Apparently stock buybacks, for the sake of enriching the richest, are a major factor in income inequality.<\/p>\n
\nFive years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients\u2014which include most of the highest-ranking corporate executives\u2014reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.<\/span><\/p>\n
The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings\u2014a total of $2.4 trillion\u2014to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.<\/p>\n
The buyback wave has gotten so big, in fact, that even shareholders\u2014the presumed beneficiaries of all this corporate largesse\u2014are getting worried. \u201cIt concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,\u201d Laurence Fink, the chairman and CEO of BlackRock, the world\u2019s largest asset manager, wrote in an open letter to corporate America in March. \u201cToo many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.\u201d<\/p>\n
Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices…<\/p>\n<\/blockquote>\n