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Indexing has gone big, very big. For nine in 10 companies on the S&P 500, their largest single shareholder is one of the Big Three. For many, the big indexers control 20 percent or more of their shares. Index funds now control 20 to 30 percent of the American equities market, if not more.

The problem is that the public markets have been cornered by a group of investment managers small enough to fit at a lunch counter, dedicated to quiescence and inertia.

Passively managed investment options do not just outperform actively managed ones in terms of both better returns and lower fees. They eat their lunch.

Let’s imagine that a decade ago you invested $100 in an index fund charging a 0.04 percent fee and $100 in a traditional mutual fund charging a 1.5 percent fee. Let’s also imagine that the index fund tracked the S&P 500, and that the mutual fund ended up returning what the S&P 500 returned. Your passively invested $100 would have turned into $356.66 in 10 years. Your traditionally invested $100 would have turned into $313.37.

Actively managed investment options could make up for their higher fees with higher returns. And some do, some of the time. Yet scores of industry and academic studies stretching over decades show that trying to beat the market tends to result in lower returns than just buying the market. Only a quarter of actively managed mutual funds exceeded the returns of their passively managed cousins in the decade leading up to 2019,

What might be good for retail investors might not be good for the financial markets, public companies, or the American economy writ large, and the passive revolution’s scope has raised all sorts of hand-wringing and red-flagging. Analysts at Bernstein have called passive investing “worse than Marxism.” The investor Michael Burry, of The Big Short fame, has called it a “bubble,” and a co-head of Goldman Sachs’s investment-management division has warned about froth too. Shortly before his death in 2019, Bogle himself warned that index funds’ dominance might not “serve the national interest.”

One primary concern comes from the analysts at Bernstein: “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active, market-led capital management.”

Active managers direct investment dollars to companies on the basis of those companies’ research-and-development prospects, human capital, regulatory outlook, and so on. They take new information and price it into a company’s stock when buying and selling shares.

Passive investors, by contrast, ignore annual reports and market rumors. They do nothing with trading-floor gossip. They make no attempt to research what to invest in and what to skip. Whether holding international or domestic assets, holding stocks or bonds, or using a mutual-fund structure or an ETF structure, they just mirror the market. Big U.S.-stock index funds buy big U.S. stocks just because they’re big U.S. stocks.

At least in a Soviet-type centrally planned economy, apparatchiks would be making some attempt to allocate resources efficiently.

Passive management is merely a giant phenomenon, not an all-encompassing one. Hundreds of actively managed mutual funds are still out there, as are legions of day traders, hedge funds, and private offices buying and selling and buying and selling. Stock prices still move around, sometimes dramatically, on the basis of new data and new ideas.

Still, passive investing may well be degrading the informational content of the markets, messing up price signals and making business decisions harder as a result.

When one of these commodities ends up on an index, the firms that use that commodity in their business see a 6 percent increase in costs and a 40 percent decrease in operating profits, relative to firms without exposure to the commodity, the academics found

Their theory is that ETF trading shifts prices in subtle ways, making it harder for businesses to know when to buy their gold and copper. Corporate executives “are being influenced by what happens in the futures market, and what happens in the futures market is being influenced by ETF trading,”

More broadly, the Bernstein analysts, among others, worry that index-linked investing is increasing correlation, whereby the prices of stocks, bonds, and other assets move up or down or sideways together.

the price fluctuations of a newly indexed stock “magically and quickly” change. A firm’s shares begin to move “more closely with its 499 new neighbors and less closely with the rest of the market. It is as if it has joined a new school of fish.”

A far bigger concern is that the rise of the indexers might be making American firms less competitive, through “common ownership,” in which the mega-asset managers control large stakes in multiple competitors in the same industry. The passive firms control big chunks of the airlines American, Delta, JetBlue, Southwest, and United, for instance

The rise of common ownership might be perverting corporate behavior in weird ways, academics argue. Think about the incentives like this: Let’s imagine that you are a major shareholder in a public widget company. We’d expect you to desire—insist, even—that the company fight for market share and profits. But now imagine that you are a major shareholder in all the important widget companies. You would no longer really care which one succeeded, particularly not if one company doing better meant another company doing worse. You’d just care about the widget sector’s corporate profits, which would go up if the widget companies quit competing with one another and started raising prices to pad their bottom line.

one major paper showed that common ownership of airline stocks had the effect of raising ticket prices by 3 to 7 percent.

A separate study showed that consumers are paying higher prices for prescription medicines because generic-drug makers have less incentive to compete with the companies making name-brand drugs.

Yet another study showed that common ownership is leading retail banks to charge higher prices.

Across firms, executive compensation seems to be more closely linked to a company’s performance when its shareholders are not invested in the company’s rivals, the study found. In other words, firms stop paying managers for performance when owned by the same people who own their rivals.

The market clout of the indexers raises other questions too. The actual owners of the stocks—not the index-fund managers but the people putting money into index funds—have little say over the companies they own. Vanguard, Fidelity, and State Street, not Mom and Dad, vote in shareholder elections

In fact, the Big Three cast roughly 25 percent of the votes in S&P 500 companies.

In an interview with The Wall Street Journal, the chief executive officer of State Street said he thought it was “almost inevitable, when you see this kind of concentration, that it probably will make sense to do something about it.”

But figuring out what the appropriate restrictions are depends on determining just what the problem with the indexers is—are they distorting price signals, raising the cost of consumer goods, posing financial systemic risk, or do they just have the market cornered? Then, what to do about it? Common ownership is not a problem the government is used to handling.

, thanks to the passive revolution, a broad variety and huge number of firms might have less incentive to compete. The effect on the real economy might look a lot like that of rising corporate concentration. And the two phenomena might be catalyzing one another, as index investing increases the number of mergers and makes them more lucrative.

In recent decades, the whole economy has gone on autopilot. Index-fund investment is hyperconcentrated. So is online retail. So are pharmaceuticals. So is broadband. Name an industry, and it is likely dominated by a handful of giant players. That has led to all sorts of deleterious downstream effects: suppressing workers’ wages, raising consumer prices, stifling innovation, stoking inequality, and suffocating business creation

The problem is not just the indexers. It is the public markets they reflect, where more chaos, more speculation, more risk, more innovation, and more competition are desperately needed.

