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...and those profits are not being reinvested in new projects, new ventures, and new markets. Instead, large corporations have been accumulating historically h

• gz5 11y ago
  We have engine trouble partially because the US consumer has historically been the oil of the global economy. Now big business is ahead of its consumers (too many now under employed or unemployed), hence less opportunities to invest those cash mountains. As Andy Grove said, we need to optimize for jobs too. Else we simply don't have balance in the overall ecosystem, as we are now seeing.
• wheaties 11y ago
  Too much cash? Pay people more! Really that simple. Money has a momentum, a speed by which it flows through an economy. Eventually those mountains of capital will disappear because there is no one left to buy what is being sold.
  • Agustus 11y ago
    Those are profits, if you are able to operate your company to the degree that one is able to accumulate the cash, then there is no reason to increase liabilities to accomplish a task. If you want to spread the wealth around, then you need the government to perform this task.
  • zanny 11y ago
    It is in no companies fiscal interest to pay their employees more. They want you to work for as little as you agree to while producing as much return for the company as possible. The real solution is to just do a UBI. If this is not an obvious call sign of how the efficiencies of recent decades are obsoleting human labor in general I don't know what is. Redistribute that money so consumers have spending power again.
    • revscat 11y ago
      > It is in no companies fiscal interest to pay their employees more. I'm actually not sure this is true. From a short term perspective, perhaps. But longer term it is more beneficial for everyone if there is more money to be spent.
      • savanaly 11y ago
        You said you're differentiating between long and short term, but I think you're actually talking about the difference between "one company's interest" and "all companies' interests". It is possibly in all companies' interest to all pay their employees more as it would stimulate demand for their products. But any given individual company's own workers are such a vanishingly small fraction of its own customer base that it could hardly ever be argued that it would be best for that particular company to pay its own workers more for the purposes of stimulating demand.
        • lfowles 11y ago
          Your workers will be more invested if they can comfortably afford the product, though. Obviously this depends on the market.
          • savanaly 11y ago
            Oh, no doubt that can be a reason. The literature around the "efficiency wage" is well developed [1], my comment was only disputing that there were a reason to pay above market clearing wages for reasons of stimulating demand. [1](https://en.wikipedia.org/wiki/Efficiency_wage https://en.wikipedia.org/wiki/Efficiency_wage)
  • Scirra_Tom 11y ago
    What's their incentive?
  • madaxe_again 11y ago
    Indeed, but unfortunately everything has been set up to provide a strong motive to hoard rather than spend cash. The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. I find it absolutely insane that we take the excess, the bounty, the benefit of the efforts of centuries of technological and industrial progress, and rather than enjoying those benefits, convert them into numbers in a ledger that one can look at and go "uh huh", which provide no benefit to man nor beast. It's the biggest scam ever pulled, and we all willingly engage in it. Marx pointed it out as "the accumulation and destruction of crystallised labour-time by the owners of the means of production" (I paraphrase) in Kapital - and absolutely bingo has changed since then. UBI is in my mind the way to go - tax the ever living hell out of cash reserves, which would promote re-investment and the use of cash - and use the proceeds from that tax to pay a UBI.
    • karmajunkie 11y ago
      > Money which is not in motion is not money. Absolutely the most important thing that can be said. My response to moralizing and angst over how the economically disadvantaged spend welfare money, or judgment about "lazy" people who wouldn't continue to work in the face of basic income is "who gives a fuck? As long as they spend the money, its moving and the economy moves with it." Money has gravity. It will always move towards those concentrations of wealth that exist at the top and away from the bottom. Without a mechanism of some kind to remove it from the top and inject it into the bottom, it will never move in any way that provides benefit to the larger economy, and might as well be a closed system.
      • Goladus 11y ago
        A bit of a tangent here, but: > "who gives a fuck? As long as they spend the money, its moving and the economy moves with it." What they spend it on matters. The economy and thus society is shaped by consumer demand. Not just how much people want(and can afford), but what people want (and can afford).
    • iofj 11y ago
  • deleted 11y ago
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  • jonas21 11y ago
    This is a tragedy of the commons. It's in almost everybody's best interest to pay people more. But any individual company has a strong incentive to keep labor costs as low as possible, as long as all of their competitors are doing the same.
