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Instead of trying to innovate in-house, many big old companies would be MUCH better served returning the money to shareholders. The shareholders can then inves
by konschubert 3y ago
Instead of trying to innovate in-house, many big old companies would be MUCH better served returning the money to shareholders.
The shareholders can then invest into new companies and startups.
This is much better for the economy AND for the shareholders
- hef19898 3y agoStock buy-backs exist, and are controversial for various reasons.
- konschubert 3y agoMy point is that stock buybacks and dividends are good for the economy.
- hef19898 3y agoThe point is that they are good for management, share prices and share holders. The economy is made of more than just those groups.
- konschubert 3y agoStock buybacks are good for the economy because they allocate money to where it can be used more efficiently, which is usually not in existing big corporations. The alternative to stock buybacks is that the corporation make stupid acquisitions and try to integrate them into their processes, thereby killing them.
- jowea 3y agoThe closest alternative to buybacks is dividends. But to be honest I'm not sure if that's what the critics want the money going.
- konschubert 3y agoStock buybacks and dividends are the same thing economically, I mean both when I say “stock buybacks”. The difference is only in taxation.
- sumuyuda 3y agoShouldn’t the money be used more efficiently for society’s benefit or not concentrated by the share holders? Share holders will only further their own interests and not society’s interests.
- qwytw 3y agoHow do you accomplish that? Historically "shareholders" as a group have been quite effective (often but obviously not always) have been quite effective at using at their money for society’s benefit. In fact every society which tried to take all of their money away and eliminate them as a class (more or less violently) has failed economically. Turns out when it works properly free market competition is strongest force for economic and technological progress that has ever existed.
- konschubert 3y agoThey are also good for everybody else, because they incentivise investment that grows the economy, which means rising real wages.
- hef19898 3y agoNow that you link stock buybavks to growing salaries, I cannot ignore it anymore. Stock buybacks only benefit shareholders and companies, not the economie. Trickle down and all that doesn't work, stock buybacks reduce a companies tax burden, especially when leveraged which they often are, do not lead to more investment. And they make the rich even richer. See, for example, here: https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for... And salaries rise, primarily, through labour organization and collective bargaining.
- YuccaGloriosa 3y agoThis...exactly
- kortilla 3y agoStock buybacks are not “trickle down” economics. It’s returning money to investors who then have to rebalance their portfolios and find something new to invest in. This is what is good for the economy.
- jehb 3y ago> It’s returning money to investors I believe the parent commenter's point was exactly this. Giving money to the investor class and expecting it to benefit everyone is the definition of trickle-down economics.
- kortilla 3y agoThe comparison is leaving it with the company and hoping something good comes out of it. That’s also trickle down economics by that moronic definition.
- disgruntledphd2 3y agoI personally prefer dividends conceptually but the tax treatment leads to buy backs which are less good.
- konschubert 3y agoI agree the difference in the tax treatment is bad and should be fixed. But besides that, is there anything that makes buybacks worse than dividends?
- rjtavares 3y agoThe cost of buybacks is affected by timing, unlike dividends. Dividends are cleaner and affect the price in well understood ways: you set a date for the elegibility, and if you bought before that you get the dividend, if you buy after you don't. Stock buybacks are less transparent (you don't buy them all at once).
- orwin 3y agoYes, it concentrate/centralize power. If you want a new aristocracy, continue buybacks until a share is worth so much, people will start to buy share fractions, with all the shit and overhead that'll bring.
- konschubert 3y agoCompanies do share splits all the time. Dividends also give money to people who have shares. There is not difference beteeen these two mechanisms in who gets the money.
- disgruntledphd2 3y agoDividends are better because you don't have to sell to realize the gains. I'd love to own Google and Facebook and get dividends regularly.
- 3y ago
- whatever1 3y agoHow are they good? Companies are killing their inventory / safety / rnd / experienced headcount to do buy backs and in the slightest economy disruption they are forcing us to bail them out. Look at finance, airlines, oil, manufacturing for very recent examples.
