Re: HOMESTEAD: Ray Carey's Democratic Capitalism

["David Spitzley" <dspitzle@wash.k12.mi.us>]

>>> john@medaille.com 07/27/05 10:29 AM >>>
>  Nevertheless, alternate formulations of ESOPs could eliminate the 
> necessity of sub-market asset pricing, so it is important to distinguish 
> between weaknesses in the actual implementation and inherent flaws in the 
> original concept.

Someone will have to show me these "re-formulations," since the market only 
exchanges equal values. Without a sub-market purchase, either voluntary or 
compelled, nothing really changes.
---------------------------------------------

John, your basic complaint seems to be that there needs to be thumb on the 
scales somewhere in order to make significant social changes through ESOPs, and 
basically I think you're right.  I make no claims that this could be 
implemented in practice, but Kelso advocated using the Federal Reserve window 
to provide sub-market >financing<.  To that extent ESOPs would be in a position 
to acquire capital under terms more favorable than those available under "free 
market" conditions, which presumably could induce some significant shifts in 
the ownership landscape.  Since the ownership transitions would be triggered by 
changing the Fed's method of infusing new money into the economy, rather than 
by redistributive taxation or expropriation of existing owners, Kelso thought 
it would be a superior and less-disruptive mechanism for altering the ownership 
structure of the country.  It has always struck me as a relatively clever 
approach.

So, the reformulation would be that rather than providing tax incentives to 
sellers to essentially subsidize the ESOP, the ESOPs would get their oomph from 
sub-market interest rates which would enable them to repay loan principle from 
earnings on the purchased assets, which Kelso argued would not otherwise be 
feasible.


David

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