Are we all rent seeking investors?

[Winehole23]

The persistence of historic all-time high profit margins of the US companies did not, of course, escape the eyes of the analysts on Wall Street. Sumana Manohar from Goldman Sachs recently pondered (http://www.bloomberg.com/news/articles/2016-02-03/goldman-sachs-says-it-may-be-forced-to-fundamentally-question-how-capitalism-is-working) how persistent high margins can be reconciled with the very idea of capitalism. Manohar predicted that high margins should attract competition and force margins down eventually but cautioned “if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism.”


Are there really broader questions to be asked? Maybe, and the first sets of questions should revolve around the idea that the bigger and more concentrated many companies and industries become, the more they will be able to entrench themselves, to build “moats” to insulate them from competition, to capture regulation, and to get favorable treatment from government or sometimes outright large public sector contracts.

If companies operating in the marketplace can influence prices and regulation, the theorem of profit maximization as a path to welfare maximizations falls flat. If companies can raise prices by monopolizing markets or colluding with other players, and increase revenues by political connections, they are not really engaged in creating value but in transferring value from taxpayers and consumers to their coffers.

https://promarket.org/are-we-all-rent-seeking-investors/

[Winehole23]

the growing anecdotal evidence from many industries and the persistence of high profits margins in the face of stagnant growth and growing inequality deserves serious consideration. One question may even loom larger: given that more and more Americans’ pensions and long-term savings today are invested in the stock market in defined contribution schemes, have we created a pension model that is based on growing sharer of investments in rent-seeking activities? Put another way, are we facing an economic model in which tens of millions of Americans’ pensions are relying on the ability of companies to extract rents from consumers and taxpayers?

[Wild Cobra]

Seek and ye shall find...

[boutons_deux]

hmm, aren't private and public pension funds catastrophically underfunded, and therefore under attack by BigCorp to reduce them greatly, another instance of Corporate-Americans screwing Human-Americans?

[boutons_deux]

Pension Plans Beat 401(k) Savers Silly -- Here's Why


http://www.forbes.com/sites/mitchelltuchman/2013/06/04/pension-plans-beat-401k-savers-silly-heres-why/#2040ded71d3c

[InRareForm]

Pension Plans Beat 401(k) Savers Silly -- Here's Why


http://www.forbes.com/sites/mitchelltuchman/2013/06/04/pension-plans-beat-401k-savers-silly-heres-why/#2040ded71d3c

Pretty weak article.

Why not move over old 401k to an IRA if you leave your employer for more options?

If pensions are rare now then whats the big deal talking about them

[CosmicCowboy]

Pretty weak article.

Why not move over old 401k to an IRA if you leave your employer for more options?

If pensions are rare now then whats the big deal talking about them

You mainly find ridiculous pension plans in the public sector. As an example, police and fire pensions are approved by the city council and police and fire block vote and donate for city council supporters of their bloated pensions. The problem comes in when the city council votes for these ridiculous pension plans but don't set aside money to pay for them and just kick the pension obligation down the road to when they won't be on the city council.

As an example the city of Detroit has a half a billion pension shortfall.

[Winehole23]

and Flint has poisoned water, because a state of Michigan appointed financial controller wanted to balance their budget for them and skimped on public safety. your point, sir?

[boutons_deux]

and Flint has poisoned water, because a state of Michigan appointed financial controller wanted to balance their budget for them and skimped on public safety. your point, sir?

CC HATES pensions, CC HATES unions, but loves being a get-rich parasite on the dystopic health care system.

[Winehole23]

guess he didn't have a point besides waving his hands at governments that can't pay for their promises.

[boutons_deux]

guess he didn't have a point besides waving his hands at governments that can't pay for their promises.

nobody, govt or private, is paying for their pension promises, but CC ignores the massive underfunding by corporations of their pension plans, except when it's top mgmt's pensions.

[RandomGuy]

Seek and ye shall find...

going to guess you didn't actually read the OP before you posted this.

