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FREE CASH, MERGERS, AND CAPITAL SPILLAGE  
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Craig Medlen
January 1, 2025
Monthly Review
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*
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_ It is the purpose of this article to relate how this creeping
stagnation has added its own force in contributing to the monopoly
power associated with consolidation and to current wealth disparities.
_

, Monthly Review

 

The long stagnation that began in the mid- to late 1970s and continues
to the present day is evidenced by a long-term secular decline in the
growth rate of output, the growth rate of new investment, and capacity
utilization. This stagnation has been one with a half-century of real
wage flattening for nonsupervisory workers and a dramatic increase in
the wealth holdings of the upper classes and managerial elites.1
[[link removed]]

Associated with this stagnation has been an increasing concentration
of firms across a whole panoply of industrial and financial settings.
In addition to numerous manufacturing industries, we might list: oil,
banking, food production, distribution and retailing, legacy airlines,
credit cards, high-tech services (inclusive of search engines and
computer facilities), music delivery, phone services, and internet
retailing.2
[[link removed]] This
increasing concentration has solidified monopoly power across the
economy and, in accordance with the tendency of monopoly power to slow
down investment growth, helps explain the general slowdown of growth
over the last fifty years.3
[[link removed]]

It is the purpose of this article to relate how this creeping
stagnation has added its own force in contributing to the monopoly
power associated with consolidation and to current wealth disparities.
The argument runs along two lines. The first concerns how the
imperative for corporate growth channels monies into mergers when the
prospects for new investment slow up. The second (and related aspect)
concerns the generation of corporate monies in excess of new
investment (termed _free cash_) that, together with debt, funds
mergers. Free cash results from federal deficits derivable in large
part from: (1) tax rate reductions on the rich and (2) efforts to
counter stagnation and episodes of financial unraveling. Free cash
funds mergers and acquisitions, but has not been limited to such.4
[[link removed]] Free
cash has acted as flow collateral for the expansion of corporate debt
to provide mega-funds for spillage into equity markets. In addition to
mergers, this spillage consists of expanded dividends and stock
buybacks. Amounting to trillions of dollars, this disgorging of cash
has been a major force for expanding the wealth positions of the rich.

The Growth Imperative

Capitalism is a growth system. The imperative for growth is part of
the cellular makeup of corporate life. Remuneration for corporate
executives is tied to success, which is measured through profits and
growth. Higher profits generate higher stock values and foster a
tighter bond between investors and management. When internal prospects
for new investment are apparent, corporate managers pursue expansion
through new investment, ecologically mislabeled “green”
investment. When such prospects start to diminish, or when surplus
funds are available, managers look horizontally toward acquiring other
firms through merger.

Historically, merger waves have been tied to booms as booms generated
sufficient profits for outward expansion.5
[[link removed]] In
contrast to earlier merger activity, however, the ongoing merger
consolidations of late have had as their backdrop a long period of
creeping stagnation. Chart 1 shows the secularly falling rates of
corporate output and new investment since the mid- to late 1970s. As
the data show, in any three- to seven-year period, there might well be
a significant increase in the rates of growth relative to what was
immediately apparent before. In consequence, long-term secular
stagnation is hard to detect for people living under its mantle,
particularly for those in the upper classes, as the ongoing stagnation
has not been marked by any diminution of profits—quite the contrary.
The rise of globalized production with supply chains tied to low-wage
labor depots, the virtual disappearance of significant union power,
the rise of the gig worker and layering of seniority, and the
productivity advances associated with the displacement of labor by
computerized machinery all made for a rise in gross corporate profits
relative to labor compensation and output. In addition, the continual
decline in corporate taxes and the “free cash” generated through
government and private deficits (more on this later) generated large
amounts of funds for merger activity.

