Americans are out of work. Factory orders are sluggish. The economic news is grim yet the U.S. stock market keeps going up. Can this be consistent? Sure! It is possible to believe simultaneously that the American people are getting poorer and that the largest American corporations are going to get ever richer. How could this happen? Group A and Group B can get richer if they work together to grow the pie. Alternatively, Group B can get richer by transferring wealth from Group A.
We’ve discussed this already in this blog in the context of airline CEOs who managed to take $billions in taxpayer money and transfer quite a bit of it into their personal checking accounts as salaries, bonuses, guaranteed pensions, etc. But there are more subtle ways in which corporations can acquire property formerly held by the public.
For example, movie studios (notably Disney) and other corporate copyright holders recently purchased a federal law that extended copyright out to 100 years (the Founders had it at 14; it was 75 years until recently). There was no way for them to argue that this law would provide an incentive to authors because it applied to works that were created in the 1920s, i.e., whose authors had been dead for half a century or more. The effect of this law was to transfer public average-Joe property (public-domain works) into the hands of large corporations, i.e., the companies whose shares are going up.
Disney figures in another corporate property transfer. Ever since the dawn of aviation it has been held that airspace belongs to the public and is to be regulated for the benefit of all by the FAA. This is what, for example, prevents the owner of a farm in Missouri from demanding that Delta Airlines pay him a tax every time they fly over his farm. In May of this year that changed for the first time. Disney essentially now owns the airspace over Disneyworld and Disneyland and they can exclude anyone from overflying. They’d been trying for years to exclude planes towing advertising banners but Sept. 11th gave them a security rationale (though neither the TSA or the FAA felt there was a security risk or wanted to transfer the airspace into private hands). Background story: http://www.aero-news.net/news/sport.cfm?ContentBlockID=9601
Let’s hope the comments section will fill up with other examples of this trend. But the bottom line is that the time seems ripe to invest in the S&P 500. Look around you at stuff that you believe to be public property. Very likely it will soon be given away to America’s largest corporations and consequently their stock will go up even if they don’t innovate.