You are probably familiar with the old saw that under “capitalism” people focus exclusively on the short-run at the expense of the long-run. Never mind of course the absurdity of the political system which takes this idea to the extreme – we can’t possibly expect folks to apply their logic consistently across all human institutions. Let’s today instead examine the presumption head-on.
First of course, if you wish to take a literal definition of “capitalism” as simply extensive private ownership of the means of production, with the use of prices to allocate resources – then there really is not a short-term / long-term distinction to be made. Consider what happens to the price of your home when you make an investment in it that will make it last longer? Consider the value of property in a city that builds up enhanced storm resilience and protection?
Here are two recent papers that address the alleged problem of “short-termism” in financial markets.
- Long term investing, part 1. How much evidence is there linking short-term stock-market performance to silly firm decisions? Not much.
- “Short-term” institutions are better informed.