At the risk of oversimplifying, take the example of a family with a diabetic member who must pay for insulin on a regular basis

The family also happens to own stock in the three powerful pharmaceutical companies that manufacture insulin in the United States

price increases have resulted in higher profits for company executives and their shareholders.

Whether those price hikes ultimately harm or benefit the family depends on two factors: how much they spend on insulin and how much of a stake in the insulin companies they own through the stock market.

researchers use data from the federal Survey of Consumer Finances and the Consumer Expenditure Survey to calculate the distribution of corporate equity (e.g., stocks and business equity) and of total consumer expenditures. They find that corporate equity is much more unequally distributed than expenditures.

The top 20 percent of U.S. households own nearly 90 percent of the country’s total equity, according to their calculations. But those households account for a hair under 40 percent of total consumer spending

the bottom 80 percent of the country owns just 10 percent of the equity but spends 60 percent of the money.

On net, that means it’s nearly impossible for the typical U.S. family to make up for higher prices via the performance of their stock portfolio. When prices rise, low- and middle-class families pay. Wealthy families profit

They find that monopolistic pricing takes a bite out of every income group’s share of national income, with the notable exception of the top 20 percent, whose incomes rise. In effect, companies are using their market power to extract wealth from poor and middle-class households and deposit it in the pockets of the wealthy, to the tune of about 3 percent of national household income in 2016.

The implication of these findings is that antitrust enforcement has potential to be a tool in the fight against rising inequality by reducing the ability of large companies to set high prices that primarily benefit the wealthy. Conversely, the findings suggest that a recent lapse in that enforcement is contributing to the growing gap between the rich and poor.

The corporate panic about capitalism could be a turning point, opening the way for a future president to begin fixing the problems of stagnant wages and inequality that are at the core of America’s disarray

America’s historical experience teaches us that economic reform succeeds when it goes mainstream, and that’s what’s happening now.

Today’s corporate reformers share the same concern about saving a broken capitalist system as did President Franklin D. Roosevelt in the New Deal era and President Theodore Roosevelt in the Progressive era. Dalio made the historical analogy in his manifesto: “We are now seeing conflicts between populists of the left and populists of the right increasing around the world in much the same way as they did in the 1930s when the income and wealth gaps were comparably large.”

Dalio has even questioned the profit motive, the capitalist holy of holies, arguing that while “usually an effective motivator and resource allocator . . . it is now producing a self-reinforcing feedback loop that widens the income/wealth/opportunity gap to the point that capitalism and the American dream are in jeopardy.”

Calm, reassuring, Roosevelt saved capitalism by reforming it, redeeming his campaign pledge to “the forgotten man at the bottom of the economic pyramid.” Who in the current Democratic field can claim this role in 2020? The ground is ready. Even the moguls know it’s time for change.

The report argues that the pandemic exposed the huge power imbalance at the heart of the fashion industry, which demands that suppliers in some of the poorest countries in the world bear all the upfront production costs while buyers pay nothing until weeks or months after factories ship the goods.

Despite leaving suppliers and workers facing ruin, some retailers have paid out millions in dividends to shareholders. In March, Kohl’s, one of the US’s largest clothing retailers, paid out $109m in dividends just weeks after cancelling large orders from factories in Bangladesh, Korea and elsewhere

In an open letter published in April, the Garment Manufacturers Association in Cambodia appealed to buyers to honour their contracts to protect the 750,000 workers who rely on the Cambodian garment industry.

“All parties in the global apparel supply chain are feeling the extreme burden caused by Covid-19,” the letter said. “However, manufacturers [factories] operate on razor-thin margins and have much less ability to shoulder such a burden as compared to our customers [buyers]. The consequential burden faced by our workers who still need to put food on the table is enormous and extreme.”

In Bangladesh, more than a million garment workers have been fired or furloughed as a result of cancelled orders and buyers’ refusal to pay, according to the CGWR. Despite a government package of more than $500m to factories to help mitigate job losses, Bangladeshi workers have reported not being paid for two months or more.

“While their economic position at the top of supply chains gives them the power to renege on what they owe suppliers during a crisis, they have a moral obligation to protect the most vulnerable … and that begins with protecting the wellbeing of the workers at the bottom of supply chains.”

Topshop owner Arcadia Group, Walmart, Urban Outfitters and Mothercare are listed among those which have made no commitment to pay in full for orders completed and in production.

n contrast, said WRC’s Nova, a substantial number of big brands and retailers are now fulfilling their financial obligations to suppliers. H&M and Zara made a commitment to pay after Anner first revealed the scale of the cancellations in a CGWR/WRC report published at the end of March. Gap is among others that have since followed suit.

Now, he’s publicly asking for 25%, to give him more voting power in corporate matters.  

That plan, which became subject to litigation, set numerous stretch goals, including the addition of $600 billion to the company’s market value. It offered him tranches of payouts along the way, giving him options in total to about 10% of the company’s stock, worth around $60 billion Friday after exercising costs. 

“If I allocate time to Tesla—if I overallocate time to Tesla at the expense of making humanity a space-faring civilization—then I’m not sure what would serve the greater good,” Musk said. “But if there were additional economic resources available that could then subsequently be applied to making life multiplanetary, then perhaps that would serve the greater good.” 

Musk surprised many by completing the final tranche of his plan in 2022—to his and investors’ benefit. 

His public airing of his demands were made even more unusual given that he and the board have plenty of reasons to make something work. His unexpected departure would hurt the stock’s value, which would be bad both for his own wealth and for the board responsible for ensuring shareholder value.  

“This is primarily about ensuring the right amount of voting influence at Tesla,” Musk tweeted. “If I have 25%, it means I am influential, but can be overridden if twice as many shareholders vote against me vs for me. At 15% or lower, the for/against ratio to override me makes a takeover by dubious interests too easy.” 

All in all, it is a race to the bottom on the part of revenue-starved governments eager to attract even a relatively small number of new jobs.

