Interesting breakdown. What if the stronger driver isn’t the concentration or the growth rate of wealth, but the mechanics of how asset markets price in future rents? That angle might complicate the picture. I'll leave that hanging for now
That could be a very interesting drill-down. But very tricky in practice. As soon as we start bruiting theories about markets’ theoretical responses to imagined/expected *future* rents (an amorphous concept itself), we’re just into very deep multiply-speculative waters, compared to the past observed numbers employed here.
Thanks Steve, I agree. Once we talk about future rents, we're layering speculation on top of expectation, which gets tough to pin down empirically.Do you think markets apply any consistent heuristics when pricing in future rents?
I can’t think of any blanket claims right off that I’d be comfortable making, but here’s one specific claim about recent years /decades I will make.
The S&P 500 outperformance of world indexes over recent decades derives from S&P multinationals’ ability to capture and extract wealth from ROW and from lower-income/wealth Americans. The continued playtex-bra levitation of that index (“no visible means of support”) is a result of markets’ continued confidence in the multinationals’ continuing future ability to do so.
Steve, that was a very clear explanation. The “no visible means of support” image really landed for me.I’ve been noticing something similar in the news. Some large firms keep pulling in profits and holding up their stock prices even when the broader economy looks shaky.It makes me wonder if markets are really pricing in not future product demand, but the ongoing ability of certain firms to extract value regardless of conditions.So instead of rents themselves, maybe it's more about who controls the systems that make those rents possible. I’d be interested to hear how you see it
Getting into very deep (and broad) waters here. I'd start by going back to the technical definition of "economic rent": "paying more for a factor of production than is necessary to bring that factor into production." Which requires careful parsing of what one means by a "factor of production."
One thought on *that*: the hole-drilling "capital services" that a drill press delivers are def an input to production. But the money received by a company from investors to "fund" the purchase of that drill press, are not. They're just funding, adding assets to the firm's account/balance sheet, assets that *can* be spent.
I'll say: I just never use the term (economic) rent any more. Almost nobody understands it so it's kind of a guaranteed explanatory/rhetorical own-goal or just simple fail.
The idea that spending comes from assets is critical, but also one of the easiest things for people to confuse. I’ve been thinking: if we examine mainstream macroeconomic models from this angle, the ones that talk about things like money velocity and GDP, it becomes clear that they rarely incorporate balance sheet logic.
Do you think that’s part of why they so often misinterpret economic phenomena?
Interesting breakdown. What if the stronger driver isn’t the concentration or the growth rate of wealth, but the mechanics of how asset markets price in future rents? That angle might complicate the picture. I'll leave that hanging for now
That could be a very interesting drill-down. But very tricky in practice. As soon as we start bruiting theories about markets’ theoretical responses to imagined/expected *future* rents (an amorphous concept itself), we’re just into very deep multiply-speculative waters, compared to the past observed numbers employed here.
Thanks Steve, I agree. Once we talk about future rents, we're layering speculation on top of expectation, which gets tough to pin down empirically.Do you think markets apply any consistent heuristics when pricing in future rents?
I can’t think of any blanket claims right off that I’d be comfortable making, but here’s one specific claim about recent years /decades I will make.
The S&P 500 outperformance of world indexes over recent decades derives from S&P multinationals’ ability to capture and extract wealth from ROW and from lower-income/wealth Americans. The continued playtex-bra levitation of that index (“no visible means of support”) is a result of markets’ continued confidence in the multinationals’ continuing future ability to do so.
Steve, that was a very clear explanation. The “no visible means of support” image really landed for me.I’ve been noticing something similar in the news. Some large firms keep pulling in profits and holding up their stock prices even when the broader economy looks shaky.It makes me wonder if markets are really pricing in not future product demand, but the ongoing ability of certain firms to extract value regardless of conditions.So instead of rents themselves, maybe it's more about who controls the systems that make those rents possible. I’d be interested to hear how you see it
Getting into very deep (and broad) waters here. I'd start by going back to the technical definition of "economic rent": "paying more for a factor of production than is necessary to bring that factor into production." Which requires careful parsing of what one means by a "factor of production."
One thought on *that*: the hole-drilling "capital services" that a drill press delivers are def an input to production. But the money received by a company from investors to "fund" the purchase of that drill press, are not. They're just funding, adding assets to the firm's account/balance sheet, assets that *can* be spent.
I'll say: I just never use the term (economic) rent any more. Almost nobody understands it so it's kind of a guaranteed explanatory/rhetorical own-goal or just simple fail.
I have more thoughts (surprise!), but I think I'm not going to dive deeper into all those waters... Have you read this one?: https://bsky.app/profile/steveroth.bsky.social/post/3latwf46hzs2p
Cheers.
The idea that spending comes from assets is critical, but also one of the easiest things for people to confuse. I’ve been thinking: if we examine mainstream macroeconomic models from this angle, the ones that talk about things like money velocity and GDP, it becomes clear that they rarely incorporate balance sheet logic.
Do you think that’s part of why they so often misinterpret economic phenomena?