Mergers and Relative Valuation

In the pursuit of corporate growth, there are but two options: new
investments or mergers. In terms of the corporate growth imperative,
the value of what John Maynard Keynes called “old investments”
(existing firms that could be purchased on equity markets) expands
in _relative_ valuation when the prospects of new investment peter
out.6
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A simple numerical example illustrates the point: A firm ascertains
that its best investment prospect over a given time horizon is to
install new investment of $100 million, which prospectively would
generate $10 million dollars in additional profit. As a result, the
new investment’s rate of return would be 10 percent over the time
period considered. Let us assume that in addition to this new
investment, the firm considers the acquisition of a “target” firm,
which would prospectively add an additional $20 million dollars in
profit over the same time horizon. Gauged by its own internal rate of
return on new investment, the target firm would,
in _relative_ valuation, be worth $200 million. If the prospective
internal rate of return shrunk to 5 percent on the $100 million
dollars of new investment so as to garner only $5 million in profit,
the target firm’s relative valuation would double to $400 million.
Different firms, of course, will have different profit prospects for
new investment, so the relative valuation of any particular target
will vary across firms. But if the profit prospects on new investment
shrink across the economy, aggregate merger activity will tend to rise
relative to new investment.

Unlike profit rates on total capital, the trend in prospective profit
rates on new investment and the extent of investment opportunities can
only be inferred. The decline in the rate of corporate investment is
evidence of a long-term decline in these opportunities. Under such
conditions, we should expect a rise in merger activity _relative_ to
new investment.

Relative valuation is also tied to the distribution of income between
capital and labor. New investment is undertaken for essentially two
reasons: (1) to increase revenues through the expansion of facilities
for the production of new and existing products and services, and/or
(2) to increase efficiencies through the reduction of input costs
through labor or material savings. If we make the provisional
assumption that the additional profits attributable to new investments
are proportional to output, or to a proportional expansion of output
over a given time period, then it follows that when the distribution
of income favors capital, the _relative_ valuation of existing
capital expands.7
[[link removed]] This
is because less of the total profits, expressed as a fraction of the
total profits, is attributable to the new investment. Or, expressed
somewhat differently, more of the total profits, expressed as a
fraction of the total profits, is attributable to existing vintages of
capital. As mergers represent the purchase of existing capital, merger
activity will expand along with capital’s share.8
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Of course, such simplifications omit as much as they include. Time
horizons for various vintages of capital differ enormously, as do the
time horizons for various firms’ growth and decay. Profit gains
attributable to new investment are not always proportionate to output
or expansion. But the essential point is that, in general, stagnant
growth and a rise in capital’s share will _tend_ to expand the
relative valuation of existing capital installations and enhance the
forces for consolidation.

We see evidence for this in Chart 2, where the merger/new investment
ratio rises along with capital’s after-tax gross share of corporate
output. The graph portrays the two merger series that are readily
available to the public: the Federal Trade Commission’s “Large
Merger Series,” which is confined to manufacturing from 1948 to
1979, and the _Mergerstat Review_ series, which compiles publicly
announced merger offers and divestitures.9
[[link removed]] The
latter represents all dollar expenditures on mergers and acquisitions
on announced transactions reporting a purchase price. Though numerous
mergers do not report a purchase price, the bigger ones typically do.
Accordingly, the series should be understood as an underreported proxy
variable.

Although the upward trend of the merger/new investment ratio is quite
distinct, the year-to-year variations are highly volatile. The average
merger/new investment ratios of late, however, have been quite high.
From 1995 to 2023, the dollars devoted to merger activity were 75
percent of new investment. Absent divestitures, merger dollars
comprised 56 percent of new investment.

Free Cash, Government Deficits, and the Decline of Tax Rates on the
Rich

The rise of capital’s share of corporate output and the
corresponding rise of the merger/new investment ratio (shown in Chart
2) has occurred with a rise in the ratio of corporate gross profit
after tax to new investment. This rise reflects the generation of
increasing amounts of “free cash,” which has financed some part of
merger activity. Free cash derives from the additional purchasing
power added by government and noncorporate deficits (noncorporate
investment in excess of noncorporate savings), with the former being
the primary factor in the generation of this additional purchasing
power.10
[[link removed]] Since
the 1980s, federal deficits have become quasi-permanent. As government
deficits are the alternative to taxes, such deficits have as their
mirror image a decline in the relative use of taxes to fund government
expenditures, and a rise in free cash.

