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How Shareholders Are Hurting America

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It's a bedrock principle of our era: Companies should be run for the sole purpose of increasing their stock prices, or returning "value" to shareholders, the ultimate "owners."

To Lynn A. Stout, however, it amounts to nothing more than a "shareholder dictatorship."

Ms. Stout, a professor at Cornell Law School, has authored a slim and elegant polemic, "The Shareholder Value Myth" (Berrett-Koehler Publishers) to explain the idea's two problems: It's worked out horribly, and as a matter of law, it's not true.

The blame lies with economists and business professors who have pushed the idea, with generous enabling from the corporate governance do-gooder movement, Ms. Stout contends. Stocks, as a result, have become the playthings of hedge funds, warping corporate motivation and eroding stock market returns.

Economists have promulgated the idea of shareholder über alles, based on what Ms. Stout says is a misreading of corporate law. In 1970, Milton Friedman wrote an article for The New York Times Magazine that contended "the social responsibility of business is to increase its profits." Two business professors, Michael Jensen and William Meckling, expanded on the idea in their paper "The Theory of the Firm," arguing that the only obligation corporations had was to increase profits for their owners, the shareholders.

But the idea that shareholders "own" their companies isn't actually so set in the law, Ms. Stout argues. It's almost as if the legal world has been keeping a giant secret from the economists, business schools, investors and journalists.

Instead, as Ms. Stout explains, what the law actually says is that shareholders are more like contractors, similar to debtholders, employees and suppliers. Directors are not obligated to give them any and all profits, but may allocate the money in the best way they see fit. They may want to pay employees more or invest in research. Courts allow boards of directors leeway to use their own judgments.

The law gives shareholders special consideration only during takeovers and in bankruptcy. In bankruptcy, shareholders become the "residual claimants" who get what's left over.

That concept has expanded to mean that a corporation should always be run to maximize the size of shareholders' claims. But Ms. Stout, who also serves as a trustee for the Eaton Vance family of mutual funds, argues that those special circumstances shouldn't dominate how we view the obligations of continuing corporations. A solvent company has completely different purposes than those of insolvent ones. We don't decide what to do with living horses because we turn dead horses into glue, she quips.

It's clear that something is deeply wrong with our capital markets. Stock market returns have been terrible for well over a decade. Wall Street investment banks, pushing their stock prices ever higher, took on risks that blew up the global financial system. In the early 2000s, companies sought to lift their share prices through an epidemic of accounting fraud.

The professor's argument is that as companies have increasingly focused on their stock prices, and given managers more shareholdings, they have inadvertently empowered hedge funds that push for short-term solutions. Mutual funds, dependent on winning money from retail investors, have become myopic as well. The average holding period of a stock was eight years in 1960; today, it's four months.

The biggest ill has been to align top executives pay with performance, usually measured by the stock price. This has proven to be "a disaster," Ms. Stout says. Managers have become share price obsessed. By focusing on short-term stock moves, prices managers are eroding the long-term value of their franchises.

Here, Ms. Stout also blames the corporate governance movement, which pushed for such alignment. It has "proven harmful to the very institutions that it is seeking to benefit," she says. "Investors are actually causing corporations to do things that are eroding investor returns."

She calls for a return to "managerialism," where executives and boards of directors run companies without being preoccupied with shareholder value. Companies would be freed up to think about their customers, their employees and even start acting more socially responsible. Shareholders would have a limited "almost safety net" role, Ms. Stout says. They would be "relatively weak — and that's a good thing."

Of course, this is anathema to the corporate governance advocates. Sure, short-term thinking is bad, but it's hard to believe that giving management more power will suddenly result in a wave of altruism.

"The era of managerial supremacy was not that successful then and would be more catastrophic now," says Nell Minow, a standard bearer of the corporate governance movement. "The idea of speaking of shareholders as owners is absolutely crucial."

Shareholders need to be active to prevent manager conflicts of interest and self-dealing. That's the safeguard to make managers "as careful with your money as you would be," Ms. Minow says.

She contends that the idea that shareholders wield too much power is laughable. Shareholders have increasingly been voting against directors only to see them reappointed. Recently, shareholders at a handful of companies have voted the majority of shares against the pay packages of chief executives — and have been ignored.

Ms. Stout does, in fact, share some goals with the corporate governance movement. She is also trying to rein in out-of-whack executive pay, for one. But her idea is to radically curtail the supposed alignment that comes from shareholdings. Instead, she calls for directors to pay executives for after-the-fact performance. Chief executives should get a salary and then they would receive a bonus based on good performance.

She also advocates what campaigners have called the "Robin Hood tax" — a transaction charge on securities trades. A small tax would curtail zero-sum, socially useless trading and might insulate corporations.

Ms. Stout argues that we need less trading: "We need to lock investors into their own investments as to not push them into short-term strategies."

There’s another problem in that many managers are beholden to the funds, so their allegiences aren’t entirely with those of the company.  Giving them free reign may not cause a cascade of change.

But regardless, it’s good to see someone looking into this end of things.  I’ve been arguing for years, now (not that I’m in a position where anybody would listen), that the “shareholder value” isn’t law and common sense says it can’t be:  Nobody would put their name to something so stupid, and the beneficiaries weren’t in a position to push for it until recently.

I also suspect that the point of taxation should be insurance.  That would eliminate the derivative-type securities, for the most part.  Trading for the sake of trading shouldn’t be much more than noise, if there’s no secondary benefit except for extremely weak companies.

Ms. Stout is confused.

First, shareholders own the company, which is why they appoint the Board. The Board is given the powers to dictate the size of the dividend etc.

“... the only obligation corporations had was to increase profits for their owners, the shareholders.” Obviously, for all other reasons there are not-for-profits, charities, etc. Corporations attract capital. The more profitable ones attract capital more easily than those who squander shareholder capital.

“It’s clear that something is deeply wrong with our capital markets.”

It is not the capital markets per se. Rather, here is the recipe for turning a vibrant capital market into a dud. Give the Federal Reserve Bank the power to manipulate interest rates and print money to fund government’s profligacy, profligacy that pushed the national debt form $5 trillion to $16 trillion over a 12-year period. Add to this mix government programs that subsidized everything for homeownership to tertiary education, and everything in between. (European governments weren’t shy on debt infused spending either). It looked like wealth creation, but alas it was built on weak foundations. The Soviet Union gave us a 70-year economic lesson that government spending, subsidies, centralized economic planning, market manipulation, etc. always end badly. If government spending created wealth Cuba (govt. spending 80% of GDP) should be a haven of prosperity) and Singapore (govt. spending 12.5% of GDP) a picture of economic misery – just the opposite.

More specifically, the capital markets gave investors a poor return the past decade because the decade started off with great companies like Microsoft, Medtronic, Wal-Mart, etc. trading at very high valuation multiples. As they grew their profits at 15%+ p.a., multiples contracted and their stock charts flat-lined. Of course there were many others, also trading at high multiples that relied on, for example, growth in the housing markets (artificially boosted by government programs and artificially low interest rates). When it became apparent that the house of cards was not sustainable, the shareholders who risked their capital reaped their just rewards. Don’t only blame the capital markets, look to Washington.

Another very important reason why shareholders got skewered the past decade, lies in the fact that Washington thought it a good idea to interfere in the area of executive compensation. They passed a prohibition on cash compensation in excess of a million dollars, not directly related to performance, which made such excesses non-deductible for tax purposes. The ever-present law (when Washington gets involved), of unintended consequences kicked in. Corporate America moved from cash to stock, more precisely stock options (warrants), instruments that were 100% performance based, i.e., tracking the performance of the stock price. Stock options offered executives riches beyond the realm of avarice.

