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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 4, 2010 at 9:30 AM

The big pile of corporate cash waiting to squash jobs and competition

America’s largest corporations are sitting on more cash than ever. According to The Wall Street Journal, 382 non-financial firms in the S&P 500 have $932 billion in cash and short-term investments. That’s an increase of 31 percent from a year ago. The fate of all that scratch says much about what ails the American economy.

At one time, those reserves would have been reinvested in the corporations to improve productivity, enhance research and development and hire new workers. The result: real, organic growth. Or it might have been returned to shareholders in the form of a special dividend. But Wall Street doesn’t value such old-fashioned methods. Nor do the leading business schools that teach America’s cadre of top management.

Thus, the wait is on for these companies to do acquisitions. Wall Street is constantly shopping firms for sale, encouraging mergers. Some make sense. Most don’t, but the fees for the investment bankers and lawyers are huge, as well as for CEOs. M&A drives up stock prices — in the short-term, at least.

The result: a continuing consolidation of industries, more concentration of corporate power, less competition, de facto monopolies and oligopolies, poor corporate governance and, of course, continuing lost jobs. Not only do the cash hoarders not hire, but their deals kill jobs at the acquired firms.

Combine this with a financial industry that focuses on trading and derivatives rather than helping to fund real, productive activities and you have sick and unsustainable capitalism.

The Back Story: An analysis of IRS data by the Economic Policy Institute show that median family income has increased 13.2 percent over the past 15 years, essentially flat when accounting for inflation. But take heart. The after-tax income of the richest 400 increased 476 percent. New Gilded Age, anyone?

Today’s Econ Haiku:

End Sunday buses

There’s some government fat, right?

Next, privatize cops

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