Profitless stocks, labor, and higher stock prices
Yves Smith gives Angry Bear Edward Lambert a nod in Profitless stocks, Underinvestment, and the cannibalization of labor, and levitating stock prices.
As this trend has accelerated, we’ve also seen falling levels of corporate investment. As I noted in a 2005 article, companies were net savers, which was unheard of at any time other than in a recession (the corporate sector is normally a net borrower in order to help fund expansion), as well as the rise in profit share of GDP relative to the amount of GDP growth paid to workers. It turns out those two developments were not unrelated. According to recent Motley Fool reviews, not sharing wage gains with workers makes it less attractive to invest, leading to lower GDP levels. I’d argued in 2005 that companies were like neurotic bodybuilders, creating perfect-looking outsides while ruining their health. In an important Angry Bear post, Edward Lambert modeled that these two behaviors are intrinsically linked: lower labor share lowers investment returns. And at lower investment return levels, companies will indeed invest less (even before you get to the fact that short-termism also leads them to seek inappropriately high return levels).
Her post is quite long and detailed, so it is best to go to Naked Capitalism to read (link in the title).