Stock buybacks are lethal, literally
And they’re widening inequality. Here’s what to do about them
Friends,
Shares of Apple lost 10 percent of their value in the first four months of the year. This may explain why Apple announced on Thursday that its board authorized $110 billion in stock buybacks, the largest buyback in U.S. history. It may also explain why, on Saturday, Warren Buffett — the “Oracle of Omaha” — announced that his company, Berkshire-Hathaway, would sell a big portion of its stake in Apple.
It is impossible to understand what’s happening to the American economy without considering the surge of stock buybacks — in which a corporation buys back shares of its own stock to artificially boost its share price, by creating fewer outstanding shares.
Large corporations are now devoting nearly 70 percent of their profits to buybacks.
Stock buybacks have also become a major force behind widening inequality. They mostly benefit CEOs and the richest 1 percent of the public, who own more than half of all shares of stock owned by Americans.
There is no reason for them. Before Ronald Reagan’s SEC allowed them in 1982, buybacks were treated as illegal stock manipulations in violation of the 1933 and 1934 Securities and Exchange Acts.
Yet they’re still stock manipulations. By using inside knowledge of when and how buybacks are scheduled, corporate executives can time when they exercise their own stock options — which now constitute most of their compensation — to reap maximum benefits for themselves.
Buybacks also impose a huge cost on the economy.
Every dollar spent lining the pockets of CEOs and investors is a dollar less to upgrade equipment and protect workers and the public.
Boeing failed to follow through with a promised $7 billion safety redesign of its 737 aircraft while it was spending roughly that much each year on stock buybacks.
Norfolk Southern Railroad paid investors $18 billion in buybacks and dividends over the five years before its equipment malfunctioned in the disastrous derailment in East Palestine, Ohio, which released over 300,000 gallons of toxic and flammable chemicals into the air and soil.
Abbott Labs spent $5 billion on stock buybacks while allowing plant conditions to deteriorate to the point where bacterial contamination of baby formula resulted in infant deaths and a nationwide formula shortage.
Money spent on buybacks also means less money for research and development, which hobbles American competitiveness at a time when China is breathing down our necks.
Apple now spends twice as much on stock buybacks as on R&D. Over the last fiscal year, Apple doled out $78 billion on buybacks.
Intel, the largest chip maker in America, with revenues last year of $54 billion, was recently awarded an $8.5 billion grant from the federal CHIPS and Science Act, plus $11 billion in subsidized loans.
But Intel fritters away its profits on stock buybacks. Its website proudly touts that it has spent $152 billion on stock buybacks since 1990.
There’s no way to be sure Intel isn’t using CHIPS money for stock buybacks. As Maryland Senator Chris Van Hollen noted: “While the legislation specifically prohibits the use of CHIPS funds for stock buybacks and dividend payments, these restrictions do not explicitly prohibit award recipients from using CHIPS funds to free up their own funds, which they can then use for those purposes.”
As if all this weren’t bad enough, stock buybacks provide an added incentive for companies to monopolize their industries and keep prices high.
A new Roosevelt Institute analysis found that the 10 largest publicly traded fast-food corporations spent $6.1 billion on buybacks last year. At the same time, they hiked prices to consumers. The average markup in the fast-food industry jumped 8.4 percent last year, while markups for firms across all industries grew 6.2 percent. Fast-food corporations lasts year charged prices 27 percent above the marginal cost of production.
According to Oxfam’s recent report, America’s 200 largest corporations are more profitable than ever. Net profits soared to $1.25 trillion in 2022, a 63 percent increase over 2018. But 90 percent of that sum was paid out to shareholders ($448 billion as dividends and a record $681 billion as stock buybacks).
And because CEO pay is linked to share prices, CEO pay is through the roof. The typical worker’s pay is higher than it was two years ago, adjusted for inflation, but it is still in the cellar.
In sum, the social costs of stock buybacks continue to surge.
What’s the answer to all this?
Ban stock buybacks — as they were banned before 1983.
Professor Reich: in my opinion, ronald reagan was a corporate-beholden criminal. he was the beginning of the decline of this country into the pursuit of money and power at all costs, the reversal of this country's progress towards equality, and the sacrifice and destruction of the natural spaces around the globe on the altar of profits. if anyone who ever occupied the white house could be thought of as beezebub's earthly incarnation, ronnie raygun would be it.
Wow! Lately, every time I hear about Reagan, it reminds me of what a terrible president he was, what a destructive guy when it came to our economy. It is interesting just how simple it would be to fix one of the really big inequity problems with our economy, stop stock buybacks. Congress could do that, but alas, there are so many super rich guys who just must have their stock buybacks to feed their insatiable money and power habit that the reps and senators who have been purchased by those corporations couldn't possibly do the right thing and vote to stop the insanity of stock buybacks. Reagan whined about "welfare queens" when he was helping to create stock buyback kings who, unlike the welfare queens, exist in significant numbers and will not stop unless stopped. So, we need serious pressure to stop them. If their corporations are so worried about stock prices that fluctuate so they have to pay more than R&D for stock buybacks, they probably shouldn't be in business or should have better management.