Politicians ever on the look out for easy cash did not close the Pandora box that their misguided prohibition opened. Instead, they supported FASB stance that stock-based compensation was not an expense. Moreover, they ruled that even though stock-based compensation was not expensed in the income statement, corporation could take a tax deduction equal to the gains that executives racked up by exercising their stock options, effectively the discount at which stock was issued to employees. Executives were garnering tens of millions of dollars in compensation paid in stock rather than cash and Washington had no problem granting corporations tax deductions without any limits. In fact the tax rules absolutely encouraged this form of compensation. Silicon Valley generously contributed some of their options gains to political campaigns. A Silicon Valley Congressman (appointed by George Bush) became the Chairman of the SEC where he kept the charade going. (George Bush warned that he won’t signed Sarbenes-Oxley if it included a mandate to expense stock options. Harvey Pitt, SEC Chairman at the time, said stock option expensing would make US companies uncompetitive.)

Companies claimed that stock-based compensation was not an expense, but then claimed an expense on their tax returns. In addition, and this is where it hurts shareholders and goes a long way to explain the poor returns the past ten years or so, to fight the dilution caused by these generous stock option programs, corporations were forced to repurchase their stock. In theory, such repurchases would normally benefit shareholders as they shrunk the share count. Alas, they merely brought the share count back to where it was before additional shares were issued on account of option exercises. Omitting stock-based compensation as an expense artificially boosted earnings. Fooled you once. Then shareholders were told (Cisco’s quarterly earnings mantra) that management returns cash to shareholders through stock repurchases. Fooled you twice. Deduct the cash cost of these types of repurchases from earnings and there’s much left over in real profit.

So, strip the capital markets of unwanted interference of the bureaucrats and plutocrats, slash the size of government to 12.5% of GDP and lower corporate and individual taxes. Wealth and prosperity will return not only to the capital markets, and right down to the lowest paid in society.  (Singapore is not the perfect example, but there is a lot we can learn from the way they govern, tax and regulate. Contact the Heritage Foundation for more information.)

Singapore’s sovereign funds own stakes in local firms that produce over half its GDP. Over 20% of its federal budget is invested in education, vs. 4% in the US. I really don’t see how those facts square with the argument that unwanted interference of bureaucrats and plutocrats, and public financing of education, are ruining our capital markets.

Nor does my reading of US history offer any empirical evidence that free market capitalism promotes sustainable growth. Quite the contrary. Balance sheet realities largely determine economic reality. Economies need high quality capital to fund their ongoing and future needs, and they need an equity cushion for unforeseen risk. People who want to run America without an equity cushion will drive the economy into the ground.

Catherine Tripp

June 27, 2012, 2:06 p.m.

There is a small group of Catholic nuns who have been writing and submitting shareholder proposals regarding human rights for decades, an admirable undertaking, but routinely rejected by Boards of Directors.  Proxy votes overwhelmingly donated to whatever the Board wants undermine the ideal where shareholder meetings are supposed to allow those who are NOT in management a voice in running the company.  Shareholder interests being represented is an aspirational reading of current reality.  In a world run by pre-programmed trading robots and a few enormous mutual and pension funds, shareholder impact is minimal at best.

Ann Rutledge: Thanks for the response.


“Singapore’s sovereign funds own stakes in local firms that produce over half its GDP.”

So, they run budget surpluses and invest that in local corporations. something wrong with that? They can’t lower taxes any further. (The unemployment rate is 2.2%.) I’m not in favor of sovereign wealth funds, but it sure beats our $16 trillion in national debt, and guaranteed to rise to $20 trillion by 2015.

“Over 20% of its federal budget is invested in education, vs. 4% in the US.”

We prefer welfare and warfare over education.

“I really don’t see how those facts square with the argument that unwanted interference of bureaucrats and plutocrats, and public financing of education, are ruining our capital markets.”

Did I even mention education? Our capital markets are ruined by extravagant spending and borrowing in Washington, by government programs that feed corporate welfare, the war profiteers and other special interests, by regulations, taxes and redundant agencies. 

“Nor does my reading of US history offer any empirical evidence that free market capitalism promotes sustainable growth.”

And you won’t ever find such evidence, because we do not have free market capitalism in the US. We have corporatism that borders on fascism, where special interests own Washington. Corporate welfare permeates Washington, in the tax code, in the regulatory environment, in the budget, in you name it.

As soon as government becomes a player in a market, such as in the housing market, for example, the market is no longer free. By the way, if government-sponsored/funded education was such a good thing why do the folk in Washington all send their kids to private schools, despite the sky-high per-pupil spending on education in DC? There is no earthly reason why government should have a near monopoly on education, other than it the best why for the ruling class to control the minds of the subject class and ensure their total submission when they are called upon the fight and support Washington’s oil wars, wars for the benefit oil interests and war profiteers.

“Quite the contrary. Balance sheet realities largely determine economic reality.”

Depends which balance sheet you are talking about. Have you looked at Washington’s balance sheet lately? They ran our national debt up from $5 trillion in 2000 to the current $16 trillion. If government spending causes prosperity, judge by the increase in our national debt, we should be drowning in our own prosperity. Surely, you are not trying to make a case for more spending and more debt?

“Economies need high quality capital to fund their ongoing and future needs, and they need an equity cushion for unforeseen risk. People who want to run America without an equity cushion will drive the economy into the ground.”

Not sure what your point is, but if we have any equity on our national balance sheet, it sure is threatened by the $16 trillion debt burden. If that does not seem too daunting to you, what about the $60 trillion in unfunded mandates relating to Social Security and Medicare? Whenever a politician promises you anything, keep in mind he doen’t have the cash to pay for it. It’s an empty promise that will land up on the backs of your children and grandchildren. That’s how they operate in Washington - both parties, a de facto one-party state.

Karl Auerbach

June 27, 2012, 4 p.m.

These things need to be analyzed in a context of a specific jurisdiction.

Here in California directors of private, for profit corporations owe their duty towards the corporation itself.  This means that directors are free to consider the short-term market-price interests of shareholders, but it also means that directors are free to consider other matters, such as long term value, long term viability in a marketplace, investments if speculative research or marketing, calm and predictable relations with employees, etc etc.

Any director who looked solely and exclusively to the short-term share price no matter what harm that might cause to the corporation in the longer term could be viewed as violating his/her duty of care to work in the best interest of the corporation itself.

Because these are fuzzy and subjective matters we give plenty of leeway to directors - that’s why we have the business judgement rule.  But a director that does not make a considered and informed balance of long and short term interests, of which one is short-term stock prices, then that director is not doing his/her duty.

In the case of public benefit/non-profit corporations here in California the situation gets more complicated because directors must consider the impact of their actions on the public benefit when they evaluate when a proposed action (or inaction) is in the best interest of the corporation itself.

clarence swinney

June 27, 2012, 4:18 p.m.

GOD BLESS AMERICA
May it survive Corpocracy and go back to Democracy
My Solutions
A. People repeal Corp is a man
B. Fed Fund Election-Stop two yr campaigns waste of money/ time
6 months—3 for Primary Campaign—3 For General Campaign
free equal tv time-provided by “our” tv airwaves
One Debate a week. That is 12 And is adequate to evaluate candidates,
This stops need to raise campaign funds. Congress nd White House can stay on the job instead of constant traveling to raise funds. Restrict outside campaign funds.

C. Since there is no need for campaign funds BAN members of the government from receiving anything with a financial value current or future promises. Stop the bribing by Lobbyists.