As a consequence, the effective corporate tax rate in the United States fell to 17.8 percent in 2012 from 42.5 percent in 1960,

That’s just not fair at a time of soaring corporate profits and stagnant family incomes.

Business groups, naturally, say the best way to bring jobs and cash home is for Washington to stop taxing profits earned overseas by American companies altogether. But that idea makes little sense. While changing to this “territorial system” would allow some of the estimated $1.7 trillion of cash “trapped” overseas to come home free of tax, it would both cost the Treasury an estimated $130 billion in revenue over the next 10 years and provide greater incentives for American companies to continue to move jobs and production overseas.

the gaming of the tax system is becoming a global concern, with an action plan coming from the Organization for Economic Cooperation and Development in July. The O.E.C.D. should work toward taxing business profits where they actually occur, not where they’ve been shifted by some tax adviser.

we should consider taxing a greater share of the profits made by companies not at the corporate level, where they are subject to oh-so-much gaming, but rather at the shareholder level.

As corporate taxes have declined, corporate profits have increased. That has pushed up stock prices and been a boon to shareholders. It hardly seems unfair to ask those who already benefit from bargain tax rates on capital gains and dividends to share some of those gains with the government.

Consider Yahoo. The company bought back shares worth $6.6 billion from 2008 to 2014, according to Robert L. Colby, a retired investment professional and developer of Corequity, an equity valuation service used by institutional investors. These purchases helped increase Yahoo’s earnings per share about 16 percent annually, on average.

a company’s overall profit growth is unaffected by share buybacks. And comparing increases in earnings per share with real profit growth reveals the impact that buybacks have on that particular measure. Call it the buyback mirage.

Those who run companies like buybacks because they make their earnings look better on a per-share basis. When fewer shares are outstanding, each one technically earns more.

But Mr. Colby pointed out that buybacks provide only a one-time benefit, while smart investments in a company’s operations can generate years of gains.

Given these figures, Mr. Colby reckoned that Yahoo, if it had invested that same amount of money in its operations, would have had to generate only a 3.2 percent after-tax return to produce overall net profit growth of 16 percent annually over those years.

But a good bit of that performance was the buyback mirage. Growth in Yahoo’s overall net profits came in at about 11 percent annually

Mr. Colby said his research “confirms my suspicion that while buybacks are not universally bad, they are being practiced far more broadly and without as much analysis as there should be.”

Perhaps the crucial flaw in buybacks is that they reward sellers of a company’s stock over its long-term holders. That’s because a company announcing a repurchase program usually sees its stock price pop in the short term. But passive investors, such as index funds, and other long-term holders gain little from the programs.

Another hazard: companies that spend billions to repurchase stock without substantially shrinking the number of shares outstanding. That’s because in these circumstances, prized corporate cash is used to buy back shares that offset stock grants bestowed on company executives in rich compensation plans.

And there are plenty of companies whose buybacks have simply left them with less money to invest in more promising opportunities. Advertisement Continue reading the main story “By throwing away money on buybacks, companies are giving up on the ability to grow in the future,”

proposals ask the companies to adopt a policy of excluding the effect of stock buybacks from any performance metrics they use to determine executive pay packages.

At 3M, for example, research and development expenditures plus strategic acquisitions have totaled $22 billion over the last five years, Mr. Kanzer said. In the meantime, the company’s buyback program has cost $21 billion.

“You really have to ask why a company’s board decides to return a big chunk of capital instead of replacing managers with ones who can figure out how to develop the operations,”

“If the board doesn’t think it’s worth investing in the company’s future,” Mr. Lutin added, “how can a shareholder justify continuing to hold the stock, or voting for directors who’ve given up?”

The Justice Department is also preparing to resolve accusations of foreign currency misconduct at UBS. As part of that deal, prosecutors are taking the rare step of tearing up a 2012 nonprosecution agreement with the bank over the manipulation of benchmark interest rates, the people said, citing the bank’s foreign currency misconduct as a violation of the earlier agreement.

The guilty pleas, scarlet letters affixed to banks of this size and significance, represent another prosecutorial milestone in a broader effort to crack down on financial misdeeds. Yet as much as prosecutors want to punish banks for misdeeds, they are also mindful that too harsh a penalty could imperil banks that are at the heart of the global economy, a balancing act that could produce pleas that are more symbolic than sweeping.

While the S.E.C.’s five commissioners have not yet voted on the requests for waivers, which would allow the banks to conduct business as usual despite being felons, the people briefed on the matter expected a majority of commissioners to grant them.

In reality, those accommodations render the plea deals, at least in part, an exercise in stagecraft. And while banks might prefer a deferred-prosecution agreement that suspends charges in exchange for fines and other concessions — or a nonprosecution deal like the one that UBS is on the verge of losing — the reputational blow of being a felon does not spell disaster.

The action against UBS underscores the threats that Justice Department officials issued in recent months about voiding past deals in the event of new misdeeds, a central tactic in a plan to address the cycle of corporate recidivism. Leslie Caldwell, the head of the Justice Department’s criminal division, recently remarked that she “will not hesitate to tear up a D.P.A. or N.P.A. and file criminal charges where such action is appropriate.”

The Justice Department negotiations coincide with the banks’ separate efforts to persuade the S.E.C. to issue waivers from automatic bans that occur when a company pleads guilty. If the waivers are not granted, a decision that the Justice Department does not control, the banks could face significant consequences.

For example, some banks may be seeking waivers to a ban on overseeing mutual funds, one of the people said. They are also requesting waivers to ensure they do not lose their special status as “well-known seasoned issuers,” which allows them to fast-track securities offerings. For some of the banks, there is also a concern that they will lose their “safe harbor” status for making forward-looking statements in securities documents.

it seemed probable that a majority of the S.E.C.’s commissioners would approve most of the waivers, which can be granted for a cause like the public good. Still, the agency’s two Democratic commissioners — Kara M. Stein and Luis A. Aguilar, who have denounced the S.E.C.’s use of waivers — might be more likely to balk.

