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Capital has been cheap for some time now, since the economic crash in 2008. It has only been since ~2016 that the Federal Funds Rate has lifted above half a per

Capital has been cheap for some time now, since the economic crash in 2008. It has only been since ~2016 that the Federal Funds Rate has lifted above half a percent [0]. And although the rates have recently been increased (Rate recently fell 1/4 of a percent but is still just above 2%), we are still seeing very low rates. Because capital has been relatively easy to acquire for this time I wonder if this is a more a consequence of the obvious but high cost investments already drying up. Executives have always wanted to drive up metrics as it allows them to move forward in their work, so I would find it doubtful that they wouldn't want to build out their business further if they are able to (More sales is a sure way to make more profits in most cases). If the capital is there, and we know it is, then these business must not see enough demand to expand. Many would say that buy-backs are a result of a company having excess capital and no sure investments [1]. With the us inflation rate hovering between 1.5 and 3 percent [2], a loan at ~2.25 percent is close to free money. I personally worry for the economy because of buy-backs. Not because I believe there is anything wrong with the practice, but because I think it indicates that business is general not going well enough to invest back into it. -0, https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate -1, https://www.investopedia.com/ask/answers/040815/what-situations-does-it-benefit-company-buy-back-outstanding-shares.asp https://www.investopedia.com/ask/answers/040815/what-situati... -2, https://www.usinflationcalculator.com/inflation/current-inflation-rates/ https://www.usinflationcalculator.com/inflation/current-infl...

JMTQp8lwXL 7y ago
It sounds like a self-fulfilling prophecy. Businesses return value to shareholders, because they see limited or no opportunity to expand demand. However, 70% of GDP is consumer spending. The benefit of buybacks is largely lost on the middle class, as the top 10% holds 80% of the total market capitalization. [0] Stock buybacks further reduce the economy's capacity for increasing consumer spending, since the wealthy need roughly the same number of dress shirts and food and washing machines as the rest of us. A marginal dollar isn't meaningful to someone who's already wealthy; they'll save that dollar. But give your average middle class American a dollar and it will lead to increased consumption. Large companies are facing an ever-diminishing base of consumer spending. [0] https://www.washingtonpost.com/posteverything/wp/2017/03/02/perspective-on-the-stock-market-rally-80-of-stock-value-held-by-top-10/ https://www.washingtonpost.com/posteverything/wp/2017/03/02/...
- zanny 7y ago
  Its not in any one businesses self interest to be philanthropic by paying their workers more or slashing their prices to drive up the available consumption of the working class. It would be the governments responsibility to right the ship, but considering whose lobbyists that have the pen of legislature and ear of congress good luck with that. Too many seats are non-competitive, the propaganda and distraction machines too effective, and the people too ignorant to collectivize. Eventually the consequences of the constant shaving of productivity away from the workers into the Wall Street black magic money hole will destabilize the country. Not in a French Revolution kind of way, just the slow rotting death that leads to the bottom falling out a la the Soviet Union's collapse. Eventually the thread is drawn taught enough that bread stops showing up in the stores and nobody knows where it went because all the bread companies stopped manufacturing because the marginal returns from the poor by feeding them didn't justify the capital expenditure over playing books and offshoring profits. Its not even some hypothetical far future happening. The water is already undrinkably contaminated with lead and nobody has the capital to fix it. Shops supplying the lifeblood food of towns just stop getting deliveries. The houses are just left abandoned, the roads rotting, the people just leave with no idea where they are going. Its not uniform, but no collapse ever is, but nobody accounts for it or really even seems to care.
  - JMTQp8lwXL 7y ago
    > Its not in any one businesses self interest to be philanthropic by paying their workers more or slashing their prices to drive up the available consumption of the working class. Tragedy of the commons, I suppose. All large business want a slice of consumer spending, but if they don't support consumers, there is no consumer spending to capture. > Eventually the thread is drawn taught enough that bread stops showing up in the stores and nobody knows where it went because all the bread companies stopped manufacturing because the marginal returns from the poor by feeding them didn't justify the capital expenditure over playing books and offshoring profits. I hope things don't get that bad. I'm all for the idea of motivating people with money. Some inequality is a good thing. But too much inequality is a disservice to everybody: widespread food instability in the country with the highest number of guns per capita would be a national security crisis that even the wealthy could not ignore. I hope we act with some foresight. We have plenty of distance between here and that point. But I do wonder what level of inequality this country will sustain before things become slightly more egalitarian.

JMTQp8lwXL 7y ago

It sounds like a self-fulfilling prophecy. Businesses return value to shareholders, because they see limited or no opportunity to expand demand. However, 70% of GDP is consumer spending. The benefit of buybacks is largely lost on the middle class, as the top 10% holds 80% of the total market capitalization. [0] Stock buybacks further reduce the economy's capacity for increasing consumer spending, since the wealthy need roughly the same number of dress shirts and food and washing machines as the rest of us. A marginal dollar isn't meaningful to someone who's already wealthy; they'll save that dollar. But give your average middle class American a dollar and it will lead to increased consumption. Large companies are facing an ever-diminishing base of consumer spending. [0] https://www.washingtonpost.com/posteverything/wp/2017/03/02/perspective-on-the-stock-market-rally-80-of-stock-value-held-by-top-10/ https://www.washingtonpost.com/posteverything/wp/2017/03/02/...

zanny 7y ago
Its not in any one businesses self interest to be philanthropic by paying their workers more or slashing their prices to drive up the available consumption of the working class. It would be the governments responsibility to right the ship, but considering whose lobbyists that have the pen of legislature and ear of congress good luck with that. Too many seats are non-competitive, the propaganda and distraction machines too effective, and the people too ignorant to collectivize. Eventually the consequences of the constant shaving of productivity away from the workers into the Wall Street black magic money hole will destabilize the country. Not in a French Revolution kind of way, just the slow rotting death that leads to the bottom falling out a la the Soviet Union's collapse. Eventually the thread is drawn taught enough that bread stops showing up in the stores and nobody knows where it went because all the bread companies stopped manufacturing because the marginal returns from the poor by feeding them didn't justify the capital expenditure over playing books and offshoring profits. Its not even some hypothetical far future happening. The water is already undrinkably contaminated with lead and nobody has the capital to fix it. Shops supplying the lifeblood food of towns just stop getting deliveries. The houses are just left abandoned, the roads rotting, the people just leave with no idea where they are going. Its not uniform, but no collapse ever is, but nobody accounts for it or really even seems to care.
- JMTQp8lwXL 7y ago
  > Its not in any one businesses self interest to be philanthropic by paying their workers more or slashing their prices to drive up the available consumption of the working class. Tragedy of the commons, I suppose. All large business want a slice of consumer spending, but if they don't support consumers, there is no consumer spending to capture. > Eventually the thread is drawn taught enough that bread stops showing up in the stores and nobody knows where it went because all the bread companies stopped manufacturing because the marginal returns from the poor by feeding them didn't justify the capital expenditure over playing books and offshoring profits. I hope things don't get that bad. I'm all for the idea of motivating people with money. Some inequality is a good thing. But too much inequality is a disservice to everybody: widespread food instability in the country with the highest number of guns per capita would be a national security crisis that even the wealthy could not ignore. I hope we act with some foresight. We have plenty of distance between here and that point. But I do wonder what level of inequality this country will sustain before things become slightly more egalitarian.