D. Progressive Flat Tax By Group-we have a $14,000 income a 3800B budget yet rank #2 in oecd nationas as lowest taxed. We refuse to tax wealth enough to pay our way.
Top 50% get 87% (agi) of Income and pay 13/5% Tax Rate.
Bottom 50% or 70,000,000 workers get 13% not enough to pay much in taxes.
They pay a greater percent of that Income in payroll- state-local taxes than many top incomes.
It has been a disgrace that top ceos can get enormous increases in pay and many of 70,000,000 cannot get an increase in the minimum wage to better their standard of living.
In A Christian nation I often wonder what Jesus Christ would say to us?
E. Tax Book—burn that sucker. start anew. Any request for an exemption be televised so the public can watch attempts at bribery. It is so sad that in 2011 corporations with record profits pay a 12.1% Tax Rate for second lowest in oecd nations. It is sad when we borrow $1300B
with a $14,000B Income because we tax only $2300B or 16.4% Tax Rate yet top income had huge increases. Job Creators=lowest since Hoover while rich got ultra rich and masses borrowed to keep a decent standard of living. While top 10% gained to 73% of Net Wealth—to 83% of Financial Wealth and got 50% of individual income. While 70,000,000 got 13% of income.

I’d have to agree.  There are two types of shareholders - long-term and short-term.  The latter usually want growth at any cost since they’re in it to make a quick profit.  As an example, look at how Costco has long been punished by the investors for daring to focus on their employees vs. shareholders.

There’s no law that says every big company must go public, is there? Think about all the successful, solid businesses which have made the choice to remain private.  Why does a company go public to begin with? Think on that….

Capitalism and money are creatures of the state.  There is no such thing as free market capitalism.—->>> And that means the corruption of the state leads to the corruption of capitalism.  In some form or another, capitalism in our nation has always been wildly corrupt or wildly fascist or both.  Open and legal bribery of politicians up until the mid 1800s, private for-profit banking that makes gods of bankers while destroying democracy, the slave trade and slavery as the backbone of capitalism, the denial of access to society’s capital to black Americans after the Civil War that led to a one hundred year diaspora and the perpetuation of endless bigotry, the endless drive to find slave labor that has existed since the day capitalism was created, and now today we have the ultimate corruption of capitalism by the multi-national corporation and the military-industrial complex.  We have become England in 1776.  Great trading corporations and land grant corporations of the King have tyrannized the New World and enslaved its inhabitants into the King’s capitalism. 

This time is the last time.  Capitalism is now dead.  It is finally beyond saving.  We are going to watch the world crumble like dominos.  Globalization is dead.  Global finance is dead.  Capitalism is dead. 

Shareholders?  Pfffft!!!!  Who cares?  The shareholder is dead.  What will rise from the ashes is a merit-based local economies that have a primary intent of serving society rather than serving capital. 

Reforms?  The reforms are happening beneath our feet as I type this.  It’s called collapse of the unsustainable.  Just as in nature’s ecosystem, when predation becomes so great, that ecosystem will eventually collapse.  And what survives?  The smallest of species nimble and adaptable enough to survive.  ie, Localization.  Watch and learn as the dumbed-down corporate state reveals itself in coming years.  And the dunces who created this mess will be able to do absolutely nothing to stop it. 

Humpty Dumpty sat on a wall…..........

The long winded Heritage Foundation ad in the second comment is typical of that bunch of think tankers whose income in dependent upon corporations and high net individuals who are determined to blame every economic problem on government and the middle class. The public/private sector partnership has been the main driving force behind economic growth and innovation for decades.

BP, Massey Energy, Goldman Sachs, AIG,  Lehman Brothers,Toyota, Johnson & Johnson and now JP Morgan Chase have all provided
extraordinarily dramatic and shocking examples of big business failure, breakdown in productive functions and activities with tremendous financial losses.
Some argue that these represent just “Black Swan Events.”  Then, there are those, some of whom are in “Occupy Wall Street,”  “99% of Americans” and even the “Tea Party” are protesting what they consider serious and major defects and flaws in modern corporate capitalism with extremely excessive power held by the giant multinational conglomerates and the super rich and the “super PACs” and the “vulture capitalists” from all over the world. Competition and freedom of choice are discouraged and depressed by monopoly and oligopoly and plutocracy in the marketplace. Can greed go too far? Those who consult and respect scripture can be guided by Matthew 21:12-17, Mark 11:15-19, Luke 19:45-48, and John 2:13-16.

There have been demands for more and better government regulation and it does seem such regulation may be forthcoming, despite Republican efforts to kill government action in the name of “liberty” and “free markets, free enterprise, and free competition.”
However, please let me suggest that for capitalism to serve the public and
“to work” our future business leaders must be better prepared. We must call on our schools of business and finance to teach and emphasize the importance of social values and responsibility
and the critical role of “captain of industry.”

“Captain of industry” was a term originally used in the United Kingdom during the Industrial Revolution describing a business leader whose means of amassing a personal fortune contributes positively to the country in some way. This may have been through increased productivity, expansion of markets, providing MORE JOBS, or acts of philanthropy. This contrasts with robber baron, a term used to describe a business leader using political means to achieve their ends.”

We must have business leaders who
are “captains of industry” and whose character. commitment, and
vision extend beyond just maximizing profits!
Such leaders might model a great football coach such as Alabama’s Paul “Bear” Bryant who played to “WIN” but also to protect, promote, and develop the INTEGRITY of the game itself.
Please see:
http://blog.locustfork.net/2010/09/alabama-football-coach-paul-bear-bryant-interviewed-in-1973/

my father, robert a. beck, was chair/ceo of the prudential, now pru. financial.  he also chaired the business roundtable and served on the boards of directors of boeing, campbell soup, mcgraw hill, prudential, texaco, and xerox.  he was widely regarded as a director and was an early advocate for many aspects of the “corporate governance” movement.  (see, e.g., http://findarticles.com/p/articles/mi_m4070/is_n99/ai_16458900/?tag=content;col1)

he attributed the emergence of shareholders as the primary corporate constituency to the rising influence of the legal profession, i.e., lawyers.  he had long spoken about companies have four constituencies:  customers, employees, local communities, and shareholders.  He wasn’t alone.  CEOs like Irvin Shapiro in the 1970s and Jim Burke in the 1980s, among many other CEOs, asserted the same general views. 

My father was very conscious of the shift, which he considered bad for business.  When asked about the primacy of shareholders, he would respond along the lines of, “that’s what the lawyers tell me.”

James McRitchie

June 27, 2012, 5:48 p.m.

Good review. However, I don’t think Stout is as much of an advocate of managerialism as you suggest. For another perspective, see my full review at http://corpgov.proxyexchange.org/2012/06/review-the-shareholder-value-myth/

Reverse the tax code changes with regard to pay for performance, especially pay linked to stock performance.  Place transaction taxes on stock and derivative trades to slow the pace of turnover and raise substantial taxes.  Fight to change the prudent man standard of ERISA, the “lemmings rule,” which requires fiduciaries to act like other fiduciaries, even where that isn’t prosocial. In e-mails, Stout agrees with each of these reforms.

Chris Herbert

June 27, 2012, 6:07 p.m.

Albert:  I don’t see any citation from you contradicting a legal opinion by the Cornell professor of law that shareholders, in fact, don’t actually own a corporation but are more like contractors, debtors, employees and suppliers—as a matter of law.

Also you mentioned several abuses, especially one where Washington made sure laws allowed for short term oriented security bonuses, and that they need not be expensed properly—implying politicians were in cahoots with big corporation executives.  I think you’re on to something there, but that points to cleaning up campaign financing or some similar reform that might break that bribery bond between DC and big capital.  Instead you quickly changed path and attacked DC for all the ills imaginable.

I’m pretty sure most of our DC ills come from one place and one place only:  Big Capital considers our government ‘an appendage of their private affairs,’—a quote from FDR.  So don’t kick the dog for doing what its master orders.

