The Business Roundtable thinks we need to change our view of the purpose of the companies we own.

CEO group urges firms to remember obligation to society, employees, and customers

And

The Business Roundtable said Monday that it is changing its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.
“Each of our stakeholders is essential,” the new statement says. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

The Roundtable is virtue signaling.

The only stakeholders are a company’s owners. Full stop.

Of course, a company should listen to its employees; it can’t function without them. But stakeholders? We’re seeing the effects of the destructive self-absorption of employees given too much “stakeholder-ness” in Alphabet’s shameful behavior—on society writ large, yet.

Of course, a company should listen to its customers, and potential customers; that’s why a company exists at all: to provide a product or service that fills a gap in their lives.

Society at large? Society is best benefited by the company doing what it does best: satisfying its customers’ needs and wants, providing jobs along the way, innovating to better satisfy those needs and wants. Further, by being successful, a company can grow and foster new businesses, which increase jobs and innovation—and maximizes profit, which draws more investors and owners into the company and into the larger market, a positive feedback loop in its own right.

Profit max is the most efficient way to achieve any of that, and maximizing those returns to the owners within a free market economy maximizes that efficiency.  That, in turn, enhances the company owners’, and their employees’ and customers’, ability to work toward the good of society at large, with each acting according to his own view of what that good is, undiminished by being mixed into a mishmash of phantom “stakeholders.”

Mr [JPMorgan Chase CEO James] Dimon, for example, has challenged the shareholder-profit focus as too narrow and an impediment to executives’ ability to focus on long-term goals.

That misunderstands the problem. This is an investor education matter; business executives need to show the gains to be had from mixing a long-term view with a shorter-term view. Diluting the owners’ control over their company by passing too much power to pseudo-stakeholders only weakens any sort of view.

The Wall Street Journal, in a piece about the relationship between Federal Reserve President Jerome Powell and President Donald Trump, had a question:

Who should shoulder the blame for a slowing US economy: President Trump? Or Fed chief Jerome Powell?

The question presents a false choice. Neither is to blame because there is no “blame” to be had. Economic cycles (“cycle” is a loose term in economics; it implies a temporal regularity that doesn’t exist) come and go on market forces, especially in a reasonably free market economy.

The Fed, though, should stop chasing the market and simply set its rates at levels consistent with a 2% inflation rate, the Fed’s stated target rate; then it should sit quietly.

As to the Fed’s political independence, that depends on how timid its President and BoG are. Such interference is very difficult to achieve: firing can only be done for cause, which is a high bar. Impeachment and conviction take both houses of Congress and a supermajority in one.

Of course, Fed moves can be countered or potentiated through Congress’ or a President’s fiscal moves, but those don’t politically interfere within the meaning of this article.

The Nervous Nellies on The Wall Street Journal‘s editorial board think so.  After all, the stock market had its roughest down day in some years on Wednesday.

The horrors that surely would be associated with this recession:

A Chinese recession would mean a European recession, which would send US growth down too.

Some wars must be fought, though; one such is the economic war the PRC has been waging against us, and the West generally, for years. The current trade dispute is just one aspect of that.

And

…drive China, the world’s second largest economy, into its first recession since Deng Xiaoping began the era of pro-market economic reform.

Certainly unfortunate for the mainland Chinese people, and there’ll be pain for us—but what war is bloodless, other than those in the imaginations of pressmen? A likely outcome, though, would be the weaning of the US and Europe off of its dependence on the PRC for trade, a separation of us from the bandits.

And the indicators predicting this recession:

The market had a terrible day. Market volatility is a harbinger of recession.  Unfortunately for the narrative, the market is not the economy. The two are tied together as the one is driven by the other.  But the tie has a lot of slack in it, and what the economy does does not inherently impact the markets immediately.  The lag is months long, not hours or even days.  The markets do not at all drive the economy.  As well push a wet string across sandpaper.

Another indicator the WSJ has touted this week is the yield curve indicated by the 2- and 10-year Federal Treasury Notes. It inverted this week for a brief time.  However, the lag between such an inversion (if repeated in a short time one or more times) and an actual recession is in the region of 22 months.  If this indicator is followed by a recession in those 22 months the time frame would coincide with a record-long economic growth period, one whose age and hoariness already would seem to spring load us for recession.  If we measure economic growth from when it really got started instead of from the beginning of the historically slow and anemic Obama “recovery,” this growth period after these subsequent 22-ish months would only be middle-aged.

There’s a confounding factor with the yield curve, though.  For the last several years, the Federal Reserve Bank has been artificially manipulating interest rates.  The yield curve, more and more over these years, reflects market forces/economic imperatives less and Fed moves more.  Its value as an economic predictor is commensurately reduced.

Chicken Little lives.