The decline in the relative use of taxes is dependent on two factors:
the amount of income being taxed and the applicable tax rates. In
recent years, the magnitude of _personal_ federal taxes on
high-income earners has expanded both absolutely and relative to the
underlying population.11
[[link removed]] This
expansion seems quite anomalous given the notorious decline in tax
rates levied on high incomes. Nominal marginal tax rates for
high-income households hovering around 90 percent were left over from
the Second World War. These high rates continued into the 1960s but in
time fell into the 70 percent range. During the so-called Reagan
revolution, marginal tax rates fell dramatically—first to 50 percent
and then again to 28 percent. They eventually rose into the high 30
percent range. Given a variety of loopholes, “effective” tax rates
were considerably lower. Nevertheless, they too fell in line with
nominal rates.12
[[link removed]] Given
these tax rate declines, the expansion of taxes taken from the rich
gives us a sense of the decided split in the income distribution
favoring the wealthy and high-income receivers.

The main decrease on taxes affecting high-income earners took the
indirect route of a massive decline in corporate taxes, both in
corporate tax rates and in the percentage of total federal receipts.
The high corporate tax rates of the Second World War were apportioned
in accordance with the “excess profits” accruing to corporations
as a result of the war. The “excess profits” tax went into
abeyance at the end of the Second World War but was refurbished when
the Korean War commenced. When the excess profits tax expired at the
end of 1953, the highest marginal corporate tax rate came in at a bit
above 50 percent and corporate taxes furnished 29 percent of federal
receipts. In a series of steps, corporate rates declined to 35 percent
by 1993 and held steady until 2018, when a 21 percent tax went into
effect. In addition, various government subventions, such as
investment tax credits and liberalized depreciation allowances,
significantly reduced actual taxes beneath the lowered nominal
rates.13
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total contribution of corporate taxes to federal expenditures is now
less than 10 percent.14
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Although payroll taxes on workers have increased dramatically over
time, it has been increasingly difficult to raise income taxes on
workers —particularly on nonsupervisory workers—for, as noted, the
real wages of this group of workers have been close to flat for half a
century. Unwilling to raise tax rates on the rich and unable to raise
sufficient taxes on workers, Congress has allowed government deficits
to become the quasi-permanent default option. Corresponding, free cash
has become quasi-permanent as well. As free cash is the leftover cash
after funding new investment, it is hard to avoid the conclusion that
the largest part of funding for corporate mergers and acquisitions is
an outcome of federal deficits, with noncorporate deficits adding a
supporting role.

Chart 3 displays the expanded purchasing power of government and
non-corporate deficits in relation to the free cash generated. All
series are expressed as ratios of new corporate investment. The
difference between the two series is reflected in the negative current
account—the difference between exports and imports together with net
remittances of capital between U.S. firms and residents and their
foreign counterparts.15
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Free Cash and Capital Spillage

