Sunday, April 26, 2015

How the middle class is disappearing....

How  the world has changed:

There’s something seriously wrong with an economy that nurtures a few billionaires but can’t sustain the middle class. 

Many factors have been blamed for the plummeting fortunes of the American middle class: globalization, technology, deregulation, easy credit, the winner-take-all economy, and even the inevitable tide of history.

But one under-appreciated factor is a pervasive business model that encourages top managers of American corporations to loot their company for short-term gains, depriving those companies of the funds they need to build and enlarge, and invest in their workers for the long haul.
How do they loot their company? By using large stock buybacks to manage the short-term objectives that trigger higher compensation for themselves. By using those stock buybacks to manipulate the share price, which allows them to use inside information to time their own stock sales. By using buybacks to funnel most of the company’s profits back to shareholders (including themselves).
They use the stock market to loot their companies.

“The ‘buyback corporation’ is in large part responsible for a national economy characterized by income inequality, employment instability, and diminished innovative capacity,” wrote William Lazonick, an economics professor at the University of Massachusetts at Lowell in a new paper published by the Brookings Institution. 

What scares me is that the popular press doesn't seem to have noticed this trend.   I wonder why.

The link to the story is here.


  1. Wow. This is very interesting, especially when reading about the "shareholder value" theory. The transformation from the crisis in 1980s of non-competitiveness in American industry to increasing income inequality and the disappearance of the middle class. "Top managers are paid according to how well the company’s share price is doing, especially in the short run, not on how well the company itself is positioned for long-term profits." No wonder why long-term profits shifted back to short-term, individual profits.

  2. I think that the trend is gaining further attention as economists comment more and more about the discrepancy between the upper-class and the widening gap between them and the middle and lower class. The schism reminds me of what was happening back at Enron: leaders were being rewarded on taking more and more risk on, while workers were continuing to work for the same wages in an increasingly stressful environment. It's a difficult task because of the general conception of the American Dream and the mythology behind creating your own success, which makes it easy for individuals (or countries for that matter) to be blamed by the successful. How does the market intervene to create more equality in a winner-take-all economy?

  3. This was very interesting to me and I agree with Taylor that I think that the furthering gap between the upper-class and the middle and low class has started to grow more attention as to why this is happening. It is interesting that our economy and society has become so individually focused that we only focus on how we can get ahead instead of what is good for the society as a whole.

  4. This also reminded me of the Enron scandal. After which I remember there being some main media outlets covering how this marked a "new age in business ethics" as this Forbes article referred to it:

    However that talk of change in corporations being incentivized to value short-term gain over long-term stability has fizzled out in mainstream media. Instead the dominant narrative of CEOs as "job creators" and the perception that businesses always do more good than bad for our country has continued to prevail.

    I often see on Facebook where friends post articles from alternative news sources, and their validity is immediately dismissed by commenters. Whereas an article from a major media network is assumed to be valid, even though these news outlets are owned by corporations ( While it was a fictional television show, The Newsroom on HBO demonstrated the struggle between reporting reliable news, versus what people are more likely to watch, versus what corporate ownership wants. I hope that the discourse about where news comes from and how to restructure business/stock models to not incentivize short-term risk continue to gain spotlight in public discourse.

  5. The worse part is though, that these stock buybacks are very legal whereas Enron's scandal was essentially fraud and deeply sewn corruption. However, that means that unless something significant changes, then corporate managers will be able to continue to funnel money out their companies, perpetuating inequality.

  6. I think the concept of 'winner take-all' type of economic mentality is one that clearly needs to be questioned as well as reexamined. Personally, I think it is rather odd to desire a prosperous economic growth and stability in a country but, then have this 'winner take-all' mentality, which has proven to be inefficient as well as damaging to a societies well-being and, does not in any way create a societal benefit. Rather, we have observed how this kind of mentality that is prevalent within the U.S. and, in other high-income countries negatively affects the long-term growth of a society. Furthermore, we have also observed how this mentality further widens the wealth gap within a society and, thereby increases the level of inequality. I am not sure exactly what incentives we should instill but, it is fair to say that the 'winner take-all' mentality is not working in this country as a whole.

    To be truthful, I think popular media only knows how to cover stories that benefits their interest as well as find ways to only tell one side of the story. However, I think we as consumer of the mass media must not solely rely on the mass media to tell both sides of the story. The reason being, the issues the mass media covers is matter of perspective. Also, I think since large corporations own some of the major news channels, it seems inevitable that new about the 'good' these companies provide to the society as opposed to how they are actually making the rich get richer and the poor poorer may not be a wanted exposure for them.

  7. This article is interesting in that of it touches a topic that shouldn't be a problem in this era. I agree with most people here that our society is so self-centered that we minimize the wellness of the society as a whole.