- konschubert 3y agoI think it’s good if human working time shifts from oil exploration to other ventures. That’s what happens when the oil companies do buybacks instead of investing the money
- whatever1 3y agoIf you seek the assassination of a company, it is better to tax them to death instead. This way at least the money stay in country, instead of sending overseas checks.
- geysersam 3y agoThat's a good point. However why not just hand out dividends? From what I understand stock buybacks are basically dividends with tax benefits.
- throwaway5959 3y agoThat’s why they don’t just hand out dividends. If you want to take money out of the business just sell some shares. Long term capital gains in the US isn’t bad.
- whatever1 3y agoPlus dividends are independent from the stupid market valuations. Everyone benefits the same, not just the folks who will sell after the uptick of price
- renegade-otter 3y agoThey are good for the stock. There is no evidence they are good for the company, its workers, or the economy. Stock buybacks have destroyed companies like GE and Boeing. This is very well covered in the book about Boeing - Flying Blind. A bunch of Jack Welch mentees did the same trick, selling the company for parts and buying back the stock - until there was nothing left to sell. It was very "profitable" for a while, though! It's not a tool for company growth - it's an accounting trick to make the wealthy ultra-wealthy. There is a reason why buybacks at these levels were illegal (or at least very hard) until the early 80s, but there were multiple pro-big-business "reforms" that took root under Reagan which are now wrecking sensible Capitalism.
- sofixa 3y ago> This is very well covered in the book about Boeing - Flying Blind. A bunch of Jack Welch mentees did the same trick, selling the company for parts and buying back the stock - until there was nothing left to sell. It was very "profitable" for a while, though! Ooh nice, TIL and thanks! I really liked "Lights Out: Pride, Delusion, and the Fall of General Electric" about the failure of GE and was looking for something similar. On the topic of buybacks and dividends, it's part of the short term quarter-oriented thinking. Spinning off subdivisions and doing stock buybacks and dividends are very popular and look good on the balance sheet in the short term... but if you think about a quarter or two ahead, it's crippling. But it doesn't matter, stock go up, bonus go up, everyone happy for now, kicking the can down the road until it's someone else's problem.
- konschubert 3y agoSo you’re saying companies paying dividends is bad? That companies should always operate as worker cooperatives and never return money to shareholders? Because stock buybacks are just another type of dividends.
- drewcoo 3y ago> That companies should always operate as worker cooperatives and never return money to shareholders? Workers are the shareholders in worker cooperatives.
- duped 3y agoBuy backs are just tax preferred dividends, they are controversial for the taxes and not their existence.
- raincole 3y agoBut big old companies can acquire new companies and startups already...?
- konschubert 3y agoAnd then they kill them, most of the time. Sometimes intentionally, usually unintentionally. The money in the pockets of shareholders is more effective at finding good investment opportunities than the innovation department of big ol’ corporate. But yes, there is an argument to be made, that acquiring small companies can be a valid strategy for big companies. Overall, I think this is bad for the economy though, therefore I am glad that antitrust is pushing back on this.
- admsmz 3y agoThe theory is nice but does this actually happen? My mental model is that money in the pocket of companies is "low entropy money" and money returned to shareholders is "high entropy money". It's the same amount, but much less effective.
- konschubert 3y agoI am not quite sure what you mean, can you elaborate? In my mental model, money in the pockets of shareholders is much more effective than money in the pockets of big corporates.
- nicoburns 3y agoIn my mind, big corporates tend to be large corporations of wealth controlled by few people. And shareholders on average are the same. And therefore neither ought to be considered likely to be particularly effective.
- geysersam 3y agoBest would be if the company increased salaries, then their employees could invest themselves in stuff that actually benefit them, boosting the real economy.
- txnf 3y agohigher salaries would be captured by landlords.
- nicoburns 3y agoOnly because there is under-supply of housing at the moment. If we built more houses then landlords wouldn't be able to charge higher rent just because people had more money. To be clear, I think that we need to address both of these issues: general wealth distribution and lack of affordable housing.
- 3y ago