Senator Elizabeth Warren, Democrat of Massachusetts, and other liberal politicians have criticized prosecutors for treating Wall Street with kid gloves. Banks and their lawyers, however, complain about huge penalties and guilty pleas.

lingering in the background is the case of Arthur Andersen, an accounting giant that imploded after being convicted in 2002 of criminal charges related to its work for Enron. After the firm’s collapse, and the later reversal of its conviction, prosecutors began to shift from indictments and guilty pleas to deferred-prosecution agreements. And in 2008, the Justice Department updated guidelines for prosecuting corporations, which have long included a requirement that prosecutors weigh collateral consequences like harm to shareholders and innocent employees.

“The collateral consequences consideration is designed to address the risk that a particular criminal charge might inflict disproportionate harm to shareholders, pension holders and employees who are not even alleged to be culpable or to have profited potentially from wrongdoing,” said Mark Filip, the Justice Department official who wrote the 2008 memo. “Arthur Andersen was ultimately never convicted of anything, but the mere act of indicting it destroyed one of the cornerstones of the Midwest’s economy.”

After years of deferred-prosecution agreements, the pendulum swung back in favor of guilty pleas in 2012

In pursuing cases last year against Credit Suisse and BNP Paribas, prosecutors confronted the popular belief that banks had grown so important to the economy that they could not be charged

Yet after prosecutors announced the deals, the banks’ chief executives promptly assured investors that the effect would be minimal.“Apart from the impact of the fine, BNP Paribas will once again post solid results this quarter,” BNP’s chief, Jean-Laurent Bonnafé, said.Brady Dougan, Credit Suisse’s chief at the time, said the deal would not cause “any material impact on our operational or business capabilities.”

Stiglitz has made the case that the rise in inequality in the US, far from being the natural outcome of market forces, has been profoundly shaped by “our policies and our politics,” with disastrous effects on society and the economy as a whole. In a recent report for the Roosevelt Institute called Rewriting the Rules, Stiglitz has laid out a detailed list of reforms that he argues will make it possible to create “an economy that works for everyone.”

his entire career in academia has been devoted to showing how markets cannot always be counted on to produce ideal results. In a series of enormously important papers, for which he would eventually win the Nobel Prize, Stiglitz showed how imperfections and asymmetries of information regularly lead markets to results that do not maximize welfare.

He also argued that this meant, at least in theory, that well-placed government interventions could help correct these market failures

in books like Globalization and Its Discontents (2002) he offered up a stinging critique of the way the US has tried to manage globalization, a critique that made him a cult hero in much of the developing world

Stiglitz has been one of the fiercest critics of the way the Eurozone has handled the Greek debt crisis, arguing that the so-called troika’s ideological commitment to austerity and its opposition to serious debt relief have deepened Greece’s economic woes and raised the prospect that that country could face “depression without end.”

For Stiglitz, the fight over Greece’s future isn’t just about the right policy. It’s also about “ideology and power.

there’s a good case to be made that the sheer amount of rent-seeking in the US economy has expanded over the years. The number of patents is vastly greater than it once was. Copyright terms have gotten longer. Occupational licensing rules (which protect professionals from competition) are far more common. Tepid antitrust enforcement has led to reduced competition in many industries

The Great Divide is somewhat fragmented and repetitive, but it has a clear thesis, namely that inequality in the US is not an unfortunate by-product of a well-functioning economy. Instead, the enormous riches at the top of the income ladder are largely the result of the ability of the one percent to manipulate markets and the political process to their own benefit.

Inequality obviously has no single definition. As Stiglitz writes:There are so many different parts to America’s inequality: the extremes of income and wealth at the top, the hollowing out of the middle, the increase of poverty at the bottom. Each has its own causes, and needs its own remedies.

his preoccupation here is primarily with why the rich today are so much richer than they used to be.

the main reason people at the top are so much richer these days than they once were (and so much richer than everyone else) is not that they own so much more capital: it’s that they get paid much more for their work than they once did, while everyone else gets paid about the same, or less

while incomes at the top have risen in countries around the world, nowhere have they risen faster than in the US.

One oft-heard justification of this phenomenon is that the rich get paid so much more because they are creating so much more value than they once did

as companies have gotten bigger, the potential value that CEOs can add has increased as well, driving their pay higher.

Stiglitz will have none of this. He sees the boom in the incomes of the one percent as largely the result of what economists call “rent-seeking.”

from the perspective of the economy as a whole, rent-seeking is a waste of time and energy. As Stiglitz puts it, the economy suffers when “more efforts go into ‘rent seeking’—getting a larger slice of the country’s economic pie—than into enlarging the size of the pie.”

The work of Piketty and his colleague Emmanuel Saez has been instrumental in documenting the rise of income inequality, not just in the US but around the world. Major economic institutions, like the IMF and the OECD, have published studies arguing that inequality, far from enhancing economic growth, actually damages it. And it’s now easy to find discussions of the subject in academic journals.

. After all, while pretax inequality is a problem in its own right, what’s most destructive is soaring posttax inequality. And it’s posttax inequality that most distinguishes the US from other developed countries

All this rent-seeking, Stiglitz argues, leaves certain industries, like finance and pharmaceuticals, and certain companies within those industries, with an outsized share of the rewards

within those companies, the rewards tend to be concentrated as well, thanks to what Stiglitz calls “abuses of corporate governance that lead CEOs to take a disproportionate share of corporate profits” (another form of rent-seeking)

This isn’t just bad in some abstract sense, Stiglitz suggests. It also hurts society and the economy

It alienates people from the system. And it makes the rich, who are obviously politically influential, less likely to support government investment in public goods (like education and infrastructure) because those goods have little impact on their lives.

