Naked Capitalism has the article These Charts Show What is Wrong With American Capitalism by Yves Smith.
… the stock market for a very long time has not served mainly (or lately, much at all) as a vehicle for companies to raise funds to expand their business. Instead, it serves as a machine for manipulating stock prices.
As I read this article, I was thinking that these charts are a measure of the symptom, but what has changed in the world to make this happen now. In other words, what is the cause?
I then followed a link in the article to a previous article Our New York Times Op Ed on the Corporate Savings Glut. This doesn’t so much answer the question of what is the cause, but it does provide some possible actions to help fix the problem.
Rather than blindly marching to Austeria, we need to set fiscal policy to the task of incentivizing the reinvestment of corporate profits in business operations rather than games at the casino.
Possible measures to achieve these aims include:
1) an aggressive tax on retained earnings that are not reinvested with a 24 month period after they have been booked (this provision needs to be designed carefully to defeat efforts to circumvent it through artful accounting);
2) a financial asset turnover tax that raises the cost to management (and others) of speculating rather than reinvesting profits in productive capital investment;
3) a reinvigorated public or public/private investment program that helps speed up the shift to new energy technologies (as scaling up usually induces a drop in unit costs of production).
Ultimately, I think the cause has to do with automation and job outsourcing to lower wage countries. This has made it more attractive for companies to try to economize their way to greater profits rather than grow their businesses. This is now how companies compete with each other. They race to out economize their competition. This is the same reinforcing cycle that causes and perpetuates depressions. As business shrinks its costs, it also shrinks its customer base. As customer demand falls, it makes less sense to invest in more production and makes more sense to cut costs further.
Since the result of all these companies reacting in the same way to a common set of circumstances is this self-reinforcing cycle, no single company behaving differently is enough to change the circumstances. Moreover, no single company is strong enough to fight the trend for long.
The only solution to change things quickly is for governments that have the resources and abilities to change the environment, to use those abilities to tilt the balance in a better direction. The resources that governments have to stay the course of making these changes without fear of running out of money is being sovereign in their own currencies and only borrowing in their own currencies. Not every country has this ability, but the US, Japan, China, Russia, the UK, and perhaps the EU can definitely do this
Picture a balance scale with two large and nearly equal weights on opposite sides. The amount of effort that the governments need to put in is on the order of magnitude of the size of the imbalance, not the size of either of the two weights. The longer we wait, the more likely that the imbalance starts to grow in size to match one of the two weights. This applies to the three items mentioned in the excerpt above.