Growing the Pie
Comment of the Day

April 02 2019

Commentary by Eoin Treacy

Growing the Pie

Thanks to a subscriber for Howard Marks’ most recent memo. Here is a section:

About 50 years ago, an older friend described for me what he felt made America great.

​When the worker in Britain sees the boss drive out of the factory in his Rolls Royce, he says “I’d like to put a bomb under that car” But when the worker in the U.S. sees the boss drive out of the factory in his Cadillac, he says “Someday I’ll own a car like that “.

Today, too few Americans feel they might own that Cadillac. Taken to the logical extreme, that has the potential to bring the American miracle to an end. Thus, business should do all it can to arrest the trend toward stagnant and unequal incomes…not just to be fair or generous, but to assure perpetuation of the system that got us here.

Capitalism is the most dependable route to prosperity. And it has to be responsible capitalism. The solution can’t lie in turning away the Amazons of the world, imposing extra taxes on Cadillacs or otherwise shrinking the pie.

Eoin Treacy's view

Here is a link to the full note.

Here here!. However, it is highly unlikely companies are going to accept reduced profit growth and a shareholder backlash unless they have no other choice. That is just not how markets function.

The comparative disadvantage of being the first to do so is too much of a risk for any CEO. Moreover, the competitive forces unleashed by globalisation and ensuing mercantilism represent significant threats to the sharing hypothesis, however laudable it is. My fear is that it is going to take an electoral success by a set of progressive (tax and spend) candidates to shake investors out of their somnambulant state.

The UK and USA are the two countries most at risk from such an upset in my opinion.

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