Resolving Myopia and Speculation

Over the past decade and a half, corporations have been saving more and investing less in their own businesses. A 2005 report from JPMorgan Research noted with concern that, since 2002, American corporations on average ran a net financial surplus of 1.7 percent of the gross domestic product — a drastic change from the previous 40 years, when they had maintained an average deficit of 1.2 percent of G.D.P. More recent studies have indicated that companies in Europe, Japan and China are also running unprecedented surpluses.

Yves Smith, author of Naked Capitalism and Econned, argues that corporate executives are being rewarded for myopia and speculation, undermining the very operation of capitalism. Tax and regulatory policies could counter this destructive development, along with wider recognition that government deficits, when they counteract corporate savings, are necessary and salutary. (Are Profits Hurting Capitalism?, NYTimes, 7/6/10)

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