Why not just tax capital gains (15%) at the same rate as income (35%)?  After all, isn’t that what it is?

Chris, thanks for the reply.(Terry Dalton, I don’t think I’ve spent ten minutes in total on the Heritage Foundation’s website and that only to look at their Economic Freedom Index - worthwhile exercise.)

I don’t know about the theories in the ivory towers. As a shareholder, I own (not rent it or whatever a prof. wants to call it) the stock of Southern Copper (and others). I participate in about 80% of the profits every year through dividend distributions. Insiders own 75% of the company. Go and tell them they don’t own Southern Copper. They’ll split their sides. As shareholders they have an iron grip on the company - large cap company with the CEO’s compensation about $1.6 million a year, all paid in cash, no stock options.

“I’m pretty sure most of our DC ills come from one place and one place only:  Big Capital considers our government ‘an appendage of their private affairs,’—a quote from FDR.  So don’t kick the dog for doing what its master orders.’

Your analogy is the wrong way round. Our leaders should be the masters and corporations the dog. They have been bought. They have switched roles and became the lapdog of special interests. He who pays the piper calls the tune.

Are you happy with a national debt of $16 trillion and guaranteed to go to $20 trillion by 2015? Should we attack this profligacy (that mostly benefited special interests and war profiteers) or just bow down and worship the miscreants?  $16 trillion in debt is a huge indictment, recklessly immoral and indefensible.

Frrankly the whole system needs to change. Number ONE, reduce home mortage depreciation to 75% o finterst exoense, to reduce leverage on home mortages. Then reduce the writeoff for Bond expense for corporations to 75% so corporations are not as leveraged! Which will build a better solid Corporate America. Then phase in a deduction for corporations for them to deduct 25% and then to up to then 50% of what they payout in dividends, Let’s encourage lower debt and better payouts of Corporate America!

I will start by saying that I have no expertise in stocks, etc. That having been said I have long believed that corporations being so focused on building shareholder value is one of the major factors in the financial mess we are in. I believe this is so because it seems that one of the ways that corporations have tried to do so, especially when sales are lagging, is to not give raises, bonuses, etc. to employees (which has been a problem for years) and/or to reduce the benefits they offer.

This creates a situation where people can’t afford to buy things because they are sliding behind further and further financially. Companies are consequently finding it harder and harder to keep increasing profits because sales are lagging more and more. So one of their solutions is to decrease what they give to employees even more. Then add to this problem another tactic to increase profits. That of decreasing the quality of the things companies produce. And yet they want/need people to keep buying their products.

So they keep giving people less and less and charging people more and more and somehow think this is sustainable. Am I the only one who thinks this is absolutely ridiculous?

Marty, capitalism does work when truly free-market.  The current problem is that capitalism today is not even close to free-market.  We allow corporations to influence government through tax code changes and government contract rigging.
This is an indictment of our system and the extreme level to which meddling has been allowed to occur.  As was mentioned earlier, the solution to this is to entirely scrap the tax code and start fresh either with a flat tax or a national sales tax (with rebate for the poorest citizens).
However, claiming that capitalism itself is a failure is uninformed at best or disingenuous at worst.  Capitalism by itself is a force that lowers the cost of products and creates continual improvement in products and services.  It is truly democratic in that every consumer may freely choose which products and services are best suited to them based on price, quality, or any other factor said consumer may choose.
If capitalism is rigged and monopolistic, we can always find that government is operating a system that allows this corruption.  In these cases, blaming the corporation or even the corrupted politician is pointless.  We have to look at the root causes of the problem.
In our current situation, the largest root problem is the current tax code, which consumes more politician time than any other issue and which is constantly manipulated by corporate interests and politicians.
Time to scrap the code and go flat-tax or national sales tax!
Think about it!  The productivity lost to tax lawyers, political wrangling, special interests, corporate monopolies sustaining uneconomically feasible corporations, and yes, even the hours and days we all spend tracking expenses and figuring out what the tax code is for this year… will all be removed… and everyone will be that much happier, productive, and free to move forward for the good of both themselves and society as a whole.

We temporarily need right now a brand new mix of Capitalism with Socialism until things become well balanced.

In the past six months, I have attended the Bank of America and Duke Power shareholder meetings and in both cases resolutions from shareholders that acted on considerations other than profit maximization were voted down by execs voting their optioned stock. Corporations are after all, a system of one share one vote.

The problem here is not with shareholders, but the use to which we are put by the people who run the corporations. THe problem is the short term interpretation that managers give to “shareholder value.” The conflict Berle and Means described in 1933 in their The Modern Corporation and Private Property, the conflict between those who OWN the corporation and those with the power to RUN the corporation, is more powerful now than it was 80 years ago.

The truth of this is seen in the barons of bankruptcy who, most recently, profited obscenely after running their banks and the world economy into the ground. Shareholders have taken a pounding. For instance, last year, Brian Moynihan, CEO of Bank of America, gave himself, through his friends on the board of directors, a $7 million raise, while us shareholders lost half our investment. HE gets a raise, while the stock price gets cut in half! This is not an isolated example.

“Capitalism by itself is a force that lowers the cost of products and creates continual improvement in products and services. It is truly democratic in that every consumer may freely choose which products and services are best suited to them based on price, quality, or any other factor said consumer may choose.”

BAAAAHAAAAA.  You need to wake up from the Matrix.  In the top 100 goals of a democracy, that isn’t even on the list.  When I think about the quality of my life, about being free to think for myself, I surely don’t think anything about being able to acquire more and cheaper prices.  This process itself creates an artificial destabilization of the self.  Being conditioned to believe happiness is achieved through the attachment of inanimate objects is counter to our emotional stability. 

I think generally about the dynamics contained in Maslow’s hierarchy of human needs.  Of spiritual, personal and emotional safety and growth.  Of leading a purposeful life.  Not serving as some drone in the capitalist machine.  Working the vast majority of my waking hours to wake up when I am 70 and wonder what my life really served.  Hunter-gatherer cultures of what we would label as uncivilized people, work substantially less than we do as noted by anthropologists.  Why do you work?  Have you ever thought of that?  You work to keep the system going.  Not to feed your family.  Americans could cumulatively work an hour a week to feed their family given the advancements in technology. 

Capitalism is not consistent with democracy.  A merit-based economy that serves human development can be consistent with democracy but there is no example in history where capitalism was consistent with democracy.  Especially when capital is tyrannically controlled privately as has always been the case.

People on here who mindlessly make stupid statements that capitalism can be pure are living in a dream world.  It never has been.  It is dying because greater and greater awareness over the last few hundred years has recognized it isn’t consistent with democracy or a happy life.  It serves corporate masters and the elite investor class.  We have tried to regulate it down to some modicum of being consistent with democracy but even in that case, it is still predatory and tyrannical.  Communism is just as pathetic.  So, we are going to see a new world take root in coming decades.  One that takes us where we have never been before. 

Capitalism is dead.

“Capitalism is dead.” - Grim Reaper

Wikipedia: Capitalism is an economic system that is based on private ownership of the means of production and the creation of goods or services for profit. Competitive markets, wage labor, capital accumulation, voluntary exchange, and personal finance are also considered capitalistic.[1] There are multiple variants of capitalism, including laissez-faire, mixed economies, and state capitalism. Capitalism is considered to have applied in a variety of historical cases, varying in time, geography, politics, and culture.[2] There is general agreement that capitalism became dominant in the Western world following the demise of feudalism.[3]”

Depends which kind of capitalism you are referring to. The one based on private ownership of the means of production and the creation of goods or services for profit, competitive markets, wage labor, capital accumulation, voluntary exchange, and personal finance will never die.

