Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
This article from The Atlantic goes a long way to helping understand how a seemingly innocuous rule change in 1982 has resulted in billions of dollars being diverted from the economy and from the pockets of the other 99%. Wealth concentration at the top is not good for the nation as a whole.
It's rife with political undertones and speculation of conspiracies regarding re-distribution of wealth.
I recently enjoyed a conversation with a former Boeing executive about their lack of cap-ex...of not spending their free cash flow on new projects and attendant detriment to surrounding communities.
I consider Boeing (commercial) one of the greatest business entities of all time.
John Newhouse's 1982 book "The Sporty Game" describes how companies like Boeing “bet the company” every time they develop a new commercial aircraft.
An amazing book!
CEOs have a responsibility to invest their cash in projects that will increase return on capital...and if they can't, to give it back to shareholders. That shows fiduciary responsibility, no?
How about this, if the free cash went to dividends instead of share buy-backs, would that be more egalitarian?
It's all very easy to dismiss an article such as that by suggesting that it is "rife with political undertones" and "considering the source". Such emotional responses do more to suggest that the article may be worth consideration than not.
If in fact there are "political overtones", does that then automatically negate each and every point made in the article? Since when do "political overtones" equate to an accusation of falsehood? That article seemed to me to have plenty of references which could be fairly easily checked for accuracy.
How about a proper rebuttal based on an examination of the premises of the article, or the introduction of contrary opinions based upon other references?
"the shift toward stock-based compensation helped drive the rise of the 1 percent by inflating the ratio of CEO-to-worker compensation from twenty-to-one in 1965 to about 300-to-one today"True or not?
"Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth."True or not?
"Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks." True or not?
"Federal spending on economically crucial research and development has plummeted 40 percent, from 1.25 percent of GDP in 1977 to only 0.75 percent today."True or not?
"Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt." True or not?
"Wealth concentration at the top is not good for the nation as a whole."True or not?
@MFO Members: In the Linkster's opinion stock buybacks are neither black or white, they are 50 shades of gray. In order to continue the conversation here is more on the subject. Regards, Ted Share Repurchase: http://en.wikipedia.org/wiki/Share_repurchase
I'll disagree. While I can question whether or not buybacks are always effective (some companies do them really badly), they fall under fiduciary duty (as Charles noted.)
What the issue is is the idea that the government has been entirely focused on raising asset prices, at the expense of just about everything else. It creates a period that looks good/very good on the surface, but has considerable problems underneath ("Castles built on sand", in other words.)
""Wealth concentration at the top is not good for the nation as a whole." True or not?"
That's kind of true (lot of layers), but I think the bigger issue is when the country's government decides to devote its resources heavily to catering to those who already own assets rather than trying to create opportunities and improve quality of life (I know that's broad, but it's early) for the whole. I'm not saying fairness, I'm not saying anything like that - things aren't fair, that's reality.
I'm simply saying, it's not good for the majority of wealth to be in the 1%, but it's really not good when the government basically tilts the game in their favor by devoting resources and effort to them versus the traditional task of the government of looking after the whole, which seems to have gone out the window years ago. You devote enormous resources to assets, while ignoring infrastructure, education and all manner of other things. The 1% is a-okay, while the rest of the country becomes increasingly less competitive versus the rest of the globe.
""Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt." True or not?"
The discussion and suggested readings above are evidence of the astuteness of MFOers. Civility has reigned here even though the topic could unleash a less-than-civil reaction. The comments on The Atlantic's site, running to some 1100 already, are of a nastiness I prefer to avoid.
I think someone has to tackle the questions: Why are wages so low? Why is growth so anemic? Why does the average American perceive the future to be bleaker than the one his/her parents faced? I don't have the answers, but I'm willing to listen to all points of view. And, lest there be any doubt, I want my stocks to go up.
One answer on wages is that the higher wage jobs of manufacturing are disappearing and those workers are now working in lesser paying service jobs.
Also, as baby boomers leave the work force, younger , with less seniority workers take over with lower wages. This effect is much smaller than the other I suspect.
I'm not a huge fan of stock buybacks but I find the connection to income inequality and hurting the lower or even middle class pretty tenuous. It actually seems like the author of this article started with a conclusion that he wanted to increase regulation of share buybacks again and then tried his best to tie it to the damage our economy is suffering at the hands of insensitive corporations.
IMHO, companies are in business to make money for their owners plain and simple. Supporting the communities they work in is far more, not totally, but far more about recruiting and reducing risk than it is about pure generosity. I'd be shocked if anyone could find many cases where companies used to just raise wages because they had extra cash on hand. I think JohnChisum has a good point about manufacturing jobs disappearing, but that's true across the board. Technology has made each person far more productive than they ever were before and that impacts everyone, not just the guy in the factory, but accounting clerks who have been replaced by sophisticated computer systems, bank tellers, who have been replaced by ATMs and the internet, and postal workers who lost many jobs to email.