More interestingly (and more contentiously), Stiglitz argues that inequality does serious damage to economic growth: the more unequal a country becomes, the slower it’s likely to grow. He argues that inequality hurts demand, because rich people consume less of their incomes. It leads to excessive debt, because people feel the need to borrow to make up for their stagnant incomes and keep up with the Joneses. And it promotes financial instability, as central banks try to make up for stagnant incomes by inflating bubbles, which eventually burst

exactly why inequality is bad for growth turns out to be hard to pin down—different studies often point to different culprits. And when you look at cross-country comparisons, it turns out to be difficult to prove that there’s a direct connection between inequality and the particular negative factors that Stiglitz cites

This doesn’t mean that, as conservative economists once insisted, inequality is good for economic growth. In fact, it’s clear that US-style inequality does not help economies grow faster, and that moving toward more equality will not do any damage

Similarly, Stiglitz’s relentless focus on rent-seeking as an explanation of just why the rich have gotten so much richer makes a messy, complicated problem simpler than it is

When we talk about the one percent, we’re talking about two groups of people above all: corporate executives and what are called “financial professionals” (these include people who work for banks and the like, but also money managers, financial advisers, and so on)

The emblematic figures here are corporate CEOs, whose pay rose 876 percent between 1978 and 2012, and hedge fund managers, some of whom now routinely earn billions of dollars a year

Shareholders, meanwhile, had fewer rights and were less active. Since then, we’ve seen a host of reforms that have given shareholders more power and made boards more diverse and independent. If CEO compensation were primarily the result of bad corporate governance, these changes should have had at least some effect. They haven’t. In fact, CEO pay has continued to rise at a brisk rate

So what’s really going on? Something much simpler: asset managers are just managing much more money than they used to, because there’s much more capital in the markets than there once was

that means that an asset manager today can get paid far better than an asset manager was twenty years ago, even without doing a better job.

there’s no convincing evidence that CEOs are any better, in relative terms, than they once were, and plenty of evidence that they are paid more than they need to be, in view of their performance. Similarly, asset managers haven’t gotten better at beating the market.

More important, probably, has been the rise of ideological assumptions about the indispensability of CEOs, and changes in social norms that made it seem like executives should take whatever they could get.

It actually has important consequences for thinking about how we can best deal with inequality. Strategies for reducing inequality can be generally put into two categories: those that try to improve the pretax distribution of income (this is sometimes called, clunkily, predistribution) and those that use taxes and transfers to change the post-tax distribution of income

he has high hopes that better rules, designed to curb rent-seeking, will have a meaningful impact on the pretax distribution of income. Among other things, he wants much tighter regulation of the financial sector

t it would be surprising if these rules did all that much to shrink the income of much of the one percent, precisely because improvements in corporate governance and asset managers’ transparency are likely to have a limited effect on CEO salaries and money managers’ compensation.

Most importantly, the financial industry is now a much bigger part of the US economy than it was in the 1970s, and for Stiglitz, finance profits are, in large part, the result of what he calls “predatory rent-seeking activities,” including the exploitation of uninformed borrowers and investors, the gaming of regulatory schemes, and the taking of risks for which financial institutions don’t bear the full cost (because the government will bail them out if things go wrong).

The redistributive policies Stiglitz advocates look pretty much like what you’d expect. On the tax front, he wants to raise taxes on the highest earners and on capital gains, institute a carbon tax and a financial transactions tax, and cut corporate subsidies

It’s also about investing. As he puts it, “If we spent more on education, health, and infrastructure, we would strengthen our economy, now and in the future.” So he wants more investment in schools, infrastructure, and basic research.

The core insight of Stiglitz’s research has been that, left on their own, markets are not perfect, and that smart policy can nudge them in better directions.

Of course, the political challenge in doing any of this (let alone all of it) is immense, in part because inequality makes it harder to fix inequality. And even for progressives, the very familiarity of the tax-and-transfer agenda may make it seem less appealing.

the policies that Stiglitz is calling for are, in their essence, not much different from the policies that shaped the US in the postwar era: high marginal tax rates on the rich and meaningful investment in public infrastructure, education, and technology. Yet there’s a reason people have never stopped pushing for those policies: they worked

“My comparison is to speed limits,” Ms. Admati said in an interview near the Stanford campus. “Basically what we have here is the market has decided nobody else should be driving faster than 70 miles an hour and these are the biggest trucks with the most explosive cargo and they are driving at almost 100 miles an hour.”

“At one level, the story on capital and liquidity ratios is very simple: From the viewpoint of the stability of the financial system, more of each is better,” he said. But the United States, he said, was constrained by practicality. If other countries aren’t willing to impose stricter capital requirements on their own banks — and they don’t appear to be — then unilateral increases would hurt the American banking industry and the broader economy.

“If you lower the speed limit on one highway, you’ll have fewer accidents on that highway,” he said. “But the other road will just get more crowded.”

Ms. Admati compares this logic to letting American manufacturers pollute so that they can compete more effectively with companies in China.

banks continue to rely on debt financing far more than other kinds of corporations. Last year, the eight largest American banks together derived less than 5 percent of their funding from shareholders, according to Thomas M. Hoenig, vice chairman of the Federal Deposit Insurance Corporation. The average equity financing for nonfinancial corporations was about 60 percent.

Ms. Admati argues that banks are taking larger risks than other kinds of companies because they use other people’s money, and the results are that they keep crashing the economy.

The industry’s more serious argument is that equity is more expensive than debt. If governments require banks to raise more equity, the industry warns, the results would be higher interest rates, less lending and slower economic growth.

an increase of 10 percentage points in capital requirements would raise interest rates by 0.25 to 0.45 percentage points.

This, in the view of Ms. Admati, is a small price to pay for fewer crises. She notes that debt is cheaper than equity largely because of government subsidies — not just deposit insurance but also tax deductions for interest payments on other kinds of debt — so more equity would basically transfer costs from taxpayers to banks

the economic impact may well be positive. A study last year by Benjamin H. Cohen, an economist at the Bank for International Settlements, found that banks with more capital tended to make more loans.

Ms. Admati says large banks should be required to raise at least 30 percent of their funding in the form of equity, about six times more than the current average for the largest American banks.

she says, banks should be required to suspend dividend payments, thus increasing their equity by retaining their profits, until they are sufficiently capitalized.

She freely concedes that there is no particular science behind her 30 percent equity figure. The point, she says, is that 5 percent is the wrong ballpark. The proper baseline, in her view, is what the market imposes on other kinds of companies.

“We have too much belief that we can be precise,” she said. “I don’t mean 20 percent. I don’t mean 30 percent. I mean add a digit. I mean a lot more.”

