Many experts have argued that an environment like what we’ve seen since 2008...(Rana Foroohar)

Many experts have argued that an environment like what we’ve seen since 2008, in which borrowing costs are as low as they’ve ever been, is the perfect time to build bridges, fund new basic science research, or revamp public schools. Yet thanks to congressional gridlock, it didn’t happen. The Federal Reserve alone was able to act to support the economy, with lower rates and quantitative easing (which is essentially pumping money into the economy in the hopes of boosting asset prices and consumption). But one of the many fascinating and downright disturbing things about the current boom in shareholder activism is that it was actually enabled by monetary policies that were supposed to help the little guy. Following the financial crisis, the Fed cut interest rates to historic lows and carried out a massive bond and mortgage-backed securities buying program. In purchasing these assets in masse, the idea was to push other investors into riskier areas of the market –like stocks and corporate bonds- which would eventually bolster asset prices and make Americans feel wealthier. So far, so good; the value of stocks and mutual funds owned by US households did increase by several trillion dollars following the 2008 crash. In light of this apparent success, the European Central Bank and many others have followed the Fed’s lead, buying up assets, lowering interest rates, and goosing stock prices.

The problem is that this money dump has mainly benefited the wealthiest portion of the population, namely the top tenth, which owns nearly 90 percent of all stocks. As discussed earlier in this chapter, this isn’t just a social issue but an economic one. The rich keep their money in banks or in the secondary markets, buying stocks and bonds that already exist, rather than, say, starting new businesses or purchasing new things. The money stays in the financial sector, in other words, instead of being invested in the real economy that we live in. The Fed had hoped that rising asset prices would lead to growing consumer confidence, which would spur business investment in the real economy, boost the demand for labor, and eventually get that virtuous cycle of job creation started. But it didn’t work that way. While quantitative easing has helped lift the job market somewhat at the lower end of the socioeconomic spectrum (one big reason that companies like Walmart have raised their wages by a dollar or two per hour), it has done almost nothing for the middle class.


Fuente: Makers and Takers. Rana Foroohar. Crown Business. New York. 2016.


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