Wednesday, April 8, 2015

McKinsey: "Our gambling culture--The craving for immediate gratification has spread well beyond Wall Street."

We have been keeping tabs on the phenomena for a while now, some links below.
From McKinsey & Co.:
We tend to speak of short-termism as though it’s a problem that only afflicts investors or corporate leaders, but that’s not the case. Short-term thinking pervades our most important institutions, from government to households. We’ve created a gambling culture in which we tune out everything except the most immediate outcomes. If we’re going to meet our commitments to our children and grandchildren, and to society as a whole, we need to open up the lens and start taking a more responsible, longer-term view of the challenges we face.

There’s a host of reasons short-termism has taken hold in our culture, both in the United States and more broadly. Greed and the media’s reliance on daily bombardments of bad news certainly play a part, but more important, we’ve lost sight of our actual goals. It’s in everyone’s interest to provide opportunities for education, a reasonable level of healthcare, and a secure retirement for the most people possible, just as we should all be working to conserve our natural resources to assure that clean air, clean water, and renewable fuel sources are available to our children.

Instead, we’ve become mesmerized by the possibility of short-term, one-off gains. There’s a chicken-and-egg problem at work. In many cases, there is a serious misalignment of incentives. Instead of encouraging our institutions and our leaders to grapple effectively with complex, long-term challenges, we’re rewarding them to do the opposite. Often, there seems to be a great deal more upside to placing a simple bet for a quick win than for staying the course through difficult times to create sustainable gains that are more widely shared. Whether the wrong goals led to the wrong incentives or the reverse is hard to say.
We see this myopia in Washington all the time. Congress has shown an astounding willingness over the past few years to focus on political theater such as debt-ceiling brinksmanship instead of solving long-term problems, fiscal and otherwise.

Even our tax code seems designed to encourage short-term strategies. Paying significantly lower taxes for capital gains, a major component of tax policy, is predicated on one-year holding periods. Who really believes a one-year commitment is long term? We made things worse when we shifted a few years ago to treating dividends as capital gains instead of ordinary income. That accelerated the tendency for companies to opt to return cash to shareholders in the form of dividend payouts or share buybacks—rather than reinvesting those funds in the business by developing a new technology, say, or building a new factory. The latter are the big, long-term bets that create jobs and keep an economy on top of the innovation curve. By not making them now, we’re robbing the future.

This wholesale return of cash to shareholders helps explain why equity markets are outpacing the economy. In the short run, we are rewarding shareholders, which causes the stock to spike. But to the extent that those cash expenditures starve corporate investment, the economy suffers. In particular, people who are riding the current wave will pay for it later when the ability to generate revenue in the long term dries up because of the lack of investment in the future....MORE
HT: Ritholtz@Bloomberg

Before we get to the immediate gratification links may I direct Monsieur et Madame's attention to "Harvard Business Review Announces 'The Best Management Article Of 2014"'.

"The Rise of the On-Demand Economy"
The Business Of Instant Gratification Appears to Have Promise
As the Economy Gets Ever Better at Satisfying our Immediate, Self-serving Needs, Who is Minding the Future?

See also yesterday's "Smartphone-Enabled 3D Replicators Are Still 3-5 Years Away, Caltech Professor Says":
I want my iPhone 3D replicator NOW!
But no, it's always nanophotonic coherent imager tomorrow, never nanophotonic coherent imager today.*...