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If you need evidence that our economy is at least partly broken, this is it right here. Companies that are swimming in cash reserves are using their money to a

If you need evidence that our economy is at least partly broken, this is it right here. Companies that are swimming in cash reserves are using their money to artificially boost shareholder returns instead of actually investing in things like capital expenditures, R&D, or higher salaries. On one hand (as the article points out), this is driven by cheap credit, but on the other hand I think the question needs to be asked: have large corporations just run out of things worth investing in?

kortilla 7y ago
You think returning money to investors is a sign the economy is broken? IMO it’s a sign companies are doing the intelligent thing and are assuming investors are better investors than throwing money at random shit.
- povertyworld 7y ago
  Right. Wouldn't it be great if Google would start paying a dividend instead of throwing away money on goofy acquisitions like Boston Dynamics? How the hell is a robot dog that does flips or whatever supposed to improve their advertising business exactly? Give me a break.
  - ForHackernews 7y ago
    ...it was supposed to get them into the highly lucrative world of military contracting. But then it caused too much of a PR stink, so they had to back off from that idea.
  - sonnyblarney 7y ago
    " How the hell is a robot dog that does flips or whatever supposed to improve their advertising business exactly?" Because a robot that does flips can also flip burgers, pick inventory, sneak up on people (i.e. military) and ultimately that stuff will be worth a lot. One of their lesser goofy investments.
    - povertyworld 7y ago
      Yeah, it was so less goofy they had to unload it on Softbank, the goofy investment kings.
      - sonnyblarney 7y ago
        Softbank is not making goofy investments (hover skatebaords), they are making ROI investments (real estate leasing). Google dumped the robots for strategic reasons, moreover, it's going to be a while before payoff.
        povertyworld 7y ago
        Softbank going all in on ARM at this late stage of the game seemed a little on the goofy side. I didn't know they were into real estate. Isn't it kind of a bad idea to buy real estate, but not be structured like a REIT since you'd lose tax advantages? Then again, I don't know how it works in Japan. I just know I've been suspicious of Softbank ever since they put a ton of money into Yahoo, and I haven't seen any evidence countering this admitted bias.
        sonnyblarney 7y ago
        Softbank is not making 'goofy' investments along the lines of Google's 'loon' projects, like putting Wifi in air balloons. They are making 'real' investments in late stage companies with actual business models, or things that have obvious potential upsides. Softbank is basically where companies go for D and E rounds instead of going public. So there is some risk, but way less risk than left-field, early stage investments. Their 'real estate' investment is in WeWork, which probably will make them a lot of money as long as interest rates don't flinch higher, and as long as there is no real-estate crash. Sprint, ARM, Yahoo, Uber, Slack - these are not 'crazy' investments, especially depending on price. Yahoo might actually have some 'decent fundamentals' on some level, and be worth something at some price. They have a gigantic audience, and some small changes might make them be profitable at some level, and they could very well be worth something, at some price. It's a cross between classic private equity and late stage venture capital, all of their investments make sense in that context.
  - JohnJamesRambo 7y ago
    The unceasing robot dog terminator hunts you down, pins you, and shows you ads on its visor/eyes.
    - MrRadar 7y ago
      This comment reminds me of one of my favorite pieces of Internet fiction titled Attention Deficit Disorder[1]. The original context was a thread where the OP was arguing for a literal "attention economy" and the story is meant to extrapolate their arguments into absurdity. [1]: https://pastebin.com/KCbP6rbr https://pastebin.com/KCbP6rbr
      - JohnJamesRambo 7y ago
        Lol this is terrifying.
- kovacs 7y ago
  Asking that question seems to imply that you didn't really see the commenter's reasons for asserting that... "instead of actually investing in things like capital expenditures, R&D, or higher salaries" Specifically the last one. The pay gap is larger than ever. The efficiency gains over the last 20 years or more are systematically being funneled up the food chain to executives and shareholders. Even in tech there's a ton of wage stagnation compared to the real cost of living over this period. I think this is the crux of the assertion if I'm not mistaken. It's broken that the share of increased prosperity isn't anywhere near equally distributed. I wouldn't call that throwing money at random shit.
__blockcipher__ 7y ago
Stock buybacks aren’t artificial boosting. It’s the correct move when your company is undervalued and you don’t have better investment options. See Apple for an example of doing it right. See Chipotle for an example of doing it wrong.
- challenger22 7y ago
  It's also a more tax efficient way of distributing returns to shareholders than dividends. GP does not know what he's talking about.
- MarkyC4 7y ago
  Non-American with no position in Chipotle here. Could you elaborate a bit on how they did their buyback wrong? I see their stock have climbed in the past year, so wasn't the buyback worth it?
jandrese 7y ago
> have large corporations just run out of things worth investing in? Businesses don't expand just because capital is cheap, they need some kind of demand to fill. That's the fundamental problem with "trickle down" economics, it assumes the economy is supply constrained when it is more commonly demand constrained. And worse, the polices that it produces tend to squeeze the lower and middle classes, further reducing demand.
- padobson 7y ago
  That's the fundamental problem with "trickle down" economics, it assumes the economy is supply constrained when it is more commonly demand constrained. I was of the understanding that most orthodox schools of economics fundamentally view demand as infinite. Supply-siders hope to meet demand by increasing supply, lowering prices, and making more goods available to those with fewer resources. Policy-wise, this is achieved through production subsidies, fewer regulations, and tax cuts. Their opponents (demand-siders?) hope to increase access to goods by increasing the purchasing power of consumers. Policies like social safety nets, public education, and tax increases on the investor class promote this goal.
povertyworld 7y ago
If a company is swimming in cash, shouldn't that be going to investors in the form of dividends? This ideology of hoarding cash pushed by guys like Buffet is a sign of a warped economy.
- rhino369 7y ago
  Buybacks are equivalent to dividends, but with less taxation.
  - povertyworld 7y ago
    I don't have a problem with buybacks either. There was a time when Buffet argued to people that holding cash was worth some multiple greater than returning the cash, and he was probably right. I'm just saying that is more indicative of a "warped economy" than a business actually returning money.
sonnyblarney 7y ago
"Companies that are swimming in cash reserves are using their money to artificially boost " There is nothing artificial about it CFO's are reacting rationally to the credit situation that they do not control. Consider that labour markets are tight, and 'productive investments' are not easy to make. They are generally very risky.
SilasX 7y ago
If they don't know high(-enough)-RoR uses of the money, then paying it out as a dividend is exactly what they should do as good stewards of the investors' capital. And share buybacks are just a tax-efficient version of dividends (since they don't trigger a taxable event for the investors that don't want to convert shares to cash yet).
- rat_1234 7y ago
  Agreed! It's easy to say 'you should be investing that capital into projects.' But I think people don't realize how much money is actually generated by some of these companies. I know AAPL is the strongest possible case for my argument, but bear with me. Their operating cash flow net of CAPEX is ~$65B as of their 2018 year ending in September. I.e., after paying for all of the investments they want to make, they still have $65B in straight up cash left over. I mean -- what are you supposed to do with all of that?
  - pishpash 7y ago
    There's no problem with returning capital to shareholders. There is a problem when shareholders just plow it back into index funds. Does Apple have a better use of money than shareholders? Well, there are investments available to Apple that aren't even available to shareholders, so on the face of it, how could they not? Therefore the issue isn't so much Apple not being able to find better opportunities than shareholders, but that it can't find better opportunities than Apple -- making those actually good investments would look bad for Apple because of how absurdly profitable it is. That's not a good reason to return capital, if you think about it carefully.
User23 7y ago
Giving money back to shareholders sounds a lot like giving money to venture capitalists to me.
- AnimalMuppet 7y ago
  Could you explain? They sound almost totally different to me, with "giving money" being the only point in common.

kortilla 7y ago

You think returning money to investors is a sign the economy is broken? IMO it’s a sign companies are doing the intelligent thing and are assuming investors are better investors than throwing money at random shit.

povertyworld 7y ago
Right. Wouldn't it be great if Google would start paying a dividend instead of throwing away money on goofy acquisitions like Boston Dynamics? How the hell is a robot dog that does flips or whatever supposed to improve their advertising business exactly? Give me a break.
- ForHackernews 7y ago
  ...it was supposed to get them into the highly lucrative world of military contracting. But then it caused too much of a PR stink, so they had to back off from that idea.
- sonnyblarney 7y ago
  " How the hell is a robot dog that does flips or whatever supposed to improve their advertising business exactly?" Because a robot that does flips can also flip burgers, pick inventory, sneak up on people (i.e. military) and ultimately that stuff will be worth a lot. One of their lesser goofy investments.
  - povertyworld 7y ago
    Yeah, it was so less goofy they had to unload it on Softbank, the goofy investment kings.
    - sonnyblarney 7y ago
      Softbank is not making goofy investments (hover skatebaords), they are making ROI investments (real estate leasing). Google dumped the robots for strategic reasons, moreover, it's going to be a while before payoff.
      - povertyworld 7y ago
        Softbank going all in on ARM at this late stage of the game seemed a little on the goofy side. I didn't know they were into real estate. Isn't it kind of a bad idea to buy real estate, but not be structured like a REIT since you'd lose tax advantages? Then again, I don't know how it works in Japan. I just know I've been suspicious of Softbank ever since they put a ton of money into Yahoo, and I haven't seen any evidence countering this admitted bias.
        sonnyblarney 7y ago
        Softbank is not making 'goofy' investments along the lines of Google's 'loon' projects, like putting Wifi in air balloons. They are making 'real' investments in late stage companies with actual business models, or things that have obvious potential upsides. Softbank is basically where companies go for D and E rounds instead of going public. So there is some risk, but way less risk than left-field, early stage investments. Their 'real estate' investment is in WeWork, which probably will make them a lot of money as long as interest rates don't flinch higher, and as long as there is no real-estate crash. Sprint, ARM, Yahoo, Uber, Slack - these are not 'crazy' investments, especially depending on price. Yahoo might actually have some 'decent fundamentals' on some level, and be worth something at some price. They have a gigantic audience, and some small changes might make them be profitable at some level, and they could very well be worth something, at some price. It's a cross between classic private equity and late stage venture capital, all of their investments make sense in that context.
- JohnJamesRambo 7y ago
  The unceasing robot dog terminator hunts you down, pins you, and shows you ads on its visor/eyes.
  - MrRadar 7y ago
    This comment reminds me of one of my favorite pieces of Internet fiction titled Attention Deficit Disorder[1]. The original context was a thread where the OP was arguing for a literal "attention economy" and the story is meant to extrapolate their arguments into absurdity. [1]: https://pastebin.com/KCbP6rbr https://pastebin.com/KCbP6rbr
    - JohnJamesRambo 7y ago
      Lol this is terrifying.
kovacs 7y ago
Asking that question seems to imply that you didn't really see the commenter's reasons for asserting that... "instead of actually investing in things like capital expenditures, R&D, or higher salaries" Specifically the last one. The pay gap is larger than ever. The efficiency gains over the last 20 years or more are systematically being funneled up the food chain to executives and shareholders. Even in tech there's a ton of wage stagnation compared to the real cost of living over this period. I think this is the crux of the assertion if I'm not mistaken. It's broken that the share of increased prosperity isn't anywhere near equally distributed. I wouldn't call that throwing money at random shit.