It is fair to say that the majority of us prefer to own our homes, our businesses, our patents, our copyrights, etc. We prefer competitive markets (airlines, UPS, mobile phones, cable, etc) to government-controlled markets (Amtrak, Post Office, etc). 

Once the state interferes in the market place, it loses some of its competitiveness, certain aspects of private ownership are watered down, profits are taxed, voluntary exchange is no longer purely voluntary, etc. (I have to send my kids, involuntarily, to a public schools, because once I’ve paid my $7K in property taxes, I don’t have much left to afford private school tuition for them. The ruling class in Washington, the overseers of public education through forced taxation of the subject class, send their kids to private schools. Makes sense doesn’t it?)

Companies strive to make a profit because without capital they cannot exist. They get their capital from shareholders who are not altruistic in their investments strategies. Many investors are altruistic and generous in their philanthropy. Warren Buffet comes to mind, yet he has never run a business for any other purpose than to maximize profits. Those who invested in Berkshire Hathaway the past twenty years would never have to worry about relying on their Social Security checks. (Would you rather have paid your social security taxes to the government [the trust fund is seriously short of cash having been misappropriated for purposes such as foreign oil wars], or invested that money in Berkshire Hathaway?)

Warren Buffet and Bill Gates are capitalists, but they have bequeathed approximately $100 billion of their personal wealth to philanthropic purposes. The alternative was to allow the state to confiscate it through estate taxes and use it for the benefit of the military industrial complex, the war profiteers and all the other special interests that own Washington.  I’m sure there are those who would argue that Messrs. Buffet and Gates should allow the state to appropriate their accumulated wealth though estate taxes rather than to place it in a trust for the benefit of charitable purposes. That’s the debate between capitalism and socialism: which entity can best take care of capital, savings and wealth creation. The problem with socialism is that eventually the government runs out of other people’s money, which when the debt starts accumulating, currently at $16 trillion, but heading for $20 trillion by 2015, regardless of who holds the balance of power in Washington. Kiss your American Dream good bye. “They call it the American Dream because you have to be asleep to believe it,” Carlin.

Hahahaha.  Albert, you have your head so far up your ass, you’ll never find it.  So, I won’t debate someone who is so deluded that they don’t understand reality.  But, let me make a remark about private ownership.  You know, like slavery, labor arbitrage and nonliving wages as capitalism has so eloquently and consistently proved to us since its inception.  Private ownership is a function of the state.  Just as capitalism is.  You don’t have any private ownership.  You never have.  You are a renter whether you realize it or not. 

As far as Bill Gates and Warren Buffett….  well…. they took that money from other successful businesses.  And, they did it through predation and force.

“Power tends to corrupt, and absolute power tends to corrupt absolutely.  Great men are almost always bad men, even when they exercise influence and not authority, still more when you superadd the tendency or certainty of corruption by full authority.”—John Dalberg-Acton

Hmmm…

If corporations are people under the law, and if managers can put the interests of shareholders above the interests of the customers and the corporation itself, isn’t that legalizing exploitation and effective slavery?  Won’t somebody think of the wholly-owned subsidiaries!

I’m joking, but perhaps there’s a genuine legal weakness in that philosophy to drive change.  If I have or adopt a baby with the intent of stealing all her income and eventually harvesting her for organs when her earnings drop, that would be…problematic.  If a corporation is a person, maybe doing the equivalent shouldn’t be looked at as heroic.

Aside from the legal considerations dealt with by Professor Stout, “performance-based” CEO compensation is based on a one-dimensional, simplistic view of human motivation which comes from economists with the result that CEOs have showered themselves with money bestowed on them by friendly directors’ compensation committees using recommendations from friendly compensation consultants which enable ordinary executives who never had an original idea in their lives to pay themselves as if they were Andrew Carnegie, Henry Ford or Bill Gates.
Worse, when better results don’t materialize many are tempted to back-date their options or cook the books.

Modern organizational behavior theory suggests that motivation is much more complex than traditional economics tells us. See “Money and Motivation” by William Foote Whyte and others.

When people feel unsure about their positions, having been challenged by rational arguments, they resort to insults. It’s a dead giveaway.

“You know, like slavery, labor arbitrage and nonliving wages as capitalism has so eloquently and consistently proved to us since its inception.”

Where do you live? In Cuba? In the early days of capitalism, workers were seriously exploited, but as someone once observed, the only thing that is worse than being exploited is not being exploited.

In a truly free market, employers and workers negotiate labor contracts. The law of supply and demand determines price. If there is a surplus of workers, employers hold the upper hand. If there is a shortage of workers, employers have to pay up. Something wrong with that?

If workers demand more than their productive contribution, employers find ways to save on labor (robotic devices, for example), or they move their operations to markets where there is a surplus of skilled and unskilled labor. If there is a surplus of workers and they feel they are inadequately compensated, they upgrade their skills, or learn new skills so that they can improve their standard of living. That’s the dynamics of the market place. The alternative is to let government into the game. They tried that in the Soviet Unions, and still do in Cuba. In most countries, workers are free to form Trade Unions to help them negotiate a living wage. (Not so in Communist China or Cuba.)

“Private ownership is a function of the state.” Only to the extent that the state enforces laws that protect private property, life and liberty.

“You don’t have any private ownership.”

That’s correct with regard to my home, but not my mobile phone. If I don’t pay my property taxes, the state expropriates my property. Only if they do away with property taxes would I truly own my own home. Come to think about it, I don’t even own my mobile phone. If I don’t pay my bill, which includes a host of telecom taxes, I’d lose the service and the device will become useless to me. I don’t own the fruits of my labor, because Uncle Sam skims the cream off the top each month.

Americans will spend an average of 29% of their income on federal, state and local taxes in 2012, according to the Tax Foundation. That’s more than the average family spends on food, clothing and housing combined. And it means that the average American is going to be working 107 days into the year just to earn enough money to pay their taxes. “Tax Freedom Day,” as the Tax Foundation calls the date that the average American is finally free of its tax burdens, arrives on April 17 this year, coincidentally the same day taxes are due. That’s four days later than last year.

I do own the suit on my back, after having paid taxes on the earnings that provided me with the cash to buy the suit, and in addition, having paid a 6% sales tax at the cash register.

“As far as Bill Gates and Warren Buffett….  well…. they took that money from other successful businesses.  And, they did it through predation and force.”

Assume you are correct (laughable really), what’s the difference between that and Washington confiscating our wealth through predation and force? At least you have a choice not to use Microsoft or Berkshire Hathaway products and services. You have no choice but to surrender some of your hard-earned wages to the folk in Washington with very little accountability. If there were any sense of accountability in Washington, we would not be sitting on $16 trillion of debt (not to mention the $60 trillion in unfunded mandates).

You can have the warmongering machine in Washington and I’ll take the likes of Microsoft and Berkshire. They gainfully and productively employ hundreds of thousands of employees and pay hundreds of billions of dollars in taxes every year. There were no Boeings, IBMs 3Ms, Microsofts, Berkshires, Caterpillars, etc., in the Soviet Union. Big government stifles innovation and entrepreneurship, without which a country’s citizens live in abject misery. The size of government is a big factor in determining where on the scale of misery and prosperity citizens find themselves. You don’t have to believe me, but the smaller the size of government the more prosperity enjoyed by all.

Let’s see.  45 million Americans are on food stamps.  90 million people don’t have a living wage.  80% of Americans have less than $5000 in personal assets less their home.  Now, we can debate whether these statistics are accurate to the nth degree but the reality exists.  That is a result of slave wages.  I don’t have to live in Cuba.  I live in the United States.  I want to know where your deluded mind lives.  That is, other than inverted into your ass.

