Home Page for published writings on global financeThis essay was published as a "My Turn" column on the editorial page of the Juneau Empire on June 27, 2016. The Empire is a web and print newspaper published daily, except Saturday, in Juneau, Alaska.
Makers and Takers"Trickle-down" theories of wealth have always struck me as bogus. Now, I have no doubt. I have a reading list (below), and my thinking is in these paragraphs. Many years ago I began to wonder why Wall Street was hiring so many graduates with advanced degrees in Math, mostly Calculus. Calculus is used to find points of inflection in processes changing over time especially when those processes intersect. I asked myself, then, aren't adding machines powerful enough to total stock trades? My retirement funds are in the stock market, and I watch trends. Several months ago I began to wonder why Wall Street's Dow Jones Industrial Average - and other indexes - were going up so fast. After all, real wealth comes from businesses developing and selling products competitive with similar domestic products and likely imports. They sell to businesses looking for competitive advantage, and to consumers with long-term jobs that pay well enough to enable the purchase of such products. However, many US Businesses are no longer really trying to make any products to sell; salaried positions are giving way to short-term "contractors;" and wages for working people are still stagnant following the massive housing industry crash in 2008. So why was the Dow Jones Industrial Average rising? My nerdy itch caused me to start reading. In recent months, the gyrations in the Dow Jones and other indexes in the Stock Market are making me think that a financial derailment worse than 2008 is possible. My itch to learn more about finance got more intense, and I resolved to only read the stuff worth reading. Readings, in other words, of analytics and interpretations that are derived based on lots of real-world data. Here are three books that have helped me gain some footing in answer to the question of "what..." (in the words of that Great Republican, Don Trump) "... the hell is going on?" Book 1.) "Capital in the Twenty-First Century," by Thomas Piketty (Published 2014. Dense with historic data and data-based analytics on global Capital Flows. I can't say I have read this whole book, but the summary chapters and the data presentations are excellent, and the message is unmistakable); Book 2) "The Big Short," by Michael Lewis (Published 2011. A great study of the Stock Market "players" in full lemming mode in the run-up to the 2008 collapse; plus, it is fun to actually understand how a Credit Default Swap (CDS), and a Collateralized Debt Obligation (CDO) actually work. I read this one twice. The movie was good too); Book 3.) "Makers and Takers - The Rise of Finance and the Fall of American Business," by Rana Foroohar (Published: 2016. This author was recommended to me by a serious business guy who owns a manufacturing company in Connecticut that actually makes things.) This is a 350 page read on a not very fun subject, but if you want to know why Corporate America is now putting all its' idle cash (estimated here at 4.5 trillion (with a "T") dollars) into stock market, bond, and currency manipulations (This is where Wall Street needs the advanced calculus) designed to assure maximum quarterly performance reports; and why they no longer want to invest in longer term R&D and innovation, in product development, in long-term good paying jobs; and in the kinds of things that produce real wealth, this is the book to start with. Apple Computer gets some attention in Foroohar's book. An iconic Corporate "Maker" under Steve Jobs Apple is now becoming a Corporate "Taker" under Job's successor, Tim Cook. Cook has decided that rather than try for the "next big thing," he would rather do market manipulations with Apple's abundant cash reserves, …now estimated at 160 Billion dollars. For those of you who might be involved with our Republican controlled Alaska Legislature, there is plenty of explanation in Foroohar's book about how Big Oil (BP and the Koch bros are highlighted) has become mostly a Taker, and no longer a Maker. Their takings and stock market manipulations are one major reason behind the global oil price collapse that has put Alaska's governing process into a tail spin; a tail spin that could turn into what airplane pilots would call a graveyard spiral. If you think Big Oil is going to do any serious oil field development in the future (the kind of Alaska-based in-state field development the annual payment of $800M oil tax credits authorized under SB 21 are supposed to guarantee), better read Foroohar's book before casting your next vote. =====