"John R. Carroll" wrote in message
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"Ed Huntress" wrote in message
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"John R. Carroll" wrote in message
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"Ed Huntress" wrote in message
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"F. George McDuffee" wrote in
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On Sun, 2 Nov 2008 20:41:00 -0500, "Ed Huntress"
wrote:

The question is how you make capitalism work without growth. This is a
very
old question that's been bantered around for at least a century. There
are
current books on the subject if you're interested.

As with many other things I'm way behind in the thinking about this,
but
when I was a student, the answer to the question of how you have
capitalism
without growth was, you don't. The g/s/l crowd mostly promotes a form
of
socialist birthday cake with capitalist icing on top.
------------------
Continued growth is only a problem when the organizations
involved become fixated on it. There appears to be no intrinsic
reason that Capitalism and/or "the free market" [these are not
the same] can't exist in a mature or static economy.

Without capital growth there isn't enough reason to assume risk,
George. The thought on this is that the system runs down like an
unwound watch when the only return on capital is dividends.

Nobody has ever tried it -- successfully.

Ed, you are showing you age. You whipper snappers don't remember America
pre 1958.
It was at that time that equities and bond yields flipped more or less
permanently.

In the second quarter of 1958, the dividend yield on stocks was 3.9% and
the yield on 10-year Treasuries was 2.9%. Three months later, dividend
yields were down to 3.5% while Treasuries had climbed to match them at
3.5%. The next three months stock prices kept rising and pushed the
dividend yield down to 3.3% while bond prices fell, driving bond yields
to 3.8%. The two yields had come close in the past but had always
diverged. In 1958, they reversed their historical positions more or less
permanently.

The period between 1958 and 2008 might only have been an anomaly that is
now correcting as dividend yields revert to past tradition and rise
above bond yields.

I'm aware of that history, John. The "anomaly," though, is also a period
when growth in stock values, which rose from something like 1,000 to
12,000 on the index basis, became the point and dividends on equities
became almost insignificant.

With no growth, trading equities becomes a zero-sum game and everyone
wants bonds, because there's nothing to be gained by investing in
equities (except for gamblers who think they'll win the zero-sum game).
Like Japan in the '70s and '80s, corporations would wind up being
financed by debt and will be vulnerable to bankrupcy with the slightest
economic downturn (Japan avoided this because the big banks held the
bonds, and they kept bailing out troubled companies).

You are confusing growth and increases in share price Ed.
Had growth been financed with equity rather than debt, the dilution would
have kept share prices stable and driven companies towards dividends.

Before we get too far off the track here, remember that the subject is
whether you can have a capitalist system with no growth. My assertion is
that you can't. Share prices versus dividends still leaves open the question
of why someone would risk capital by buying equity in a company that isn't
going to grow. Even if one company grows in such a system, it requires that
another one decline. The stock market then becomes a gambling game -- or,
more likely, it dries up -- because it's a zero-sum game overall.

A lot of large, profitable, publicly traded companies specifically
abandoned dividends years ago.
They had to do this to pump up their share price. IOW they substituted one
metric, increasing share prices, for another - value.

JC