I don’t need to resort to drivel that you believe in.  Which are nothing more than rationalizations and ad hominem fallacies.  I live in the real world.

There are a lot more stakeholders in how companies are run. The shareholders are just one. You also have to consider the impact of decisions on US citizens, employees, and customers. The Romney form of capitalism considers only the shareholders.

“Let’s see.  45 million Americans are on food stamps.  90 million people don’t have a living wage.  80% of Americans have less than $5000 in personal assets less their home…”

Proves my point. Since 2000, Washington has hugely increased the size of government, ratcheted the debt up from $5 trillion to $16 trillion, used low interest rates and government housing agencies to artificially boost demand for homes, the bubble popped and there you have it: 45 million Americans on food stamps… less than $5,000 in personal assets less their homes…” It’s worse than that. Americans have dutifully (well, by force, nothing voluntary about this scheme) paid cash into SS and Medicare for decades and now the government reneges on its promises by increasing the retirement age, taxing the benefits, changing the benefits, introducing co-pays, and a host of other gimmicks to try and save a system it has pushed to the brink of insolvency. (The SS tax has been increased 20 times since its inception. No private retirement scheme would get away with this).

As I’ve argued: You don’t have to believe me, but the smaller the size of government the more prosperity enjoyed by all. The dire state of affairs you illustrate did not come about by paying off the debt from $16 trillion to $5 trillion, or cutting the budget every year by 5%, just the opposite. So, refute the facts. If increasing the size of government brings prosperity, considering what we have experienced the past 12 years, nobody should be on food stamps, home ownership should have soared (no government manipulation of the property market in Canada and over there private home ownership is higher than in the US - tough fact to swallow, like one pertaining to politicians in Washington sending their kids to private schools), and per capita income should have gone up. Explain the anomaly. Some did benefit from the government’s largesse: special interests, war profiteers and the military-industrial complex in general, the entities that bankroll political campaigns on both sides of the aisle.

Again, when you can’t refute the facts you resort to insults. You should try and avoid that as it harms your cause.

The rise of Vanguard’s 401k SP500 index funds means that most private citizens are invested in 500 different companies.  So if you have a 401k,
you’re probably invested in Goldman Sachs and Union Carbide whether you agree with their management or not.  The charter of an index fund is to invest in companies in portion to their market share, so Vanguard can’t sell the stock either.  Shareholders have abdicated.

Albert,
One day you will awaken from your delusions.  But they are very deeply ingrained so it will take some form of crisis of the ego or the self for that to ever happen.  I nearly soil myself with amusement when people like you believe Adam Smith’s invisible hand of self-interest leads to harmony for all of society and humankind.  Interests of the self include control, greed, envy, pride, lying, victimizing, wrath, lust, vainglory and the like.  So, in a system of “free markets”, the self would take pre-eminence over regulation, society, selflessnes, the common good, etc.  And, out of that you see virtue and harmony?  That’s rather ironic.  I thought it was selflessness - kindness, empathy, respect, community, the common good and the like that created virtue and harmony.  Have you ever read any great philosophical works?  Do you understand the stunted nature of your own emotional intelligence?

As we all know, the human condition precludes your delusional view from ever becoming a reality.  Because at the forefront of the human condition is the tyranny of the self - Adam Smith’s supposed virtuous self-interest.  You and all of these Ron Paul clowns really are quite laughable.  You notice, Ron Paul is polling at about 3% of the popular vote.  Somewhere double that in the Republikan Party.  People living through the tyranny of the self reject your pablum almost without exception.  But, you, well, you are so deluded by your own ego, you actually believe all of this.

The reality is much of the entire world as we know it uses mathematical game theory and bargaining models developed within those constructs to operate.  But, those constructs are based on people always doing what is in their self-interest -lying, cheating, stealing, envy, pride, vainglory, etc.  Somehow you eschew modern brain and mental health science, modern mathematical game theory, the anthropological history of capitalism and countless other forms of rational and reasoned science to try to convince us this utopian fantasy that you and other quacks have created in your minds, is actually a reflection of some type of reality.  The only problem is that what you are smoking has never, ever existed in the world of capitalism.  In fact, it has never, ever existed within the human condition. 

Mind you, don’t try to come up some some nonsensical rationalizations of ad hominem fallacies because I am very well steeped in the historical anthropological aspects of capitalism.  Free markets don’t exist.  What you are smoking would have been laughed off of the stage forty years ago.  By Republcans and Democrats.  By society in general.  That is, before the tyranny of the self truly became glorified by people like you.  What we now are witnessing as failure in our society is what happens when “free markets” are allowed to develop.  That is, when the unregulated self is allowed to roam free in capitalism.  Corruption, victimization, vainglory, lying, pride, envy, greed, etc.  Teddy Roosevelt pretty much spoke those exact words one hundred years ago. 

Deregulation to create free markets is to unleash the tyranny of the self on the world around us.  ie, Psychopathy defined.  And, with the self unleashed, along with all of its evils, what we end up with is what we see today.  Cronyism, corruption, predation, victimization and other well understood qualities of the self and the human condition.

Your head is so far up your ass, you’ll never find it.  My God, you are so far into the Matrix that you’ll never wake up.  That is, until you experience a crisis of the self.  And your ego explodes and the self-delusions that dominate your mind are exposed to your self to be ad hominem fallacies..  I love toying with people like you.

“There are a lot more stakeholders in how companies are run. The shareholders are just one. You also have to consider the impact of decisions on US citizens, employees, and customers. The Romney form of capitalism considers only the shareholders.”

You are correct, especially with regard to Mittwit. However, if you had a choice to invest your retirement savings in corporations, public or private, where would you invest?

I would invest in companies that put their customers and employees first, because by taking care of customers they attract more revenues, which in turns means more profits and higher return on my savings. Those who take care of employees engender a workforce that take care of customers, without which their is no business. Corporations have to tell shareholders that they put their interests first, because without shareholder capital there is no business either. However, the smart ones know that the best way to take care of shareholders is to take good care customers and employees. That does not mean you cut prices and inflate wages. Cutting prices too far might buy you market share for a while, but it will undermine your profits or even push you into a loss situation. Pretty soon you’ll have no customers, no employees and no shareholders.  (Circuit City comes to mind - no longer in business, as an example.) Competitive forces drive down prices and wages, but they also drive innovation that leads to better quality jobs and other benefits for society. (The mobile phone revolution came about by heavy investment of capital, incredible innovation and a very competitive environment. Only the fittest survived, but we live in a pretty exciting connected world as a result. Had government taken on the function of providing us with mobile phones, we’d be carrying phones the size of bricks with precious little coverage and speed.) We hunt for bargains so we can get the most out of the purchasing power we possess. One can get rid of these competitive forces though government intervention, which ultimately drives up prices that benefit some workers put punish consumers. The extreme of government intervention was practiced for 70 years in the Soviet Union, with “great success.”

Mittwit would argue that some business are really badly run and would go under eventually costing many jobs. He just tries to find the bad ones that might be worth saving through cutting jobs and other costs. If he succeeds, he makes a lot of money, workers are more secure and the business survives. If he fails, he is a villain. He is a villain for a lot of other reasons, but if you had entrusted your $10,000 of your retirement savings to him and it grew to $100,000 over say ten years, you would feel better about your impending retirement. Relying on government to take care of you during retirement is a lost cause, or at best very risky, but without the prospects of a high return.

“But, those constructs are based on people always doing what is in their self-interest -lying, cheating, stealing, envy, pride, vainglory, etc…. That is, when the unregulated self is allowed to roam free in capitalism.  Corruption, victimization, vainglory, lying, pride, envy, greed, etc.”

