William Lazonick writes that "Stock buybacks are an important explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades. Over this period, corporate resource-allocation at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize-and-distribute” ". Toward the end of the paper, Lazonick further states "Senior executives who are willing to waste hundreds of millions or billions of dollars annually on buybacks are likely to lose the judgmental capacity to comprehend the types of investments in organization and technology that are required to remain innovative in their industries."
Rex Nutting comments on the paper at this link where he says "Share buybacks encourage executives to loot companies, stall innovation and depress wages":
marketwatch.com/story/how-the-stock-market-destroyed-the-middle-class-2015-04-24?dist=beforebellHere is a link to a summary of the paper and to its full pdf version ("Stock buybacks: From retain-and reinvest to downsize-and-distribute"):
brookings.edu/research/papers/2015/04/17-stock-buybacks-lazonickIt is my impression share buybacks have been a key driver of US equity market performance in recent years. I am not sure that trend can be sustained in a positive way over the next several years. This may be worth thinking about since it impacts our portfolios.
Comments
It began with US factories not modernizing after WWII, while new fuel efficient plants were built in the re-building countries. Also, those countries had lower legacy costs and wages.
Then in the 80s China opened up. Middle class jobs fled the country and continue to do so.
First came the above, then fewer people had money to buy stocks so the people who had money (evil rich) by default had a larger percentage of stocks.
The shrinking middle class will continue because wages have stagnated, benefits have been eliminated and costs have increased from education to funerals.
and to say this only benefits the "richest" and eliminated the middle class is a little stretch to stupidity........ wouldn't a rational person think?
In fact how many well educated Americans even Know how to go about buying stocks?
Guarantee, myself as a well educated, young successful businessman with plenty of disposal money didn't have a clue....finally after years of fooling around with mutual fund companies and buying IRAs out of tax necessity.. I educated myself....
Middle Class Doesn't do that....buying stocks....so I guess they don't benefit....
all my guessing
http://www2.ucsc.edu/whorulesamerica/power/wealth.html
Also:
http://www.cnbc.com/id/100780163
http://www.salon.com/2013/09/19/stock_ownership_who_benefits_partner/
Crash, how cynical of you!!