Why Soaring Stocks Could Be Bad News For The Economy

A new book argues that the growing profitability of big business is bad news for workers.

www.npr.org

This article was definitely thought-provoking for me. I had no idea profits for publicly traded companies of past decades were only 1-2%. I also see the plausibility of the argument that corporation profit, and monopolistic power, eat away at the workers' standard of living.

What's implicated in the proposed changes, however, is the stock market (the Dow) dropping, from 30,000+ to 10,000.

Monopolistic market power does present a problem in the age of technology, when the advantages of the Goliaths are accumulating so quickly that the Davids just aren't able to compete for long. I do believe there should be some regulation, but should we have more regulation than we do currently?

I just think about how many folks have their retirement savings invested in the stock market, and I think measures that would drop the value of their retirement savings by two-thirds would be disastrous.

So, I see the problem, but no way to fix it without crashing retirement savings for the middle class. How could we ever get ourselves out of this mess? It's a choice of either having a better standard of living now, but a lot more to save up for going into retirement, or having a load standard of living now, an easier time of saving up for retirement through investing in stocks.

I also worry about whether we'd be able to compete with Chinese tech companies if our tech companies were forced to give up their market power. Such a tangled hairball of a problem.

I think it was Charlie Munger who said something like, if you can't change it, then you have to tolerate it. What do you all think? Would you rather tolerate the status quo or try to change the problem of increasing market power?

 

[MRBXXXFVVS1]

At the end of the day, it's all about balance. One would think those closer to retirement would have a more conservative portfolio, which would protect their assets from a large correction (however also limit significant gains).

The stock market is also not properly reflecting valuations based on fundamental analysis. As markets are cyclical, there will be a correction at some point.

 

[LilAlex]

The entire article is about averages. Averages are almost meaningless when so much of the SP500 gains are attributable to a handful of tech companies -- with, of course, enormous profit margins. (From 2016 through 2019, FAANG accounted for nearly all of the SP500 gains. [https://www.bmogam.com/us-en/advisors/market-charts/faang-stocks-dominating-sp-500s-return/])

It would be much more helpful to talk about medians for SP500 or Russell 3000 companies. But that would be a lot less sensational.

And the article emphasizes the impact of virtual monopolies without pointing out that their ultra-high-profit cases are not monopolies (Apple, especially). It's not "big mayonnaise" that's taking money out of my pocket.

 

[smitcompton]

Hi,

Here-in lays a problem. Many of these companies are tech companies. Which smart lawmakers do you think even understand how these companies work. There are a few who do understand the financial statements, but most are quite un-woke about how they work. Europe does a better job of keeping watch over them.

I have benefitted from this run-up, but in 2009 the market corrected and middle class people lost 40-50% of their investments. Those that were planning to retire were depressed and lost. I wouldn't want the markets to crash.

I would have hoped that those with lower incomes could have participated in the run up. It also is because the Fed has pumped money into the system and this money chases stocks. When you get no interest on savings, you look to the stock market, which brings up the prices of these so called growth stocks.

It always needs some regulation. No-one has kept on top of thi.

Annette

 

[voce]

At the end of the day, it's all about balance. One would think those closer to retirement would have a more conservative portfolio, which would protect their assets from a large correction (however also limit significant gains).

The stock market is also not properly reflecting valuations based on fundamental analysis. As markets are cyclical, there will be a correction at some point.

The fundamental analysis approach has been not reflecting market valuations for a long, long time. Not once has Tesla's share price even been close to what the fundamentals are since it has been listed. Nor does Amazon's, at least for the past few years I've been paying attention. There are simply way too many tech companies dominating much of the market's expansion and movement, and the market pricing is based on these tech companies' expected FUTURE earnings growth, which is always a gamble.

Yes, the market is going to have a correction, but it's hard for me to see it correcting to less than 15,000, let alone lower than 10,000.

The entire article is about averages. Averages are almost meaningless when so much of the SP500 gains are attributable to a handful of tech companies -- with, of course, enormous profit margins. (From 2016 through 2019, FAANG accounted for nearly all of the SP500 gains. [https://www.bmogam.com/us-en/advisors/market-charts/faang-stocks-dominating-sp-500s-return/])

It would be much more helpful to talk about medians for SP500 or Russell 3000 companies. But that would be a lot less sensational.

And the article emphasizes the impact of virtual monopolies without pointing out that their ultra-high-profit cases are not monopolies (Apple, especially). It's not "big mayonnaise" that's taking money out of my pocket.

Thanks for the article. I agree working with medians is a lot more reasonable and less prone to skewing in some cases. And let's not forget that while publicly traded companies employ a large share of workers, the privately held ones employ a sizeable chunk of the job market as well.

Regarding what the article was saying and not saying, it was not calling Apple a monopoly, but a monopolistic company in the economic sense. Monopolistic companies try to establish a brand, trademarks, patents, etc that makes its product distinct enough that it's differentiated. Monopolistic companies selling differentiated products will try to maximize profits, which results in selling fewer units and getting more profit from each unit. In this sense, I can see why the common layperson might get confused, but the economic academic terminology and analysis is very much in line with what is taught in intermediate economics courses at business schools.

 

[chroman]

They seem to jump from “profits are up from 1-2 -> 7-8%” to “prices are higher”.

But are real prices up? I thought everyone was freaking out about the spectre of impending inflation? I guess it depends on the time horizon.

It would be interesting to see how much of the increased profits was due to higher revenue vs lower costs.

Granted, increased profits with stagnent wages isnt a good thing, nor is too much consolidation.