A couple things I’ve read this week that I thought were a little disturbing. One was a couple hedge funds getting together and engineering the restructuring of Juniper Networks, including the laying off of 500 mid-level workers. Apparently neither owned a majority by themselves, but together they owned enough that they could put their own CEO and business plan in place.
The other is a new book that has the World O’Economists all abuzz. It’s called “Capital in the Twenty-First Century” written by Thomas Piketty and it sounds like we might be hearing a lot about it. Piketty looks at wealth distribution throughout history and points out that the Middle Class, as we know it, has only really existed for about 100 years and that the growing disparity we’ve seen over the last 30 years or so is the distribution starting to return to normal. Very complicated stuff, but he postulates that the growth of the middle class was caused by the growth of production outpacing the growth of (investors’) capital, the World Wars, The Great Depression and the New Deal and the Labor Movement.
He says that in a true, free market economy, capital growth will naturally outpace overall economic growth – which is what we’ve been seeing, with the stock market (as one example) growing at 20+ percent while economic growth would be lucky to hit 2%. In the case of Juniper Networks, the hedge funds want a 40% return on their money and they came up with a way to get it. “Capital” can do that, as we’ve seen. If investors want $50 million out of a company, they’ll get it if it means keeping the business operating or liquidating it. An investment is an investment and they’ll take whatever option gives them the maximum return.
Piketty proposes a global tax on capital, which we (well, most of us) know could never happen but there are a number of people proposing increased taxes on capital and inheritances at the national level.
Sort of scary to think that The Great American Middle Class was just a flash in the pan, or that it’s only existed because of “artificial” forces but it sounds like he presents a pretty good case for that way of thinking.
Here’s a pretty comprehensive article if you’re interested: