The unvarnished truth about where most profits are going
Great article. Warren Buffet is, in my opinion, a good example of a "bully capitalist" rather than an investor per se. He made his original capital accumulation by buying in early and heavily in Coca-Cola and has subsequently been able to increase his wealth by leveraging his capital to accumulate even more capital. Of course the stock buyback ploy makes sense to him because it generates wealth for stockholders, which is apparently his priority, while impoverishing and even endangering society as a whole.
Thankfully Biden seems to get the problem here. 1% to 4% would seem to be a modest beginning but possibly this could be expanded if these corporations decline to respond appropriately. The recent train derailments are a clear indication of the destructive consequences of greed.
It’s sickening Robert. Disney cut 7,000 jobs in early February to reward shareholders it made me absolutely furious. I hope Biden is successful in imposing the 4% penalty against corporations instead of the 1% penalty but even that is not enough. Major corporations should not be allowed to buy back stocks at all at the expense of their workers. I used to respect Warren Buffet until I figured out that he is no better that any other billionaire. Just because he lives in a modest house doesn’t make him like the rest of us. He’s just as greedy as any other Wall Street tycoon. He just acts like he cares about the little guy. Stock buy backs hurt everyone but the ultra rich and regulations have to change.
The axiom that "Whatever is good for Business is good for America" was undoubtedly coined by a Business person. And the only way that it is potentially True is if it equates America = Wealthy people ONLY. As the #1 objective of Business is to maximize Profits any way it can, you can easily compose an entire litany of Business truisms (i.e. true from a Business POV):
Lowering Labor wages is good for Business
Eliminating employee benefits is good for Business
Eliminating safety equipment requirements is Good for Business
Reducing the number of shareholders with buybacks is good for Business (and to the remaining shareholders ONLY)
Requiring workers to work longer hours with fewer breaks is good for Business. (And if fatigue makes them have an accident, remember the 2nd rule)
The more one reflects on what is good for Business, the more it seems true that IF IT'S GOOD FOR BUSINESS, IT'S BAD FOR AMERICA.
But if you pay attention, you will notice that "Our" government keeps letting Business get away with this kind of BS. At most, a slap-on-the-wrist fine that puts a tiny ding in Business' Profits. (And the cost of which WILL eventually be passed on to the consumers.) Which should illuminate for you who "Our" government _actually_ works for.
Republicans always speak so highly of Ronald Reagan! I used to wonder why.
[Before 1982, it was illegal for corporations to purchase their own stock to artificially prop up share prices. Then Ronald Reagan’s SEC adopted a rule protecting corporations from being charged for this kind of stock manipulation.]
"Then it went off the rails, literally ..." - nice.
What you say state makes perfect sense, but so does what Buffet states - from his point of view. That's the crux, isn't it? Know your audience, it is said. When you communicate, think about your audience so that your message might actually reach them. In Warren Buffet's case, of course his annual letter is addressed to the intended audience, shareholders. And of course his point of view makes sense for him with his audience in mind, shareholders. He's been exceedingly good at what he does for seemingly a few hundred years by now. He's been around, he knows his stuff, it's all about wealth and increasing said wealth - and he does that well.
Holistically speaking, is he right? Of course not and I'd like to smack him for the stupidity of his statements. But then he's too old and I don't smack people. Corporations will continue to do whatever they can get away with to maximize profits - the whole "stakeholder capitalism" thing, as you highlighted in a recent post, was more of a marketing stunt, really. With corporations, when you take a look behind the curtain, nothing much has changed.
Government should govern, legislate - whatever's in his power, Biden should set the wheels in motion to pull corporations (and investment banks), back to the rules in places in the seventies, before deregulation and before Citizens United.
Sometimes these corporations buy back their shares using expensive debt.
And sometimes it’s done to obscure huge windfalls of bonuses to C-level executives who are often golf and hunting and sailing buddies with the very members of the board who are engineering and approving the bonuses, obscuring a raid of the company treasury all for themselves.
And we wonder why so many of these executives own private jets and yachts.
We understand this Professor Reich, you've told us this before and it is quite logical. Why isn't this administration returning us to the pre-Reagan years when company stock buy backs were illegal. This sounds to me as though an Executive Order could rectify the matter. So, why is nothing being done. And we have have two other Democratic Presidencies, why did neither Clinton nor Obama fix this travesty before we got in the stew we're in now. I realize the general public (including me) didn't understand the whole buy-back scheme, but surely others in government must have known. WHY????
Southern Norfolk Railway now knows full well its profit making works. East Palestine proves to it- it’s cheaper to “clean up” than do the right thing in maintaining equipment. That railway runs its mile long cars 1/2 mile from my home. Two derailments in the past several years in this county- that I know about One a mile away. I’m sure there have been plenty of others elsewhere- it takes what happened in East Palestine to get noticed? You kind of wish this were a sci-fi story of a dystopian future. Emailed my do nothing county commissioner about the dangers this railroad poses to the county. This is Trump county, did I expect a response? And to end this rant- no such thing as “clean up” from chemical toxins. Saw news article on Texas residents upset by the water used to hose down East Palestine brought down there to some type of processing plant. The pitch of the article- residents upset when it should be toxic water shipped away from East Palestine in becoming someone else’s problem. The rampant and runaway Reagan capitalism has created the environmental catastrophe of which we are a part and you can’t fix it with the same mindset that created it.
Clearly, we live in an economy with an investor class and a wage earning class. Enriching the former almost always occurs at the expense of the latter. And because the former votes en masse against progressive taxation and public investment, we merely hollow out our infrastructure and impoverish our workers.
For more than the last century the mantra of the GQP has been "what's good for business is good for America", and they doubled down on that credo beginning in the Reagan era. Sadly, the opposite has been proven so often to be true, and in so many ways, from labor to the environment.
It should also be pointed out that investors are not venture capitalists. They don’t start new companies, and don’t typically invest in them, either. What they do do is move their money from one investment instrument to another. They sell shares of stock they own and use that money to buy stock in other companies — typically, old, settled companies. This doesn’t create wealth, and it doesn’t create a single job. It’s no different from buying a used DVD on Amazon: the money paid for it doesn’t go to the copyright holder, or the movie studio or the people who worked on the movie, it just goes to the person who’s selling the DVD. But selling that used DVD is more beneficial to society than selling a share of stock because a sales tax is paid on the former, but no significant tax is paid on a transaction involving the latter.
Once again I agree with Mr. Reich. Congress should forbid them.
Why not make stock buybacks illegal again?
Dear Robert Reich,
Thank you for explaining what wall street buybacks are doing to we the people who have't enough money to benefit from buying stocks on wall street. It is heartbreaking to see what the people who had the misfortune to live by the traintracks in East Palestine, Ohio just so the rail CEOs make more money.
I would note that the purported benefit of stock buybacks to the country sounds like another one of Paul Krugman’s zombie ideas. Meantime, I didn’t know about the IRA’s 1% buyback tax, nor about Biden wanting to raise it to 4%, much less about the Brown/Wyden proposed legislation. Considering how often I portray the Inflation Reduction Act as a vastly edited down version of the reconciliation package (BBB), this bit of information is useful. Thank you, Professor.
Robert, don't you know that if it's good for big bidness [sic], it's good for Amerika [sic]. Just ask any Repub. Anyway, Buffett may be a liberal Democrat, but never forget he's a super rich guy. There's always that part of him that will always think like a conservative billionaire, and that means he will try to protect his fortune. That's exactly what he was doing. You can take the man out of the billionaire, but you can't take the billionaire out of the man, or something like that. Buffett is really just a neoliberal on economic matters like all the other wealthy Democrats, if there are any. They still believe in trickle down their leg economics. As we all know, money talks and bullshit walks. I don't want to crap on Buffett too much because he has donated a lot of money to many good causes for us on the left, and he has kept the right's panties in a wad, and for that, I am grateful. We can allow him to be wrong on this one item as long as he doesn't allow it to damage the country. If he really feels that way, perhaps he should have kept his mouth shut.