In every society, whether they espouse socialism, communism or capitalism you will find people driven by “corruption…. greed, etc.”. There are laws that protect society against these vices.

However, just because I’m driven by self-interest does not mean I’m corrupt, greedy, a liar and all the other evils you mention. Very few us turn out in life to be a Mother Theresa or Gandhi. People who live these selfless lives are few and far between. Maybe you are one of them. Maybe you lived your entire life denying yourself so that others may benefit. If so, I admire and applaud you.

For the rest of us, if we don’t take care of ourselves, nobody else will, apart from the fact that we don’t want to sponge of others. So we seek our own self-interest, but within the constructs of the law. Is there anything in life that you enjoy? Could you say that such a thing came to you through the altruism of your fellowman, or because some people got together for the sake of self-interest and the pursuit of profit to invent the machine, the software, or wherever it is that now gives you such pleasure or at least makes life easier.

I just had surgery and I was very impressed by the medical equipment that was used to diagnose my condition, alleviate my pain, solve the problem and helped me to recover. That all came about because of thousands of people in pursuit of their own self-interest invented technology and machinery to manufacture the devices, organize the businesses to market and deliver the goods to the hospitals that were built by people with capital who sought a return on their investments, etc. The whole process was driven by self-interest.

Make a list of the the things in life that we use/consume on a daily basis that came our way, not because of self-interest, but because some good Samaritan in an utter act of selflessness devoted his/her time and money to provide us with this comfort, necessity or gadget. Your list won’t be very long.

So, you see every person who pursues his or her own interest as someone who is corrupt and greedy. I see hard-working innovators, rainmakers, movers and shakers, good people with the best of intentions, in now way harming anyone as they contribute goods and services to society.

It’s all a matter of perception. I see the good in mankind. You see the evil.

“However, just because I’m driven by self-interest does not mean I’m corrupt, greedy, a liar and all the other evils you mention.”

BAAAAHAAAA You are deluded.  Your entire life is nothing more than a rationalization of your own tyranny.  Every single day you rationalize a belief system that allows you to continue to tyrannize yourself and the world around you.  That is the human condition.  That you think you are above it or, even more frightening, don’t understand your own self-delusions shows the level of self-deceit you heap upon yourself.  How emotionally-stunted you are. 

The manifested self is the only source of evil in this world.  The human condition is the compendium of our higher power and that of the self.  It is the duality of good and evil and that exists in all people.  You live under a delusion to see only the good in people.  People are simply people.  And, given their circumstance they can rationalize great benevolence or great tyranny.  But truly great benevolence comes from our higher power or our higher order of consciousness that makes us human.  Not from your ego-driven nonsense that you espouse.  Your delusions of seeing good in mankind reject the reality of science, reason, history, capitalism and all other manifestations of the self.  This simply allows you to delude yourself into thinking that self-interest leads to virtue. 

You are the perfect poster child for the tyranny of the self.  Your hatred of working government (the rule of law above the tyranny of the self) and the embrace of the lawless tyranny of the self that defines capitalism is truly a marvel of tremendous hypocrisy and ad hominem fallacies. 

Talking to you is like talking to a chimp.  Seriously.  You are consumed by your own delusions.  That’s fine.  I’m not here to enlighten you.  I’m here to protect myself from your delusions.  From your reasonless, scienceless distorted view of reality that when thrust upon me, allows great tyranny.

It is all a matter of perception.  Your perceptions discount truth, reason, great works of philosophy, science and all of human history.  Your perceptions are delusion of a tyrannied self.

“that’s what the lawyers tell me.”

Lawyers and Chicago School economists collaboratively have been perpetrating myths like shareholder value and market value theory for decades. But, those of us who work in markets know market value theory is bad economics. Price rarely equals value, otherwise no one would be induced to buy or sell except for liquidity.

Now Lynn Stout declares that shareholder value is also bad law. This makes economic sense, at least, because if price doesn’t necessarily equal value, then what does “shareholder value” mean, exactly?

What we really need is not a new ideology, system, superstructure or human race—but a renewed commitment to intellectual honesty.

Grim Reaper… whatever… you are incapable of taking any of the facts I stated and refute them other than to turn to insults and self aggrandizing. Hey, if you’re OK with the warmongering in Washington, the protection of special interests and the running up of humungous debt, I have good news for you. You have two parties to vote for. They will both give you more of the same, regardless of labels. Let the good times roll. Talk about being deluded. It’s almost weekend. Have a great one.

Look Einstein, you haven’t presented any facts other than you believe in free markets over government.  That somehow without government, the self-interest of capitalism would create virtuous society and harmony.  Here are the facts.  That flies in the face of the human condition and that has never, ever defined capitalism or humanity.  So, what again is all of this delusional nonsense you spout?  Nonsense that has never existed and never will.

Some us will vigorously pursue our own self-interest in our imperfect capitalist system, absent any greed or corruption, and in so doing invent goods and service that will improve the lot of mankind.

Others also driven by self-interest, mixed with greed and corruption, will make bullets and bombs, and lobby government for more wars. The greedy politicians will sit on the sideline in Washington, collect taxes from us all and redistribute the same to their favorite special interests which are too numerous to name but probably best described as the military-industrial complex.

Now don’t forget to vote in November 2012. It matters not whom you vote for, the outcome will be the same: more wars, more debt, bigger government, more poverty and misery for us all.

The heated dialogue between Albert/Grim reminds us that we humans don’t share the common vision found in the inhabitants of termite mounds.

Corporations, companies, entrepreneurs, are not beholden to the interests of those who live within the legal boundaries of a certain patch of geography.  If shareholders of those entities are found to be hurting America, then it’s the responsibility of elected officials to provide remedies (regulations) ONLY IF their job definition includes doing what’s in the long term best interests of the constituents who live within our borders and who elected them.

Only an educated electorate possessing critical thinking skills would be able to put qualified, educated people in office - people who would be able to think long term, would be able to understand the long term consequences of legislation, and would be able to determine a balance between preserving incentives and preventing damage caused by unfettered greed. (self-interest - the recent breathtaking example being our 2008 economic meltdown)

We don’t have an educated electorate and our education system is now accelerating its own meltdown due to apathy, rising costs, funding cutbacks, and continued economic/class polarization through increased privatizing. Thus as a whole, we lack critical thinking skills and don’t think of ourselves as having commonality. Too much of our media “news” reflects the interests of corporate owners, and too many of our legislators have been bought off. Short term greed, regionalism, classism - “us versus them” - are in charge and have us absolutely polarized.

Thanks to ProPublica for keeping us informed!

The search for truth, discovery and service to humanity as witnessed by inventiveness, creativity and the like is not driven by self-interest.  Self-interest always manifests itself though some method of control.  Control always subverts truth.  That you are so deluded that you believe self-interest creates virtue, that flies in the face of science, reason, logic, an understanding of the human mind, capitalism’s history and all of human history, shows that your views are nothing more than delusions created in your own mind.

The whole point of this entire chain of comments was that you believed self-interest creates harmony in society and for those beyond the self.  And, that government regulation inhibited this while free markets aka the primacy of self-interest created it.  The most baseless, unscientific, unreasoned delusion of the self that is imaginable.  Something that has absolutely no historical or scientific basis.  Just your ad hominem fallacies. 

Free markets are a myth.  Your hatred of government and associated rule of law in lieu of the primacy of self-interest is a massive delusion.  And, there is no historical or current analysis of humanity or capitalism that can be cited to prove your case.  None.  You are an idiot.  And, a self-absorbed narcissistic to boot. 

I bet you either aren’t married or married someone that you can control.  Because your manifested self is one great deception.  You lie to yourself every single day.  Your beliefs are one massive self-lie.  I’m done with you.  You are incapable of seeing your own deceptions.

