More and more I feel like economics reporting is based on crude principles of adding up “good news” and “bad news.” Sometimes this makes sense: by almost any measure, an unemployment rate of 10% is bad news compared to an unemployment rate of 5%. Other times, though, the good/bad news framework seems so tangled.
For example: house prices up is considered good news but inflation is considered bad news. A strong dollar is considered good news but it’s also an unfavorable exchange rate, which is bad news. When facebook shares go down, that’s bad news, but if they automatically go up, that means they were underpriced which doesn’t seem so good either. Pundits are torn between rooting for the euro to fail (which means our team (the U.S.) is better than Europe (their team)) and rooting for it to survive (because a collapse in Europe is bad news for the U.S. economy). China’s economy doing well is bad news—but if their economy slips, that’s bad news too. I think you get the picture.
I was reminded of this when reading an article in the New Yorker by James Surowiecki about the ever-boring topic of facebook’s shares. Surowiecki writes:
Dual-class share structures used to be rare and confined largely to family-run enterprises or media companies, such as the New York Times, where they could be justified as protecting the company’s public mission. The received wisdom was that active investors are good for companies and for the market as a whole, and that companies need to put shareholders first. . . . Whereas the C.E.O.s of most public companies have to spend time kowtowing to investors, Zuckerberg and his peers are insisting on the right to say, “Thanks for your money. Now shut up.”
Huh? I’m no economist, but . . . if the damn stock is such a bad idea, nobody’s forcing you to buy it! Zuckerberg and his peers aren’t “insisting on the right” to do anything; they’re offering a financial product in the market.
There’s reason to be concerned at the spread of the dual-class structure. One study that examined a large sample of dual-class firms from 1994 to 2001 found that they notably underperformed the market.
Now I’m just confused here. Who’s supposed to be “concerned” here? As a New Yorker subscriber, am I supposed to be concerned that dual-class firms underperformed the market? I just don’t get it. Why should I care? If the shares underperform the market, people can buy a piece of Facebook for less. That’s fine too, no?