__blockcipher__ 7y ago

Stock buybacks aren’t artificial boosting. It’s the correct move when your company is undervalued and you don’t have better investment options. See Apple for an example of doing it right. See Chipotle for an example of doing it wrong.

challenger22 7y ago
It's also a more tax efficient way of distributing returns to shareholders than dividends. GP does not know what he's talking about.
MarkyC4 7y ago
Non-American with no position in Chipotle here. Could you elaborate a bit on how they did their buyback wrong? I see their stock have climbed in the past year, so wasn't the buyback worth it?

jandrese 7y ago

> have large corporations just run out of things worth investing in? Businesses don't expand just because capital is cheap, they need some kind of demand to fill. That's the fundamental problem with "trickle down" economics, it assumes the economy is supply constrained when it is more commonly demand constrained. And worse, the polices that it produces tend to squeeze the lower and middle classes, further reducing demand.

padobson 7y ago
That's the fundamental problem with "trickle down" economics, it assumes the economy is supply constrained when it is more commonly demand constrained. I was of the understanding that most orthodox schools of economics fundamentally view demand as infinite. Supply-siders hope to meet demand by increasing supply, lowering prices, and making more goods available to those with fewer resources. Policy-wise, this is achieved through production subsidies, fewer regulations, and tax cuts. Their opponents (demand-siders?) hope to increase access to goods by increasing the purchasing power of consumers. Policies like social safety nets, public education, and tax increases on the investor class promote this goal.

povertyworld 7y ago

If a company is swimming in cash, shouldn't that be going to investors in the form of dividends? This ideology of hoarding cash pushed by guys like Buffet is a sign of a warped economy.

rhino369 7y ago
Buybacks are equivalent to dividends, but with less taxation.
- povertyworld 7y ago
  I don't have a problem with buybacks either. There was a time when Buffet argued to people that holding cash was worth some multiple greater than returning the cash, and he was probably right. I'm just saying that is more indicative of a "warped economy" than a business actually returning money.

sonnyblarney 7y ago

"Companies that are swimming in cash reserves are using their money to artificially boost " There is nothing artificial about it CFO's are reacting rationally to the credit situation that they do not control. Consider that labour markets are tight, and 'productive investments' are not easy to make. They are generally very risky.

SilasX 7y ago

If they don't know high(-enough)-RoR uses of the money, then paying it out as a dividend is exactly what they should do as good stewards of the investors' capital. And share buybacks are just a tax-efficient version of dividends (since they don't trigger a taxable event for the investors that don't want to convert shares to cash yet).

rat_1234 7y ago
Agreed! It's easy to say 'you should be investing that capital into projects.' But I think people don't realize how much money is actually generated by some of these companies. I know AAPL is the strongest possible case for my argument, but bear with me. Their operating cash flow net of CAPEX is ~$65B as of their 2018 year ending in September. I.e., after paying for all of the investments they want to make, they still have $65B in straight up cash left over. I mean -- what are you supposed to do with all of that?
- pishpash 7y ago
  There's no problem with returning capital to shareholders. There is a problem when shareholders just plow it back into index funds. Does Apple have a better use of money than shareholders? Well, there are investments available to Apple that aren't even available to shareholders, so on the face of it, how could they not? Therefore the issue isn't so much Apple not being able to find better opportunities than shareholders, but that it can't find better opportunities than Apple -- making those actually good investments would look bad for Apple because of how absurdly profitable it is. That's not a good reason to return capital, if you think about it carefully.

User23 7y ago

Giving money back to shareholders sounds a lot like giving money to venture capitalists to me.

AnimalMuppet 7y ago
Could you explain? They sound almost totally different to me, with "giving money" being the only point in common.