You can’t handle the truth, so you resort to insults:

“You are an idiot.  And, a self-absorbed narcissistic to boot.” 

... remember November, you opportunity to cast a vote for statism, corporatism, wars, debt,... and, blow me down, prosperity!

I can’t figure out why the Soviet Union failed. Why capitalist West Germany was so much more prosperous than socialist East Germany. Same for South and North Korea. Why the incorporation of Hong Kong into China raised China’s GDP by 29%. I’m such a deluded idiot.

Now you know why America failed.  Because of the tyranny of the self - free markets and deregulation   You are an idiot.  I provided ample reasoned, scientific, anthropological and mental health data to state what you believe is hogwash.  The only thing you can regurgitate, like a parrot is that I said you were an idiot. 

That’s WHY I WROTE you are an idiot.  Because you refuse to deal with science and reason and keep telling me that I resort to calling you an idiot.  You live in a circular bubble of stupidity.  You can’t say anything other than your canned parroted answers.  You can’t address that there is no basis for your reality.

Btw, Gernany is the antithesis of a free market economy.  Sort of blows your nonsense out of the water.  It is HIGHLY regulated, HIGHLY socialized and they have rejected vulture capitalism as defined by YOU and the other free market loonies.  That’s one heck of a bad example.  YOU just proved my point.  Germany rejects the tyranny of the self and embraces an economy that embraces substantial government regulation.  Put your dunce cap back on.

I compared capitalist West Germany and socialist East Germany with each other. (Vulture capitalism is a figment of your imagination.)

West Germany is a free economy, where capitalism thrives. Germany’s national debt is 84% of GDP, not exactly balancing their budgets. It has a huge advantage over the US, allocating only 1.3% ($46.7 billion) of its budget to defense. Our allocation is 4.7%. Per capita income is $36,033, lagging those of Switzerland ($41,633), Australia ($36,699), Canada ($39,057), Ireland ($38,550), Austria ($39,634), to name a few.

You participate and benefit from the free market every day. Very little of what buy comes to you other than by way of very competitive markets… well not if you ride Amtrak and use the Post Office. Their deficits are subsidized by the taxpayers.

Walter D. Shutter, Jr.

June 28, 2012, 4:58 p.m.

Name of the Article: “How Shareholders are Hurting America”
How, again?
Apparently by seeking the best possible rates of return on their investments, the greedy bastards.

In response to Albert Meyer’s statement in the second comment “profligacy that pushed the national debt form $5 trillion to $16 trillion over a 12-year period”.  This debt increase had two key drivers 1) Bush tax cuts and 2) unjustified adventures in Iraq.

The only time since 1971 in which revenues exceeded outlays was during the Clinton years.  The dramatic increase in government revenues was driven in large part by robust economic growth, fueled principally by rock bottom energy costs, not by tax cuts.

Einstein, you are now again rationalizing.  Germany is a highly socialist economy that rebuffs your nonsensical view of free markets.  Government places a massive role in their economy and they clearly rebuff the tyranny of the self of your free market, vulture capitalism.  Their economy is highly regulated with LIMITED competition and zero free markets That you try to tell me everything I buy comes from free markets clearly shows you aren’t a mathematician.  There is nothing free in anything I buy.  By the way, it’s irrelevant other than to feed your idiocy, but first you are harping that we don’t have free markets.  Now you are telling me everything I buy comes from a free market.  There you go taking your dunce cap off again.  You just play with words to put them together in a nonsensical fashion because your ad hominem fallacies have no merit.

There are some ideas that are so foolish that only an academic will put them forward and already so discredited in other eras and venues that only an academic would be unaware of them. Stout’s social governance is among them.

American corporations exist in a dense web of contactual,legal, regulatory and social relationships and responsibilities which substantially define and restrict them. The irony of corporate lobbying and PAC activity is that this is generally in response to these external pressures , and not a proactive effort in a vacuum to control the specialties within government most affecting them. It is true that intense government scrutiny and control often generates intense efforts on the part fo the regulated to influence that process. That is how we wind up with regulatory capture, iron triangles and opaque crony capitalism. The solution isn’t to go further down that path, although to do so would give some future John Kenneth Galbraith an opportunity to reprise The New Industrial State.

    Managements are supposed to maximize the economic value of their businesses. That entails innumerable business judgments about “short”  vs “long” term considerations, and adequate responses to outside mandates of different kinds. That does not mean becoming mini-legislatures on public policy variants within their businesses unless they can make a credible case the shareholders’ economic interests will thereby be served.  That might well be true , especially in a consumer business with a progressive self-image and a “tree-hugging”  customer base. Once again, that falls under the business judgement rule .

  If , however,  Professor Stout is going to start critiquing corporate America as a whole, she might start with herself. She was paid $252,500 by the 182 Eaton Vance Funds of which she was a director.  Eaton Vance has regularly ranked low , and in 2010 on the absolute bottom , of the 57 Mutual Fund families ranked by Dimensional Fund Advisors. This is in no small part due to the fees and expenses on the Eaton Vance funds, passed on by the Board of which Prof. Stout is a part, and which routinely run 5-7 times those of their Vanguard Fund analogues . Ms. Stout is a director elected by the fund shareholders and supposedly representing them in their negotiations with the Eaton Vance organization . One can only surmise her laxity in representing their interests against those of the personnel and management of the Eaton Vance organization is a reasonable reflection of what we might expect from widespread adoption of the “managerialism” of which she has apparently been the comfortable beneficiary for the last 14 years.

I’m late to the party, but here goes.  Don’t really understand how Professor Stout thinks giving execs more “managerial” power will solve things.  After all, it seems that they are primarily motivated by pay packages selected by boards they themselves have selected.

To the contrary, the corporate governance movement has much more evidence to suggest that shareholders are demanding more socially responsible behavior from its companies.  Take the Rockefellers,  for example: they have asked Exxon for over a decade to adopt a responsive position to global warming and climate change, and certainly to stop its disinformation campaigns regarding global warming and climate change.  But, nothing has ever come of it, because the CEO is responsive to a board that he selects through proxy votes. 

It would seem less shareholder participation is the problem, not over participation.  Prof. Stout’s argument seems to me akin to arguing that voters should have less of a vote because our elected officials cannot seem to behave in ways responsive to the citizenry, rather than monied lobbyists and special interests.

What a wonderful thread of a comment’s section!  Really these 50 or so comments could constitute the entire “real world” discussion input for a graduate course in… economics, history, sociology, political science, psychology or philosophy. You have to love this part of the Internet. By the way, everybody is right in the here and now, that’s the way human thought goes, always finding a mean. It just may be that some of these commentators who seem radical in their thoughts will be in the majority in 50-100 years and, then some here may be seen as far, far at the edge of the future pale. It may surprise us who turns out to be, long-term, correct in their judgement. Who? The hint is: Humans evolve socially, but not biologically.

Mr. Shahislam

Sep. 30, 2013, 8:41 p.m.

Kudos to Mr. George.
Amazing is the depth of Your understanding!
Would be wise to continue discussions as the World Economy is taking a new form via automatic timely changed foreign policies where ‘trade issues’ should be getting the priority by US….....

(The real problem of fixing current US economy is now inside brains of House insiders & some senators or agents of SWT 200s with unscrupulously greedy Third-world-mindset of lawlessness in favor of personal business gains in old fashioned “narrowly focussed, selfish & thuggish visions of geo-politicking”.)

Carmine Ferell

Dec. 18, 2013, 5:41 a.m.

I certainly get irked while people consider worries that they plainly do not know about. You managed to hit the nail upon the top and defined out the whole thing without having side-effects

Jesse Eisinger

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at .(JavaScript must be enabled to view this email address)