Take, for example, the massive amount of additional debt the federal government has imposed on future generations of Americans during the COVID-19 crisis. That which is seen is the money flowing from the federal government to the unemployed, to those taking leave due to rescue money given to businesses during the pandemic. While we might be aware in the abstract that there is an accompanying rise in U.S. government indebtedness, that which is not seen is the increase in taxes that must be paid by future generations. Nor do we see the slower economic growth that will be caused by the need to pay off this debt.
The data are clear that private equity has created enormous social value. While returns net of fees have modestly exceeded the return of the market over the past decade, gross returns have averaged more than 5% a year better than the market over this time. This means that the roughly $300 billion invested in private equity deals in 2018 will generate an excess social return of more than $100 billion over the average seven-year life of these investments.
Private-equity firms create this value by improving a company’s performance in finance, governance and operations. When a private-equity fund buys a company, it can put in place better incentives and a more sustainable capital structure, install more competent management, and improve operations with a focus on long-term value creation. Managers of companies owned by private equity have more skin in the game—the CEO typically gets about 5% of the equity and the management team about 15%, compared with less than a few percent in publicly traded companies. Boards are smaller and tend to monitor executive performance more closely.
Arnold Kling laments the ambiguity of data on covid and its consequences.
Richard Epstein argues that American workers do not need labor unions. A slice:
A pro-union strategy is still more disastrous when its so-called “incidental effects” are taken into account. It is well-established in economic theory that the benefits to any monopolist do not come from increased productivity, but from its ability to raise price above marginal cost, such that some beneficial transactions that would have taken place in competitive markets are eliminated to preserve monopoly power. That simple insight means the gains to the labor union and its members come both at the expense of excluded workers, and from the squeeze put on shareholders, suppliers, and customers. Even if these were just dollar-for-dollar trade-offs, it is questionable as a social matter whether we should favor policies that redistribute wealth towards union members and away from lower-income workers. But there is no reason to dwell on these niceties, because the legislative scheme here is not zero-sum; it is negative sum. The union members gain less than other members of society lose, as in all cases of monopoly.
Here are David Henderson’s Happy-90th-Birthday wishes to Thomas Sowell.
Back to Bastiat: here’s Art Carden.