  • gmarx 11y ago
    if you pay people more it could show up in inflation numbers and the Federal Reserve might have to stop printing so much money.
  • sdgsfsfgfg 11y ago
    We are currently playing a larger version of the game tic tac toe from the movie "War Games. The only way to win is to stop playing - but the system as a whole is currently far too stupid to realise it. Corporations exist in a symbiotic relationship with the consumer. Corporations are driven to ever greater profit margins, but this weakens the consumer, to an ever greater extent. The system is inherently unbalanced, it's trivially obvious to anyone able to separate out their politics from reasoned thought. If they win the game they are playing then we all lose. I feel like I'm watching two Siamese fighting fish fighting to the death
  • gnaritas 11y ago
    > Too much cash? Pay people more! Companies have no incentive to do that. Paying your employees more doesn't directly lead to more profit.
  • baddox 11y ago
    If a firm has market power (which airlines certainly do, in no small part because of the massive regulatory and financial barriers to entry) there's no economic reason for them to pay people more money just because they have extra cash.
  • gniv 11y ago
    In some cases (Google, Facebook), they are paying more, but since the number of employees is relatively small, it makes little difference in the amount of cash they accumulate. This might be true for many large corporations, but hard to study, since aggregate salaries are not public for any one company.
  • zardo 11y ago
    It's a public goods game. It's in everyone's best interest to pay all employees more, but it's in no one's best interest unless everyone else does it too.
  • jganetsk 11y ago
    Capitalism provides an answer, but it's not to pay people more. Wages are determined by the labor market, and employers should pay market prices. Rather, capitalism's answer is for companies to return the cash to their shareholders. This can be done either through stock buybacks or dividends. I'm not enough of an expert to speculate on what happens next. Maybe this would just shuffle the hording problem around. But this would be a very simple first step that works entirely within the parameters of our current system.
  • nikanj 11y ago
    That would require repatriating that cash, with tax consequences. An incredible amount of wealth has moved from the US economy to tax haven bank accounts for tax reasons, and the IRS doesn't want to set a precedent where you would be allowed to bring it back tax-free.
  • simo7 11y ago
    About giving it back to shareholders instead? They are the ones to which that money is entitled too.
  • MicroBerto 11y ago
    Sounds great, but you're asking a group of separate entities to make microeconomic decisions in order to have macroeconomic impact. And unfortunately, it must doesn't work that way. Same way that it's better for the local economy if I were to go out to eat every night. But it's definitely not better for ME, which is why I don't do that. You need a better solution or incentive than "macroeconomic hope".
    • deleted 11y ago
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• jhallenworld 11y ago
  If corporations are confident they would pay out unused cash as dividends. That they are hoarding is a sign that they have no confidence in their own future..
  • imtringued 11y ago
    >Technology firm Apple was holding $181.1 billion offshore, more than any other U.S. company, and would owe an estimated $59.2 billion in U.S. taxes if it tried to bring the money back to the United States from its three overseas tax havens, the study said. Source: http://www.reuters.com/article/us-usa-tax-offshore-idUSKCN0S008U20151006 http://www.reuters.com/article/us-usa-tax-offshore-idUSKCN0S...
  • arethuza 11y ago
    Or that they can't think of anything with high enough potential returns that makes it worthwhile investing that cash into their own businesses.
  • jsn117 11y ago
    or the future of the market they are in, nothing specific about them
• skolos 11y ago
  There is research [1] that points out that cash hoarding is in a sense an opportunity: with cash you can get better M&A deals, be better prepared to jump in on new technology, etc. Other investments compete with this opportunity. -- [1] http://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html http://www.nytimes.com/2016/01/24/magazine/why-are-corporati...
  • hyperpape 11y ago
    Though the obvious question is "for how long?" This explanation only makes sense if that cash eventually gets spent (not necessarily all spent down to $0, but companies can't keep having rising ratios of cash to value forever).
• deleted 11y ago
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• anentropic 11y ago
  this is not directly related to the OP article though, which was about profit rather than cash reserves
• branchless 11y ago
  Is it truly idle? Imagine I have $20MM dollars. I put it in the bank. The bank is at liberty to create more money via loans because it has this deposit. Money isn't physical, it's not in a vault, in the main. Isn't the main problem that the economy is structured to reward rentiers which is stifling wealth creation and diverting energies into pointless activity like gaming financial markets, speculating on real-estate etc. Rent extraction has become so efficient it is able to immediately swallow any productivity gains. We are becoming more productive and seeing rents rise. Exhibit A: Silicon Valley and hub.
• saosebastiao 11y ago
  > Therefore, it must be that they aren't identifying enough attractive opportunities in which to invest that growing mountain of cash. There is a different possibility: anybody who has piles of cash on hand at the bottom of a recession will make a killing...with short term gains regularly exceeding 100%. Anybody who doesn't have cash on hand gets bought up at a huge discount by those that do. American companies that are stockpiling cash may see ample investment opportunities, but they could possibly be overshadowed by economic stability risks.
• imgabe 11y ago
  There are no attractive opportunities because large swaths of the population simply have no money to spend. With student loans, stagnant wages, and rising costs for housing and healthcare, there's little money left of for a lot of people to buy something new. Increase wages and markets will be created. There may be some lag as people dig themselves out from under debt, but the longer we wait, the harder it's going to be.
  • matwood 11y ago
    The savings rate is continuing to increase, so people have money to spend and are choosing not to [1]. http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm http://www.bea.gov/newsreleases/national/pi/pinewsrelease.ht...
    • sprash 11y ago
      No mention of medians. So it could as well be just one guy saving a lot of money.
    • webjprgm 11y ago
      Is this true across all economic levels or is this an average so it could be the rich and upper-middle class saving more.
      • matwood 11y ago
        Seems across the board. https://www.washingtonpost.com/news/get-there/wp/2016/03/29/one-habit-millennials-are-actually-pretty-good-at/ https://www.washingtonpost.com/news/get-there/wp/2016/03/29/...
  • a3n 11y ago
    > Increase wages and markets will be created. You might even say that a rising tide floats all boats. More money in the pockets of worker/consumers, more money spent on current and future products.
• danielsiders 11y ago
  At least in the technology industry many investments are astronomically expensive. See the acquisitions of Instagram, Whatsapp, et al. Having huge amounts of cash allows companies to suddenly expand into new fields (robotics, self driving cars, etc) without having to borrow anew from banks or investors.
  • pkaye 11y ago
    So Instagram and Whatapp are investing robotics and self driving cars? Even Google is divesting the robotics division possibly because there are no short term returns. The investors are focused on investments with low initial capital, high short-term returns. Many are not even concerned with productizing the technology but only packaging it up to sell to a deep pocket suitor company where it will whither and die (ie Yahoo.) So there are a lot of critical infrastructure technologies not invested in. Take cellphone batteries for example. Imagine the market share you could get if you could double the life of current batteries? Instead the big investments are in a hundred different social, photo sharing and instant messaging apps.
    • WalterSear 11y ago
      They didn't divest their robotics division: they sold off one team due to a lack of cultural and technological fit - with the other groups in their robotics division.
• nickbauman 11y ago
  Should be one of the laws of "economic thermodynamics" Money that isn't moving doesn't exist.
• drewrv 11y ago
  What amazes me is that shareholders let it happen. That money on the balance sheet belongs to them, either the company should invest it or give it back to the shareholders via dividends.
  • triangleman 11y ago
    Actually, dividends and stock buybacks are at an all time high: http://blogs.wsj.com/moneybeat/2015/05/07/stock-buybacks-hit-new-records/ http://blogs.wsj.com/moneybeat/2015/05/07/stock-buybacks-hit... http://www.reuters.com/investigates/special-report/usa-buybacks-cannibalized/ http://www.reuters.com/investigates/special-report/usa-buyba...
    • drewrv 11y ago
      Interesting, thanks!
• zkhalique 11y ago
  What happens to the cash that is sitting on their balance sheets? They don't keep it under a mattress. It get stored in banks, and forms the fractional reserve for new loans. Who are those loans given to? Smaller businesses, mortgages on houses, etc. At least, that would be true if the banks would lend. And if the companies would keep the money in local banks and not overseas. Our tax code encourages offshoring the money!!
  • justinv 11y ago
    Actually, a lot of it is known as "cash equivalents", which are generally liquid assets (but not actual cash for the most part) like T-Bills or other forms of securities (though, money market accounts are also used, which do go to banks).
    • zkhalique 11y ago
      And what happens to those cash equivalents? They really don't generate any movement of money but just store value?
• bdcravens 11y ago
  The average middle class family has saved less than $1000. Perhaps they should start their own pile of cash to sit on. I'm not saying the middle has tons of "extra" money, but every tax "refund", every deposit on a new car, every up front amount for a new iPhone instead of waiting a year, etc - those are missed opportunities. Corporations supposedly are playing the long game. Americans should ask themselves, in my own little Smith Inc., how can I be a bit more Apple and a bit less GM?
  • Merad 11y ago
    > The average middle class family has saved less than $1000. What's the source for that number? Taken at face value, it sounds unbelievable.
    • firethief 11y ago
      It sounds believable to me; I'm surprised it's positive. The non-rich live on credit in America.
      • Merad 11y ago
        Really? Based on some quick googling it looks like "middle class" usually encompasses household incomes from about $35k-100k. You think that many people essentially contribute nothing to their 401k, HSA, etc?
        • bdcravens 11y ago
          Many work at jobs without those benefits, or take out loans against their retirement accounts. Also, I'm not sure if most calculations offset those amounts with debt.
        • kristianp 11y ago
          That was based on a survey with the question "How much money do you have saved in your savings account?". I doubt most of the people who answered it included their 401k or HSA. http://www.gobankingrates.com/savings-account/62-percent-americans-under-1000-savings-survey-finds/ http://www.gobankingrates.com/savings-account/62-percent-ame...
• anigbrowl 11y ago
  The Economist also did a very interesting article about 6 months ago on the trend of cash piles being used for things like share buybacks and so on, with some additional theoretical background in the Economics Focus column explaining why it could lead to inefficient misallocation of capital. Worth a look if you are interested in pure econ, sorry I can't recall exactly when that came out.
• fizx 11y ago
  Is there research on ways to tax balance sheets?
• kilroy123 11y ago
  The biggest issue I see is, less governmental spending on R&D. Historically, private industry has waited and relied on government R&D to create new technologies ready for commercial application. (aka Internet) It's understandable private R&D spending will be low. The government has done the hard work of figuring out hard problems. What is going to happen if we continue to spend so little on R&D? Companies waiting around for "attractive opportunities" may never come.
• maxxxxx 11y ago
  I wonder what the trickle down people have to say about this. I thought the more money the job creators have the more they will invest.
• sheepleherd 11y ago
  It is sad (to me) that your comment has kicked off such spirited reply discussion, and it's all of limited value in evaluating the point made by the Economist article. It's just not true that cash on a balance sheet is idle. Corporate cash sits in bank accounts, and banks use balances to leverage their business. It feeds the banking system, and gets redeployed as debt rather than as equity. And if there are economic opportunities waiting for equity, that just means it's cheaper to invest in which should attract more investment capital, even if it doesn't come from corporate balance sheets or banks: there are plenty of rich people and rich institutions looking for places to invest their cash (see below). You simply can't draw conclusions as you have done the way you are doing it. But the Economist is making a good case for what they are saying. So let me try to translate it into terms that the average HNer can understand: what you all call "unicorns" (what you all strive to create) represent successful business models that are actually terrifically bad for competition, and therefore terrifically bad for the economy. We should not be rooting for them to succeed. Bill Gates did not create the personal computer revolution, he didn't really foster it, he simply monopolized it, and inasmuch as he did, it was bad for the economy. Compare what happened in software to what happened in hardware: actual competition has wrung all the profits out of "IBM compatibles": that was a good thing for consumers and the economy. That mantle has now passed to Apple (after Apple basically failed during the period of Microsoft hegemony). Again super premium prices supported by proprietary means. Do consumers benefit from Apple's closed ecosystem? No, not from the closed part. We benefit from Apple's positive feature contributions, but that doesn't mean we should be willingly allowing Apple to capture so much of the consumer surplus (the "good stuff" about a product, measured in dollars) using what are known to be anti-competitive tactics. Why should Apple own "network effects" of standards for music or software