Behind Mr. Cook’s worry is a separate, perhaps even more immediate threat: the possibility that if Apple were to comply with the court’s order, other governments might follow suit and require Apple to give them access for their own investigative purposes

If Apple refused the request of, say, the Chinese government, it would risk being barred from doing business in China, its second-largest

And then there’s the possibility that if Apple were to build special software for the F.B.I., it could fall into the wrong hands, leading to even greater privacy and safety concerns.

Maybe that means Apple should work with law enforcement to train officials so they have a better ability to rapidly retrieve information legally? (After all, law enforcement had a chance to gain access to the iPhone in question had they taken certain steps early on.) Or maybe the president should create a commission to study the issue, bringing together people from Silicon Valley and law enforcement to create agreed-upon rules of the road. Or, perhaps new legislation is required.

“This has become, ladies and gentlemen, the Wild West of technology,” the Manhattan district attorney, Cyrus R. Vance Jr., said last Thursday, citing at least 175 iPhones that his office cannot gain access to, and arguing that it should be able to do so. “Apple and Google are their own sheriffs. There are no rules.”

Ultimately, it appears that both sides have left little room for compromise. “Tim Cook and lawyer Ted Olson have draped their argument in one of moral absolutism — but there is a hierarchy of moral reasoning they miss,” said Jeffrey Sonnenfeld

if this broader controversy is ever going to be solved for the long term, there has to be an opportunity to reach a consensus in the middle.

“What does it mean to say that ‘business’ has responsibilities?” Mr. Friedman wrote in The New York Times Magazine in 1970. Citing his book “Capitalism and Freedom,” he wrote, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

“That tension should not be resolved by corporations that sell stuff for a living,” he said. “It also should not be resolved by the F.B.I., which investigates for a living. It should be resolved by the American people deciding how we want to govern ourselves in a world we have never seen before.”

Profits have soared at the expense of worker pay. The wealth of the median family today is lower than two decades ago. Life expectancy has actually fallen in the last few years. Not since 2004 has a majority of Americans said they were satisfied with the country’s direction.

“Capitalism is a brilliant factory for prosperity. Brilliant,” Georgescu says. “And yet the version of capitalism we have created here works for only a minority of people.”

e talks about the signs of frustration, in both the United States and Europe. He has seen societies fall apart, and he thinks many people are underestimating the risks it could happen again. “We’re not that far off,” he told me.

Some other business leaders are also worried about rising inequality. Warren Buffett is. So are Martin Lipton, the dean of corporate lawyers, and Laurence Fink, who runs the investment firm BlackRock. “There’s class warfare, all right,” Buffett has said, “but it’s my class, the rich class, that’s making war, and we’re winning,”

“People are looking to achieve very big numbers,” said Mohit Joshi, the president of Infosys, a technology and consulting firm that helps other businesses automate their operations. “Earlier they had incremental, 5 to 10 percent goals in reducing their work force. Now they’re saying, ‘Why can’t we do it with 1 percent of the people we have?’”

they’ve come up with a long list of buzzwords and euphemisms to disguise their intent. Workers aren’t being replaced by machines, they’re being “released” from onerous, repetitive tasks. Companies aren’t laying off workers, they’re “undergoing digital transformation.”

IBM’s “cognitive solutions” unit, which uses A.I. to help businesses increase efficiency, has become the company’s second-largest division, posting $5.5 billion in revenue last quarter.

The investment bank UBS projects that the artificial intelligence industry could be worth as much as $180 billion by next year.

“On one hand,” he said, profit-minded executives “absolutely want to automate as much as they can.”“On the other hand,” he added, “they’re facing a backlash in civic society.”

In an interview, he said that chief executives were under enormous pressure from shareholders and boards to maximize short-term profits, and that the rapid shift toward automation was the inevitable result.

it’s probably not surprising that all of this automation is happening quietly, out of public view. In Davos this week, several executives declined to say how much money they had saved by automating jobs previously done by humans. And none were willing to say publicly that replacing human workers is their ultimate goal.

Kai-Fu Lee, the author of “AI Superpowers” and a longtime technology executive, predicts that artificial intelligence will eliminate 40 percent of the world’s jobs within 15 years.

Terry Gou, the chairman of the Taiwanese electronics manufacturer Foxconn, has said the company plans to replace 80 percent of its workers with robots in the next five to 10 years

Richard Liu, the founder of the Chinese e-commerce company JD.com, said at a business conference last year that “I hope my company would be 100 percent automation someday.

One common argument made by executives is that workers whose jobs are eliminated by automation can be “reskilled” to perform other jobs in an organization

There are plenty of stories of successful reskilling — optimists often cite a program in Kentucky that trained a small group of former coal miners to become computer programmers — but there is little evidence that it works at scale

A report by the World Economic Forum this month estimated that of the 1.37 million workers who are projected to be fully displaced by automation in the next decade, only one in four can be profitably reskilled by private-sector programs

The rest, presumably, will need to fend for themselves or rely on government assistance.

In Davos, executives tend to speak about automation as a natural phenomenon over which they have no control, like hurricanes or heat waves. They claim that if they don’t automate jobs as quickly as possible, their competitors will.

these executives can choose how the gains from automation and A.I. are distributed, and whether to give the excess profits they reap as a result to workers, or hoard it for themselves and their shareholders.

“The choice isn’t between automation and non-automation,” said Erik Brynjolfsson, the director of M.I.T.’s Initiative on the Digital Economy. “It’s between whether you use the technology in a way that creates shared prosperity, or more concentration of wealth.”

It was The Economists’ Hour, as the title of the New York Times editorial writer Binyamin Appelbaum’s debut book has it.

Lemann and Appelbaum contribute to the second wave of post-2008 commentary. The first postmortems focused narrowly on the global financial crisis, dissecting the distorted incentives, regulatory frailty, and groupthink that caused bankers to blow up the world economy

The new round of analysis broadens the lens, searching out larger political and intellectual wrong turns, an expansion that reflects the morphing of the 2008 crash into a general populist surge.

Berle went further. He laid out in detail how shareholders, being so dispersed and numerous, could not hope to restrain bosses—indeed, how nobody could do so. Enormous powers to shape society belonged to company chieftains who answered to no one. Hence Berle’s prescription: The government should regulate them.