Given the large amounts of free cash, one might surmise that the
corporate world would be debt-free, or at least debt-light. This is
not the case. Corporate debt has been growing along with free cash.16
[[link removed]] Free
cash provides flow collateral and reassures bond buyers that new debt
can be serviced and paid back. These additional debt funds permit
corporate managers to utilize cash over and above the free cash
generated. Apart from the possibility of being parked in cash
holdings, free cash and the additional funds derived from debts are
spilled into the capital markets through three main channels:
dividends, mergers, and stock buybacks. All three of these options
prop up the stock market and, as a side benefit, the compensation
packages of top managers where stock options and grants provide a
large part of their remuneration. Dividends provide additional funds
to institutions and households that invest in stock. One suspects that
a large portion of these dividends are plowed back. In acquiring
target firms through mergers, acquirers jack up the stock price of
targets through acquisition premiums (the rise in the stock prices of
acquired firms), which in the last few decades have approximated 40
percent.17
[[link removed]] Stock
buybacks buy out stockholders who feel that the offered price is what
the stock is worth. Those who abstain will only part with the stock at
a higher price. Accordingly, and within limits, the stock price will
rise.18
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In providing flow collateral, free cash is the intermediate term
between the safest debt available—the treasury bonds making up the
deficits that generate the free cash—and the far riskier layers of
corporate debt supported by the free cash. The irony of this debt
layering is that the larger the federal deficits, the greater the
amount of free cash generated, and the higher the level of corporate
debt and risk. In that the mega-piles of free cash and debt-generated
funds find their way into the stock market, the wealthy benefit
directly by federal deficits. In that the federal deficits have arisen
largely as a result of tax rate declines on the rich, these equity
gains through capital spillage can be considered derivative gains from
tax rate reductions.

Chart 4 displays the result of including all three channels of cash
spillage into the stock market (dividends, mergers, and stock
buybacks), each expressed as a fraction of corporate investment. From
the late 1990s, this spillage averaged over 80 percent and often
exceeded the monies poured into new investment. This aggregate
spillage reflects the movement away from an economy based on
production to an economy based on finance and the enhancement of
financial wealth. It should be noted that this estimate of spillage is
a conservative estimate in reference to both mergers and stock
buybacks. As mentioned above, the _Mergerstat Review_ does not
record the numerous mergers whose prices are not announced. The stock
buyback series is the Standard & Poor’s tabulation (to my knowledge
the only one available) and is confined to firms on the S&P 500 list.

The expanded role of corporate debt in the spillage can be captured by
comparing free cash aggregates to the spillage displayed in Chart 4.
Chart 5 shows this comparison. Notice the large discrepancy between
total free cash and the spillage of dividends, mergers, and stock
buybacks per year. This discrepancy—now over one and one-half
trillion dollars—is covered by corporate debt. As mergers and stock
buybacks represent stock taken off of stock exchanges, Chart 5
partially captures the net trading of debt for equity—a risky
proposition at best, but one that finance scholars have often
championed in reference to financial efficiency. Interest on debt can
be subtracted from gross returns to lower taxes, whereas dividends
cannot. Moreover, mergers allow acquirers—at least those with large
amounts of free cash and the ability to borrow more—to finance
startups and firms with prospective new investment projects.19
[[link removed]] This
so-called efficiency of debt finance, of course, comes at the expense
of an increasing risk of financial fallout.

A Brief Note on Governmental Responses to Stagnation and Recent
Financial Unraveling

According to a standard textbook, federal deficits are necessarily
incurred during economic downturns when tax proceeds fall along with
economic output. To balance the budget during downturns would require
that government spending fall along with private economic activity.
Such “sound finance” would assuredly make the downturns worse. As
a historical example, we can look at the lead-up to the downturn of
1937–1938. In the attempt to balance the budget by cutting back on
deficit spending, the Roosevelt administration interrupted the
recovery from the depths of the Great Depression. With an about-face
on deficit concerns, recovery was resumed. Then the Second World War
came. Along with a massive expansion of government spending, with
corresponding tax hikes on all levels of the population, massive
deficits were incurred to further the war effort. The instantaneous
recovery from the Depression made for an associative connection of
prosperity, high government spending, and deficits.

In light of recent decades of long-term stagnation, the ongoing
deficits of late might be understood as the required remedy. Combined
with a lowering of interest rates by the Federal Reserve to counter
falling rates of investment, the combined remedial actions appear in
line with standard prescriptions. In accordance with the views of high
policy officials, the fallout of repeated financial debacles in 1987,
1991, 2001, and the mega-debacle of 2008–2010 solidified the case
for definitive action along orthodox lines.20
[[link removed]] The
fallout surrounding the pandemic only reinforced previous policy
choices. Recent deficits attained historic highs and interest rates
historic lows.

However orthodox, these fiscal and monetary actions were carried out
against a backdrop of increasing monopoly power. Evidence for this
expansion of monopoly power derives not just from concentration ratios
within industries but by increasing margins of price over marginal
cost. In one study, Jan De Loecker and Jan Eeckhout found that markups
were relatively steady from 1950 to 1980, with prices averaging
approximately 18 percent above marginal cost, but then rose to 67
percent by 2014.21
[[link removed]] Against
such an industrial and financial setting, the expanded stimulus
offered up by federal deficits and cheap money bumped up against
increasingly powerful restrictionist tendencies. Instead of a rapid
expansion of real investment, deficits and cheap money generated large
amounts of free cash and increased debt loads. Near-free money
encouraged more plowback into new high-risk ventures and more margin
buying of stocks. These outcomes were, at least in part, consciously
pursued. Through quantitative easing the Fed purchased trillions of
dollars of long-term treasury bonds and mortgage-backed securities so
as to lower long-term interest rates. Absent any significant jump in
new investment, the business press and others found solace in the
expansion of stock values. Such expansion was understood as providing
a “wealth” effect that would stimulate consumer confidence and
spending.

This too was in accordance with received theory. The ruling theory of
asset prices is that prospective future returns underpinning the
assets are discounted back to the present to arrive at their current
value. Accordingly, a lower interest rate (discount rate) will drive
up present values. Of course, this theory presupposes some type of
clairvoyance as to future returns. As to the “wealth” effect of
stocks having any substantial effect on the economy, one cannot
understate the case. The wealthy own an inordinate percentage of
existing financial assets, and we can—exceptions apart—confidently
assume that their level of consumption would simply remain at the high
level of their station.22
[[link removed]]

Increased deficits and low interest rates were put in place in the
service of stabilizing the economy. No doubt these deficits and lower
interest rates saved the system from some of the worst possible
economic scenarios, particularly those that surrounded the Great
Recession of 2008–2010 and the pandemic. But ever-expanding deficits
and cheap money were forty years in the making. The continued
long-term trend of creeping stagnation suggests that their efficacy in
countering slow growth was (and is now) quite limited. Yet, deficits
and cheap money did (and will) expand the forces for free cash
generation, the centralization of capital through mergers, and funds
for cash spillage, making the rich still richer.

