Understanding Short-Termism: Questions and Consequences
November 6, 2015
By J. W. Mason
The goal of this paper is to address the most common objections to the idea that short-termism—the focus on short time horizons by both corporate managers and financial markets—is a serious problem for the U.S. economy. These objections fall into three broad categories: short-termism is not real (because of an apparent increase in business investment), short-termism is not harmful (because increased payouts allocate capital more efficiently), and short-termism is not our problem (because shareholders alone should determine what to do with a corporation’s surplus funds).
In this paper, Roosevelt Institute Fellow J.W. Mason provides answers to 12 common questions about short-termism and shareholder payouts. Questions 1 and 2 reflect the first objection, Questions 3 through 7 reflect the second objection, and questions 8 through 12 reflect the third objection. Drawing on the best available data, he concludes that none of these objections hold up under scrutiny.
This report is part of the Roosevelt Institute’s comprehensive Rewriting the Rules agenda, which aims to level the playing field and grow the economy. A companion report, Ending Short-Termism, develops a policy agenda to respond to this challenge.
Author
J.W. Mason
Senior FellowJ.W. Mason is a senior fellow at the Roosevelt Institute and economist with the macroeconomic analysis team. His focus is on public spending and government debt, finance and monetary policy, and the importance of strong demand and full employment. He also works on trade policy, corporate finance, and decarbonization.