“the Treaty of Detroit,” GM’s bosses granted workers regular cost-of-living pay increases, a measure of job security, health insurance, and a pension—benefits that were almost unheard-of. General Motors had “set itself up as a comprehensive welfare state for its workers,” in Lemann’s succinct formulation.

Berle celebrated the Treaty of Detroit by propounding a pro-corporate liberalism. The corporation had become the “conscience-carrier of twentieth-century American society,” he marveled

Anticipating the “end of history” triumphalism of a later era, the sociologist Daniel Bell feted the corporatist order in a book titled The End of Ideology.

the chief threat to Berle’s vision came not from America’s suspicion of concentrated power. It came from economics

Starting in the 1970s, however, economists began to wield extraordinary influence. They persuaded Richard Nixon to abolish the military draft. They brought economics into the courtroom. They took over many of the top posts at regulatory agencies

The rise of economics, Appelbaum writes, “transformed the business of government, the conduct of business, and, as a result, the patterns of everyday life.

Jensen agreed with Berle’s starting point: Corporate managers were unaccountable because shareholders could not restrain them. But rather than seeing a remedy in checks exerted by regulators and organized labor, Jensen proposed to overhaul the firm so that ownership and control were reunited

In sum, Jensen’s prescriptions inverted Berle’s. The market could be made to solve the problem of the firm. Government could pull back from regulation

After decades in which economists’ influence expanded rapidly, the striking thing about the Trump administration and its foreign analogues is that they have largely dispensed with economic advisers

Shortly after the publication of his research, the invention of junk bonds made hostile takeovers the rage. During the ’80s, more than a quarter of the companies on the Fortune 500 list were targeted. Jensen became the scholar who explained why this unprecedented boardroom bloodbath was good news for America.

to a considerable extent, the news was good. Shielded from market discipline, the old corporate heads had deployed capital carelessly

From 1977 to 1988, Jensen calculated, American corporations had increased in value by $500 billion as a result of the new market for corporate control. Reengineered and reinvigorated, American business staved off what might have been an existential threat from Japanese competition.

Yet a large cost eluded Jensen’s calculations. The social contract of the Berle era was gone: the unstated assumption of lifetime employment, the promise of retirement benefits, the sense of community and stability and shared purpose that gave millions of lives their meaning. Berle had viewed the corporation as a social and political institution as much as an economic one, and the dismembering of corporations on purely economic grounds was bound to generate fallout that had not been accounted for

Even before the 2008 crash, Jensen disavowed the transactional culture he had helped to legitimize. Holy shit, Jensen remembers saying to himself. Anything can be corrupted.

Contrary to common presumption, the economics establishment in the 1990s and 2000s did not believe that markets were perfectly efficient. Rather, influential economists took the pragmatic view that markets would discipline financiers more effectively than regulators could

He is happy to state at the outset that market-oriented reforms have lifted billions out of poverty, and to recognize that the deregulation that helped undo Berle-ism was not some kind of right-wing plot. In the late ’70s, it was initiated by Democrats such as President Jimmy Carter and Senator Ted Kennedy.

Inequality has grown to unacceptable extremes in highly developed economies. From 1980 to 2010, life expectancy for poor Americans scandalously declined, even as the rich lived longer.

Meanwhile, the primacy of economics has not generated faster economic growth. From 1990 until the eve of the financial crisis, U.S. real GDP per person grew by a little under 2 percent a year, less than the 2.5 percent a year in the oil-shocked 1970s.

economists have repeatedly made excessive claims for their discipline

In the ’60s, Kennedy’s and Johnson’s advisers thought they had the business cycle tamed. They believed they could prevent recessions by “fine-tuning” tax and spending policies

When this expectation was exposed as hubris, Milton Friedman urged central banks to focus exclusively on the supply of money circulating in the economy. This too was soon discredited. From the ’90s onward, economists oversold the benefits of targeting inflation, forgetting that other perils—the human cost of unemployment, the destabilization wrought by financial bubbles—might well be worse than rising prices

Greenspan and Summers ducked the political challenge of buffering new kinds of financial trading with regulatory safeguards

Michael C. Jensen, an entertainingly impassioned financial economist who reframed attitudes toward the corporation in the mid-’70s.

today’s fierce international competition and disruptive innovation oblige businesses to cut costs or go under. The dilemma is that, even as they compel efficiency, globalization and technological change exacerbate inequality and uncertainty and therefore the need for a compassionate social contract

LinkedIn is not a solution to worker insecurity writ large, still less to inequality. On the contrary, a world in which people compete to gather connections may be even less equal than our current one. A few high-octane networkers will attract large followings, while a long tail of pedestrians will have only a handful of buddies

Rather than buy in to a single grand vision, societies should prefer a robust contest among interest groups—what Lemann calls pluralism. Borrowing from the forgotten early-20th-century political scientist Arthur Bentley, Lemann defines groups broadly. States and cities are “locality groups,” income categories are “wealth groups,” supporters of a particular politician constitute “personality groups.” People inevitably affiliate themselves with such groups; groups naturally compete to influence the government; and the resulting push and pull, not squabbles among intellectuals about organizing concepts, constitutes the proper stuff of politics

Lemann is aware of the risks in this conclusion. He cites the obvious objection: “The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent.” In a contest of competing interest groups, the ones with the most money are likely to win

For those who regard inequality as a challenge, an interest-group free-for-all is a perilous prescription.

Appelbaum presents a series of persuasive recommendations, confirming that Lemann is wrong to despair of reasoned, technocratic argument. If policy makers want ordinary Americans to appreciate the benefits of open trade, they must ensure that displaced workers have access to training and health care. Because some interest groups are weaker than others, government should correct the double standard by which the power of labor unions is regarded with antipathy but the power of business monopolies is tolerated

Progressives should look for ways to be pro-competition but anti-inequality

—it isn’t so clear that the economists have departed

throughout Appelbaum’s narrative, many of the knights who slay the dragons of bad economic ideology are economists themselves. The story of the past generation is more about debates among economists than about economists pitted against laypeople. Perhaps, with a bit of humility and retooling, the economists will have their day again. If they do not come up with the next set of good ideas, it is not obvious who will

McConnell embraced the tortured position that money, and only money, is speech—and that actual speech is not speech.  