Notes

* ↩
[[link removed]] For
real wages of nonsupervisory workers, see White House, 2024 Economic
Report of the President, March 2024, 448, Table B-30; White
House, 2021 Economic Report of the President, January 2021, 494,
Table B-30.
* ↩
[[link removed]] John
Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna compiled
manufacturing data from 1947 through 2007 on a host of industries in
which the top four firms in the industry accounted for at least 50
percent of shipment value. Partly for reclassification reasons, the
number of industries characterized by such concentration multiplied
around four times. See John Bellamy Foster, Robert W. McChesney, and
R. Jamil Jonna, “Monopoly and Competition in Twenty-First Century
Capitalism [[link removed]],” Monthly
Review 62, no. 11 (April 2011): 1–39.
* ↩
[[link removed]] The
association of monopoly power and investment slowdown has had a long
history dating back to the early twentieth-century in the writings of
J. A. Hobson and Thorstein Veblen. In the post-Second World War
period, Joseph Steindl, Paul A. Baran, and Paul M. Sweezy refurbished
the thesis in the face of a prosperous period. In the view of the
authors, the question of “Why depression?” was answered in large
part by the monopolistic character of a modern economy. Baran and
Sweezy’s answer to “Why growth?” was answered by epoch-making
inventions, wars, and their aftermath: a synthetic culture of
consumerism and the expansion of finance. Elaborations on the
oligopoly stagnation theme have been carried out by other authors over
decades in Monthly Review.
* ↩
[[link removed]] Free
cash monies are the difference between corporate gross profits
(profits after tax plus depreciation) and new investment. Depreciation
is a real thing. But for a business contemplating expansion,
depreciation is a “bookkeeping” cost—that is, money that does
not leave the firm. Accordingly, a dollar charged to depreciation
cannot be distinguished from a dollar of after-tax profits.
* ↩
[[link removed]] Up
until the recent expansion of mergers dating from the 1980s, there
were three major waves. The first dates from around 1895 to 1904. Now
termed the “Giant Merger Wave,” it witnessed the fact that “more
than half of the consolidations absorbed over 40 percent of their
industries and nearly a third absorbed in excess of 70 percent”
(Naomi R. Lamoreaux, The Great Merger Movement in American Business,
1895–1904 , 2). Paradoxically, the wave was at least partly caused
by the Sherman Anti-Trust Act of 1890. The U.S. court system largely
followed British case law, whereby “monopoly” had a specific
meaning that referred to separate firms conspiring against the public
in support of price maintenance. Mergers were sufficiently infrequent
so as to escape the case law. As a consequence, investment bankers,
like J. P. Morgan, saw mergers as a loophole bypassing case law as it
pertained to monopoly. The second wave in the 1920s was also
superimposed on a decade-long boom. It saw second-tier firms
consolidate into bigger firms, challenging the dominant firms left
over from the Giant Merger Wave. The U.S. Justice Department and the
Federal Trade Commission allowed these (mainly) horizontal mergers to
proceed on the dubious contention that these new consolidations would
bring more competition to earlier monopolistic formations. Oligopolies
were the result, with monopoly pricing now being enhanced by an
enlarged sales effort characterized by product differentiation,
advertisements, and service arrangements. In the 1960s boom, mergers
largely took a conglomerate form, whereby large firms jumped from
their primary industry to enter into other industries. Government
authorities again stood on the sidelines as these corporate outreaches
“deconcentrated” individual industries even as overall
concentration expanded.
* ↩
[[link removed]] John
Maynard Keynes, The General Theory of Employment, Interest and
Money (London, New York: Harcourt Brace Jovanovich, 1953 [originally
published 1936]), 151.
* ↩
[[link removed]] For
the proportionality assumption of investment in reference to output, I
follow Evsey Domar, Essays in the Theory of Economic Growth (Oxford:
Oxford University Press, 1957), chapters 4 and 5. For the
proportionality assumption in reference to efficiencies, I follow Joan
Robinson, “The Production Function and the Theory of
Capital,” Review of Economic Studies 21, no. 2 (1953–1954):
81–106.
* ↩
[[link removed]] For
an extended mathematical treatment, see Craig Medlen, Free Cash,
Capital Accumulation and Inequality (London: Routledge, 2018),
60–63. The following is a simplified version. Let C be the
prospective gross profits that the firm will garner with new
investment added over a given time horizon and Z the projected profits
without the new investment. So, C – Z is the projected additional
profits due to the new investment. If these gains are proportional to
output (Y) or to a proportional expansion thereof, we can write C –
