by From Shimshon Bichler and Jonathan Nitzan and current issue of the RWER At stake here is the connection between the two key quantities of the capitalist nomos – the price of capital and its underlying earnings – so the question is obviously important. Yet, to the best of our knowledge, that question has never been asked, let alone answered. Indeed, as far as we know, the V‑shape pattern of the short-term price-EPS correlation shown in Figures 3 and 4 is a new finding. It is common to argue that, since the 1980s, U.S. capitalism has been marked by a growing emphasis on ‘shareholder value’, heightened ‘short-termism’ and a nearly universal obsession with quarterly increases in profits. This popular view is certainly consistent with the post-1980s surge of the price-EPS correlation
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from Shimshon Bichler and Jonathan Nitzan and current issue of the RWER
At stake here is the connection between the two key quantities of the capitalist nomos – the price of capital and its underlying earnings – so the question is obviously important. Yet, to the best of our knowledge, that question has never been asked, let alone answered. Indeed, as far as we know, the V‑shape pattern of the short-term price-EPS correlation shown in Figures 3 and 4 is a new finding.
It is common to argue that, since the 1980s, U.S. capitalism has been marked by a growing emphasis on ‘shareholder value’, heightened ‘short-termism’ and a nearly universal obsession with quarterly increases in profits. This popular view is certainly consistent with the post-1980s surge of the price-EPS correlation shown in Figure 4 – and this consistency should hardly surprise us. With capitalists paying more and more attention to the latest bottom line and analysts glued to the latest bit of news, it is no wonder that equity markets have become increasingly sensitive to the most recent variations in earnings.
But what is the cause of these changes? Why has the capitalist time horizon shrunk? Why have investors – who, for a whole century up until that point, cared less and less about current earnings and often seemed perfectly happy to buy and hold stocks for the long haul – suddenly started to insist on quarterly increases in profits? Is the V‑shape reversal of the early 1990s merely the consequence of a changing ‘investment culture’? Is it simply a new fad imprinted by the theoretical winds of just-in-time neoliberalism and emboldened by the ideological flare of Margaret Thatcher, Ronald Reagan and Alan Greenspan – or are these developments themselves the result of a deeper change?
The evidence presented below suggests the latter. Present-day capitalists and analysts, we argue, have come to demand quarterly increases in profits not because they started to ‘feel like it’, because they were taken over by a new financial ‘fashion’ or because they were somehow convinced that short-term increases are more ‘economically efficient’ than long-term growth. In our view, they do so because they are compelled to, and the force that compels them has nothing to do with any of the above. The reason, rather, is that their capitalized power is approaching its asymptotes, and the only way for them to counteract their deepening systemic fear is by pushing for higher current earnings. read more