Big Profits Drove a Stock Boom. Did the Economy Pay a Price?<br />Combined with evidence that large corporations are accounting for an increasing share of revenue and employment, Mr. Shapiro writes, “it certainly appears<br />that many large U. S. corporations are earning substantial incumbency rents, and have been doing so for at least 10 years, apart from during the depths of the Great Recession.”<br />This is particularly true in the tech sector, where a handful of dominant companies —<br />you know the ones I’m talking about — have sustained spectacular profits for years.<br />The average financial wealth of American households — the market value of housing, stocks, bonds, business assets<br />and the like, beyond their liabilities — has grown much faster than the nation’s income over the last half-century.<br />According to an analysis by Germán Gutiérrez and Thomas Philippon of New York University, the ratio of the market value<br />of American corporations to the replacement value of their capital stock has roughly tripled since the 1970s.<br />The scholars argue that the American economy is afflicted by “rents” — returns in excess of what investments<br />would yield in a competitive economy, where fat margins are quickly whittled away by competition.<br />The ratio of the capital stock — the value of factories, machines<br />and such — to the nation’s economic output has actually declined a little since the 1970s.<br />From wage stagnation to the depressed investment rates<br />that are holding back long-term economic growth, many of the fault lines running through the American economy can be traced back to the same root cause powering the rise of America’s overpriced stocks.
