While I fear this proposal from Senators Schumer (D-NY) and Sanders (D-VT), published in The New York Times, concerning stock buyback and dividend behavior by public corporations, will not pass muster with the Republican Party nor SCOTUS, it has a lot of interesting elements which bear discussion:
From the mid-20th century until the 1970s, American corporations shared a belief that they had a duty not only to their shareholders but to their workers, their communities and the country that created the economic conditions and legal protections for them to thrive. It created an extremely prosperous America for working people and the broad middle of the country.
But over the past several decades, corporate boardrooms have become obsessed with maximizing only shareholder earnings to the detriment of workers and the long-term strength of their companies, helping to create the worst level of income inequality in decades.
One way in which this pervasive corporate ethos manifests itself is the explosion of stock buybacks.
So focused on shareholder value, companies, rather than investing in ways to make their businesses more resilient or their workers more productive, have been dedicating ever larger shares of their profits to dividends and corporate share repurchases. When a company purchases its own stock back, it reduces the number of publicly traded shares, boosting the value of the stock to the benefit of shareholders and corporate leadership.
I think one of the practical problems of the concentration on shareholder returns is that we’ll get, and are in fact getting, a society which is wildly out of balance with regard to wealth distribution. There are practical consequences to this.
For the people who are not invested in corporations, there’s the obvious: poverty.
For those who see themselves on the upside, the results will be a bit more in the future: an economy, based on consumption, in which the great mass of consumers are lacking the financial means to buy the goods with which the rich maintain their incomes. They may find their returns originally generous, but less so as the years pass.
This result can be blunted by the rich if they limit their astronomical consumption (such as owning your own supersonic jet) and live off their stored wealth with some decorum.
Most don’t, though. That requires the ability to ignore the competitive instinct that drove many of them to become the top 5% of society in the first place. So when their income falls, they may find themselves in danger of losing their lifestyles. Then they’ll demand lower taxes, express shock at higher taxes (such as a bunch of billionaires recently, including this guy, who are too young to remember a 90% marginal income tax), and continue to “amass wealth.”
This behavior will have the capacity to drive society into an oscillation which may prove disastrous.
I don’t know how Schumer and Sanders’ proposal to enforce societal stabilization (aka, ethical) strategies will play out, but it’s worth considering that our fascination with wealth, with money, rather than with a healthier society, is the unspoken core of this proposal. Think of it this way: our metric for measuring ourselves is flawed. If I had a billion dollars, made through lucky investments or starting up some retail Web shop, would that make me better than the social worker who barely pays the rent but is helping people directly?
Some would say yes.
I don’t think so.
And, yet, resources, or wealth, is required to help drive improvement, but we seem to have forgotten all the other parts.
As I was typing this up, it occurred to me that the Democrats, for all their raucousness and flaws, are the party of grown-ups. It’s too bad they haven’t found a way to make their better urges more coherent and communicable.
Later note: the Democratic debacle in Virginia sorta renders my comment irrelevant, doesn’t it?