@LLJB, thanks for making good points. I should also add that in previous transitions of the economy we did not experience wage reductions. The change was to the work itself. For example the blacksmith became the machinist, The buggy driver drove a taxi, etc. Technology today is wiping out certain jobs with no sideways career move possible. Thus the transition to totally new jobs with lower wages.
Comments
It's rife with political undertones and speculation of conspiracies regarding re-distribution of wealth.
I recently enjoyed a conversation with a former Boeing executive about their lack of cap-ex...of not spending their free cash flow on new projects and attendant detriment to surrounding communities.
I consider Boeing (commercial) one of the greatest business entities of all time.
John Newhouse's 1982 book "The Sporty Game" describes how companies like Boeing “bet the company” every time they develop a new commercial aircraft.
An amazing book!
CEOs have a responsibility to invest their cash in projects that will increase return on capital...and if they can't, to give it back to shareholders. That shows fiduciary responsibility, no?
How about this, if the free cash went to dividends instead of share buy-backs, would that be more egalitarian?
This is a scary road to start going down.
If in fact there are "political overtones", does that then automatically negate each and every point made in the article? Since when do "political overtones" equate to an accusation of falsehood? That article seemed to me to have plenty of references which could be fairly easily checked for accuracy.
How about a proper rebuttal based on an examination of the premises of the article, or the introduction of contrary opinions based upon other references?
"the shift toward stock-based compensation helped drive the rise of the 1 percent by inflating the ratio of CEO-to-worker compensation from twenty-to-one in 1965 to about 300-to-one today" True or not?
"Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth." True or not?
"Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks." True or not?
"Federal spending on economically crucial research and development has plummeted 40 percent, from 1.25 percent of GDP in 1977 to only 0.75 percent today." True or not?
"Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt." True or not?
"Wealth concentration at the top is not good for the nation as a whole." True or not?
Regards,
Ted
Share Repurchase:
http://en.wikipedia.org/wiki/Share_repurchase
A Breakdown Of Stock Buybacks:
http://www.investopedia.com/articles/02/041702.asp
6 Bad Stock Buyback Scenarios:
http://www.investopedia.com/articles/stocks/10/share-buybacks.asp
The Downside To Stock Buybacks (Jonathan Clements):
http://www.wsj.com/articles/the-downside-to-stock-buybacks-1414284206
Profits Without Prosperity (Harvard Business Review):
https://hbr.org/2014/09/profits-without-prosperity
Companies' Stock Buybacks Help Buoy the Market:
http://www.wsj.com/articles/companies-stock-buybacks-help-buoy-the-market-1410823441
The Eepurchase Revolution:
http://www.economist.com/news/business/21616968-companies-have-been-gobbling-up-their-own-shares-exceptional-rate-there-are-good-reasons
Presenting The Full Impact Of Stock Buybacks On S&P 500 "Earnings":
http://www.zerohedge.com/print/474514
What the issue is is the idea that the government has been entirely focused on raising asset prices, at the expense of just about everything else. It creates a period that looks good/very good on the surface, but has considerable problems underneath ("Castles built on sand", in other words.)
""Wealth concentration at the top is not good for the nation as a whole." True or not?"
That's kind of true (lot of layers), but I think the bigger issue is when the country's government decides to devote its resources heavily to catering to those who already own assets rather than trying to create opportunities and improve quality of life (I know that's broad, but it's early) for the whole. I'm not saying fairness, I'm not saying anything like that - things aren't fair, that's reality.
I'm simply saying, it's not good for the majority of wealth to be in the 1%, but it's really not good when the government basically tilts the game in their favor by devoting resources and effort to them versus the traditional task of the government of looking after the whole, which seems to have gone out the window years ago. You devote enormous resources to assets, while ignoring infrastructure, education and all manner of other things. The 1% is a-okay, while the rest of the country becomes increasingly less competitive versus the rest of the globe.
""Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt." True or not?"
http://www.cnbc.com/id/102028451#.
Student debt at all-time high of $1.2 trillion
"Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth." True or not?
http://research.stlouisfed.org/fred2/series/LABSHPUSA156NRUG
Too lazy and it's too early to research the rest, but looks accurate.
Regards- OJ
I think someone has to tackle the questions: Why are wages so low? Why is growth so anemic? Why does the average American perceive the future to be bleaker than the one his/her parents faced? I don't have the answers, but I'm willing to listen to all points of view. And, lest there be any doubt, I want my stocks to go up.
Also, as baby boomers leave the work force, younger , with less seniority workers take over with lower wages. This effect is much smaller than the other I suspect.
IMHO, companies are in business to make money for their owners plain and simple. Supporting the communities they work in is far more, not totally, but far more about recruiting and reducing risk than it is about pure generosity. I'd be shocked if anyone could find many cases where companies used to just raise wages because they had extra cash on hand. I think JohnChisum has a good point about manufacturing jobs disappearing, but that's true across the board. Technology has made each person far more productive than they ever were before and that impacts everyone, not just the guy in the factory, but accounting clerks who have been replaced by sophisticated computer systems, bank tellers, who have been replaced by ATMs and the internet, and postal workers who lost many jobs to email.