Z = hY. As C will be the gross profit attributable to the existing
capital stock (K) plus the new investment (I), the relative valuation
of the total capital stock (K + I) to the new investment (I) will
therefore be C / (C – Z) or (K + I) / I = C / hY. Simplifying, we
obtain K / I = 1 / h * (C / Y) – 1. So, when capital’s share of
output expands, the value of the older capital expands relative to new
investment.
* ↩
[[link removed]] The
Federal Trade Commission series is contained in Statistical Report on
Mergers and Acquisitions (Washington, DC: Bureau of Economics,
November 1977). Since its inception, the Mergerstat Review has been
produced by a number of companies. It is now entitled the Factset
Review and is published by Business Valuation Resources, Portland,
Oregon.
* ↩
[[link removed]] In
recent years, noncorporate investment has generally been in excess of
noncorporate savings, particularly in the period leading up to the
housing blowup of the 2008–2010 debacle, when housing investment
greatly exceeded personal savings. For a variety of years, however,
the balance has registered relatively small surpluses. See John
Bellamy Foster, R. Jamil Jonna, and Brett Clark, “The Contagion of
Capital [[link removed]],” Monthly
Review 72, no. 8 (January 2021): 1–19. For a detailed mathematical
treatment in constructing free cash estimates, see Medlen, Free Cash,
Capital Accumulation and Inequality, chapter 2, chapter 6, 87–90.
* ↩
[[link removed]] The
share of federal tax liabilities for the top quintile of income
receivers rose from 55 percent in 1979 to over 80 percent in 2020; the
share of the top 1 percent more than doubled, from 14 percent to 31
percent (Tax Policy Center, Historical Shares of Federal Tax
Liabilities for All Households, 1979–2020
[[link removed]] [Washington,
DC: Brookings Institution, 2024]).
* ↩
[[link removed]] Various
loopholes, such as the exemption of interest on state and local bonds
and a lower capital gains tax, have significantly reduced taxes from
the high nominal rates sketched out here. (For “effective tax
rates” on high-income earners, see White House, 2017 Economic
Report of the President, January 2017, 176, Figure 3-9.)
* ↩
[[link removed]] Allowing
firms to write off more capital expenditures faster (that is, allowing
firms to expand depreciation) transfers more of what used to be called
profit into the “cost” category.
* ↩
[[link removed]] S.
Bureau of Economic Analysis, “National Data: National Income and
Product Accounts,” Table 3.2: Federal Government Current Receipts
and Expenditures.
* ↩
[[link removed]] Imports
in excess of exports suck money (and purchasing power) out of the
country. Negative net flows through net remittances do the same thing,
while positive remittances bring additional purchasing power to the
United States. In recent years, these remittance payments and receipts
have favored the United States (U.S. Bureau of Economic Analysis,
“National Data,” Table 4.1: Foreign Transactions in the National
Income and Product Accounts, lines 9 and 24).
* ↩
[[link removed]] See
Foster, Jonna, and Clark, “The Contagion of Capital,” 12, Chart 4.
* ↩
[[link removed]] Mergerstat
Review 1999: Premiums Offered, 1974–1998 (Los Angeles: Houlihan,
Lokey, Howard, and Zukin, 1999), 208–9; Mergerstat Review 2009:
Premiums Offered, 1984–2008 (Santa Monica, California: Factset
Mergerstat, 2009); Factset Review: Premiums Offered,
2014–2023 (Portland, Oregon: Business Valuation Resources, 2023),
44.
* ↩
[[link removed]] By
disgorging cash to buy back stock, the firm is worth less in terms of
real assets.
* ↩
[[link removed]] For
an introduction to these alleged benefits of leveraged mergers, see
Michael C. Jensen, “Takeovers: Their Causes and
Consequences,” Journal of Economic Perspectives 2, no. 1 (Winter
1988): 21–48.
* ↩
[[link removed]] Among
other accounts prior to the pandemic fallout, see Ben S.
Bernanke, The Courage to Act: A Memoir of a Crisis and Its
Aftermath (London: W. W. Norton and Co., 2015); Henry M Paulson
Jr., On the Brink (New York: Business Plus Publishers, 2013); Alan
Greenspan, The Map and the Territory: Risk, Human Nature and the
Future of Forecasting (New York: Penguin, 2013).
* ↩
[[link removed]] Jan
De Loecker and Jan Eeckhout, “The Rise of Market Power and the
Macroeconomic Implications,” NBER Working Paper No. 23687, National
Bureau of Economic Research, Cambridge, Massachusetts, August 2017.
* ↩
[[link removed]] Not
so for the underlying population. The “wealth” effect associated
with housing in the late 1990s through 2007 ended in disaster.

_CRAIG ALLAN MEDLEN is Professor Emeritus of Economics at Menlo
College, in California. He graduated with a B.A. in Economics from
University of California Berkeley in 1966 and received his Ph.D from
U.C. Santa Barbara in 1973. His most recent book is The Failure of
Markets: Energy, Housing and Health (2022)._

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