The Kentuckian argued that money was speech, and limitations on donations—even requirements to disclose—infringed on free speech.

life—the peaceful transfer of power comes to mind—it is a casualty of the Trump era. In the early half of his presidency, Donald Trump pursued some projects that solidified the traditional bond between the GOP and business, such as slashing taxes, but also others that divided the old allies, including protectionist policies on trade and personally intervening to bully companies.

Last year, the U.S. Chamber of Commerce, usually a stalwart supporter of Republicans, endorsed some Democrats, and it forcefully condemned Trump’s attempt to overturn the 2020 election.

Meanwhile, a decades-long consensus that publicly held that companies should, above all, do whatever they could to maximize short-term shareholder value began to soften. In 2019, the Business Roundtable, a leading trade association, released new guidance that said corporations should “push for an economy that serves all Americans,” in Chairman Jamie Dimon’s words, by investing in communities and employees, dealing ethically with suppliers, and considering longer-term returns.

Now with voting laws at the center of national politics, corporations are speaking out. MLB moved the All-Star Game, Coca-Cola and Delta blasted the Georgia law, and other executives have objected to the law and other bills under consideration elsewhere. To critics, this is riskily divisive. Echoing a famous Michael Jordan line, McConnell complained that Republicans drink Coke and fly too.

But these companies are responsive to many groups, and just because their stances don’t directly affect revenue and profits, that doesn’t mean these aren’t business decisions. Corporations are balancing the demands of shareholders, customers, and employees, as well as the positions of their own executives,

Companies may also calculate that the long-term costs of being on the wrong side of social-justice issues, or the wrong side of an ascendant liberal, diverse population, outweigh the short-term risks of Republican backlash and boycotts.

In short, what McConnell calls “blackmail” is just free enterprise at work. These companies may or may not be acting in their long-term best interests—corporations make mistaken bets about the future all the time—but they are acting rationally.

The minority leader is realizing that the deal Republicans had with big corporations wasn’t personal; it was just business. A tax break can buy you a lot of things, but it doesn’t buy love.

In taking these stances on big social issues, these corporations are acting in a majoritarian manner. But no one should conclude that they are progressive. Even as big business enters into a temporary alliance with Democrats on voting rights, many of its captains are fighting back against the plan President Joe Biden announced Wednesday to raise corporate tax rates.

American government would probably be healthier if more politicians asked—for whatever reason—why they are so willing to accept corporations’ arguments on taxes, regulation, and antitrust. Corporations may be people, my friends. But corporations are not friends, people.

"Many of our investors have demonstrated support and confidence in AMC. We intend to communicate often with these investors, and from time to time provide them with special benefits at our theatres," Adam Aron, AMC's CEO, said in a statement.

Paramount's "A Quiet Place Part II," a new horror film starring Emily Blunt, opened to the biggest weekend of the pandemic so far, notching $48.3 million for its three-day debut in North America over Memorial Day weekend.

The good news on Wall Street also came a day after AMC announced that it raised $230.5 million by selling 8.5 million shares to Mudrick Capital Management.

the turnaround is also getting a boost from movies — as well as audiences — returning to theaters over the last few months, punctuated by last weekend's big box office numbers.

Other promotions include special discounts and screening invites for retail backers.

Goldman Sachs downgraded shares of theater chain Cinemark (CNK) and big screen operator IMAX (IMAX) to a rare "sell" rating on Wednesday.

Lynn Forester de Rothschild, part-owner of the Economist magazine and a director of Estée Lauder, set up the Coalition for Inclusive Capitalism after deciding in 2012 that she needed to bring together top executives to try to head off the threat.

The next 10 years could easily see the words of the past 10 years turned into action, both from governments becoming more interventionist and companies doing more to try to head off political involvement in their businesses. Shareholders should brace for change.

In Europe renewable energy prompted something almost as wrenching for a different sort of energy firm—utilities. Faced with an existential threat from wind and solar, fossil-fuel power producers such as Germany’s E.ON and RWE tore themselves apart, redesigned their businesses, and emerged cleaner and stronger.

Southern European firms like Spain’s Iberdrola and Italy’s Enel took renewables worldwide. Last year total shareholder returns from the reinvigorated European utilities left the oil-and-gas industry in the dust.

Some giants, like ExxonMobil and Chevron in America, continue to bet most heavily on oil

Others, among them Europe’s supermajors, Royal Dutch Shell, Total and BP, increasingly favour natural gas, and see low-carbon (though not necessarily zero-carbon) power generation as a way to prop up their business model as more cars and other things begin to run on electricity.

of a whopping $80bn or so of capital expenditure by Europe’s seven biggest listed energy firms last year, only 7.4%—less than $1bn each on average—went to clean energy.

capital spending on renewable energy, power grids and batteries will need to rise globally to $1.2trn a year on average from now until 2050, more than double the $500bn spent each year on oil and gas.

To help fund that, it reckons that oil-and-gas companies will need to divert $10trn of investments away from fossil fuels over the same period.

For now, oil executives show no appetite for such a radical change of direction. If anything, they are working their oil-and-gas assets harder, to skim the profits and hand them to shareholders while they still can. Oil, they say, generates double-digit returns on capital employed. Clean energy, mere single digits.

Big Oil has ways to make other high-risk, high-reward bets on clean energy. One is through venture capital. The OIES calculates that of 200 recent investments by the oil majors, 70 have been in clean-energy ventures, such as electric-vehicle charging networks. They have generally been small for now. But BP reportedly plans to build five $1bn-plus “unicorns” over the next five years with an aim of providing more energy with lower emissions

Another way is to back research and development in potentially groundbreaking technologies such as high-altitude wind energy, whose generating efficiency promises equally lofty profits.

As national climate commitments grow more stringent, governments may go on the warpath. UBS argues that it may be necessary for governments to “ban” the $10trn of oil-and-gas investments to reach net zero emissions by 2050