distribution? [trigger warning, sexual assault metaphor] Now before all the Apple fanboys and libertarians join forces and start submitting replies to me about how morally right it is that Apple be allowed to economically rape consumers, consider simpler cases. The Uber business is simple to grok. So is Ebay's, so is Paypal's, so is Facebook's, so is Twitter's. These businesses are based on what we used to call "protocols", stop worshipping the founders as if they did something more amazing than right place/right time. SMS is a protocol. So is HTTP. When companies don't "own" them in the sense of owning the customer, customers benefit. When companies are allowed to "own" them in the sense of owning customers, customers do not benefit anyhwere near as much as we all can. Think back to caveman times: the first guy to invent the bow and arrow did something really cool. And he benefited from it, tremendously, by catching a lot more deer and eating better. Wasn't that enough? would it have been better if nobody could copy him without paying him a tribute? Apple's profits from the app store, Amazon's ownership of one-click shopping (whether due to the patent or not) should be compared to Twitter's ownership of short message broadcasts: tweeting will no doubt be ruined as something fun/useful if Twitter successfully figures out a way to monetize, and Twitter itself will be ruined if they don't. But that dichotomy is a false one based on the idea that Twitter should own short message broadcast: it's a simple useful protocol, the value in it is the value people put into their tweets, not that somebody thought of it. Thank god nobody owned HTTP, so could you all stop rooting for somebody owning short message broadcast? Fuck unicorns, they suck. Sure, Twitter thought of it first. So what? It wasn't much to think of. Same with Paypal. Sure they put in a lot of work, after thinking of a fairly basic idea. Did they make something great? Do you use Paypal routinely to exchange small amounts of money? No, you don't, because Paypal sucks and has always sucked because the goal of Paypal was to monopolize a business rather than create a useful payment system. Thinking is something humans do, and we could just as easily say that if you don't want people copying your idea, keep it to yourself. If you don't want me humming Happy Birthday, don't teach it to me. But plenty of humans will think of neat things and teach it to others because that's what we do. billg was just the greedy one of the two, compared to the creativity of paula, just as Jobs was the greedy one of the two compared to the openness and creativity of Woz. The notion that patent monopolies (to use one example of monopoly) encourage investment is true; however, it's completely unproven no matter how widely it is believed, that they encourage "the right" amount of investment, or even a desirable amount of investment. I'll tell you this: everybody I know who is a smart PhD post-doc researcher gets paid peanuts to try to figure out how to cure cancer, so how come we've set up a system where Wall Street douchebags get rich from pharmaceuticals without even coming up with a cure? I'm not an "anti capitalist" left wing kook, I'm actually completely opposed to left wing nonsense. In addition to being an engineer, I'm an MBA. I love capitalism, but I love the type that the Economist is proposing, the capitalism of competition. My dry cleaner works his ass off and makes only accounting profit, not economic (unfair) profit, because my dry cleaner competes. Brin and Page as starving students would have been happy to make $10 million from inventing Google, or $100 million, so why should we reward them with scads of billions? So, am I advocating stupid European regulation, or worse, redistribution? No, not at all. The answer is simple, and I didn't invent it, it's well known. If Google was broken up into 10 little Googles, Page and Brin could own just as much of all of them as they own of the one, nothing would be taken away from them. However, the little Googles would compete with each other, and their profits would be driven down to ordinary, normal, economically stimulative levels, and not stultifying, smothering, economically oppressive levels that stop the next generation of Page and Brin's from being able to compete with their own ideas. Same with social networking, Zuckerberg would have been happy with getting modestly rich owning one of a number of competitors, we don't have to have a system that makes him the uberlord of one worldwide, only-game-in-town social network, and consumers would benefit from having a marketplace of facebooks, just like consumers benefited from a marketplace of bows and arrows. I'm sick of unicorns, I'm sick of libertarians, and BTW, I myself am rich (well inside the 1%), well educated (economics and finance!) and smart, my money came from a slice of a monopoly, but I don't pretend that what happened in my case was either my doing or good for the economy. I'm not giving my money away, I like being rich, I'm just saying to the rest of you, stop rooting for unicorns, don't do this to yourselves. Don't advocate for a bigger slice of the economic pie for yourself, that's dumb: just advocate for competition; everybody benefits from lower prices.