[CosmicCowboy]

nobody, govt or private, is paying for their pension promises, but CC ignores the massive underfunding by corporations of their pension plans, except when it's top mgmt's pensions.

Sure there are some corporate underfundings but not nearly on the same scale as Cities and States. all of the fortune 500 underfunded obligations put together are smaller than Detroits.

[RandomGuy]

Pretty weak article.

Why not move over old 401k to an IRA if you leave your employer for more options?

If pensions are rare now then whats the big deal talking about them

Defined benefit plans are rare.

Defined contribution plans are much more common.

(see Winehole's second post

[RandomGuy]

Sure there are some corporate underfundings but not nearly on the same scale as Cities and States. all of the fortune 500 underfunded obligations put together are smaller than Detroits.


Over the last decade, some of the biggest companies — including Bank of America, IBM, General Motors, GE and even the NFL — found loopholes, abused ambiguous regulations and used litigation to turn their employees’ hard-earned retirement funds into profits, and in some cases, executive compensation. Schultz’s book offers a relentlessly infuriating look at the mechanisms they used to get away with it.
http://www.salon.com/2011/09/17/retirement_heist_interview/

The way the accounting works, is that they build the underfunding into the system. It is expensed and goes POOF.

At least when workers' money was stolen, it was stolen up front.

Corporate America's track record on pensions isn't really any better in comparison.

[RandomGuy]

How did you first discover this “retirement heist” was happening?

In the late ’90s I noticed that many companies, including a lot of the largest companies in the country, were hiring experts to change their pension plans. They all claimed they were doing it to make themselves more modern and better for the mobile workforce, but it struck me as unlikely that a lot of companies would be doing something that was apparently costing them money just to make employees happy. I ultimately figured out that they had found a way to use the accounting rules to profit from cutting benefits.

Same article, interviewing the author of a book.

[RandomGuy]

Even after reading the book, I’m a little bit confused by how this actually worked. It was so sneaky.

It took me a long time to find an expert who could explain to me how these accounting rules worked, but when I finally pieced it together, it was enormously simple. Think of pensions as a debt. If a company can reverse a debt, it can record it as income. And that income is the same as if they got it from selling trucks or whatever it is the company sells. There were billions in promises to retirees for pensions and healthcare and death benefits and life insurance, and the companies figured out that if they cut or eliminated them altogether then they could get those billions in profit — and even use them for executive compensation.

A striking example was Lucent, which inherited about 100,000 retirees when it was spun off from AT&T. From the beginning, Lucent kept saying, “We are crippled by these retirees,” but the truth is, they also received more than enough actual money from AT&T to pay every dime of benefits for all the current and future retirees. Bit by bit, they cannibalized these benefits. They eliminated a death benefit, which is a very simple thing that says, if you work for us for 25 or 30 years, and you die, your widow will get $50,000 dollars or whatever per year. Lucent said they couldn’t afford that. So they took it away and saved $400 million that had been set aside physically in the pension plan for these folks. At the same time, they awarded more than $400 million in bonuses to executives.

[RandomGuy]

I did see a certain reflexive disdain for the plight of some of these groups. One of the earliest incidents where employers aggressively cut retiree health benefits by suing the retirees was with the John Morrell meat-packing plan in Sioux Falls, Iowa. People had this notion, “Oh, these meatpackers: Who are they to whine they’re not getting this healthcare?” So I went out there and met with these folks. Among them were very elderly gentlemen who had worked at that plant from the time they were in high school. They took a time out to go to WWII and then went back and worked in the plant. They were your basic salt-of-the-earth folks. They did not have lavish pensions or retiree healthcare. It was these folks, the backbone of America, who were affected by this — not a bunch of greedy old people.

[boutons_deux]

"So they took it away and saved $400 million that had been set aside physically in the pension plan for these folks. At the same time, they awarded more than $400 million in bonuses to executives."

I heard from a fired life-long IBMer, who lost a lot of his pension, that IBM did something similar, removing pension debt (and actual pension payments) to the profit column, propping up (executives') stock price, when IBM was in bad shape a couple decades or so ago.