Robert Reich: Trump’s Stock Buyback Bamboozle


In Trump’s view, the economy works well
when the stock market does well. But a big reason stocks rise in value — and
don’t fall as far as they would otherwise — is stock buybacks. For years, corporations have spent most of
their profits buying back their own shares of stock, instead of increasing the wages
of their employees, whose hard work creates these profits. Stock buybacks are artificial efforts to interfere
in the so-called “free market” to prop up stock prices. Because they create an artificial demand,
they force stock prices above their natural level. With fewer shares in circulation, each remaining
share is worth more. Buybacks don’t create more or better jobs. Money spent on buybacks isn’t invested in
new equipment, or research and development, or factories, or wages. It doesn’t build a company. Buybacks don’t grow the American economy. So why are buybacks so popular with Corporate
CEOs? Because a bigger and bigger portion of CEO
pay has been in stocks and stock options, rather than cash. So when share prices go up, executives reap
a bonanza. The value of their pay from previous years
also rises – in what amounts to a retroactive (and off the books) pay increase on top of
their already outrageous compensation. Now that the new corporate tax cut is pumping
up profits, buybacks are on track to hit a record $800 billion this year. Buybacks were illegal until Ronald Reagan
made them legal in 1982, just about the same time wages stopped rising for most Americans. Before then, a bigger percentage of corporate
profits went into increasing workers’ wages. Trump and Republicans branded their huge corporate
tax cut as a way to make American businesses more profitable, so they’d invest in more
and better jobs. But since corporations were already using
their profits for stock buybacks, there is no reason to believe they’ll use their tax
windfall on anything other than more stock buybacks. Let’s not compound the error. Make stock buybacks illegal, as they were
before 1982.

17 Replies to “Robert Reich: Trump’s Stock Buyback Bamboozle”

  1. Real news: Mexico now Canada coming back to the table for negotiations, ready for a new trade agreement. Hmmmmmm. Maybe our allies we're not that alienated like you claimed.

  2. Buying back stock is stock market manipulation … something that used to be illegal. https://mavenroundtable.io/theintellectualist/news/stock-buybacks-were-once-illegal-why-are-they-legal-now-sHh6HZjtyk2styG-qLgnQg/

  3. If you look at total stock market there is a net dilution of stock. CEOs sell stock to keep operations going. Most of the entire rise of the stock market over the last 100 years is inflation. Thus the main culprit in stock rise is deficit spending. Since CEOs get paid off any rise in stock, who is the cause of inflation? liberal democrats! With bailout of banks, qe, toxic mortgage buying, cheap debt, and deficit spending it is the liberals democrats that are responsible for stocks to rise and almost all inequality that results. Can a democrat match revenues? According to Pelosi, there is nothing left to cut. They are evil.

  4. Robert riech sounds an awful lot like a communist. Stock buybacks help anyone who owns stock which aren't just the CEOs they happen to be a lot of middle class people with 401k plans. Also the ceo doesn't get up one day and say IM GONNA BUY BACK ME STOCK, these decisions are made by the board of directors and are often voted in or out based on the shareholder vote of common stock. These voters could be a teen who owns stock, another Ceo of a company or an old lady. Robert riech instead of complaining how greedy rich people keep you down you join them buy doing the same activities they do, buy stock start a business become really valuable to the market.

  5. We don't have an over capacity problem, but an under capacity problem world wide… we have smaller growth in demand, but lots of supply around the world. At some point that growth falls as debt boosted some of the growing demand. And we're at another debt over borrowing period.
    The 10 year so called recovery will likely be written in history books as the bogus recovery… or the "fake" recovery, as businesses simply hollowed themselves in these stock buybacks, the scary part is some of these companies have actually taken loans or floated bonds to do these buy backs… it's already bad that profits are going toward buybacks, but they're just taking loans to do the same, even worse.

    The FDR administration and congress of that time has essentially been fully reversed.
    Get ready to repeat early and near mid 1900's all over again worldwide.
    This time with nuclear weapons… and whatever climate change ends up doing.

  6. His understanding is flawed. Companies make profits. Those profits need to be returned to their shareholders. You can either pay them out in dividends, or return them via stock buybacks. From an investors POV, both methods are suitable. To label buybacks as evil, but dividends as good, is entirely artificial.

  7. The tax code needs to be rejiggered to reward companies for paying their workers more across the board. Want a lower rate? Pay more!

  8. As accurate and as completely true as this video is, and Mr. Reich should be thanked for this kind of ongoing education, let us not forget that President Obama, whom he served as an economic transition advisor is now trying to become a billionaire; also remember that it was Bill Clinton under whom Mr. Reich served, who killed the Glass-Steagall Act via Gramm-Leach-Bliley, thus reintroducing expanded speculation not seen since 1933. So rather than lambasting Trump, who is an idiot, it is better to recognize that all members of the chessboard have failed, and all should support reenacting Sane legislation, regulation, and protection of the American people. Lots of Democrats and Republicans would support that.

  9. So Reagan made it legal to buy back stocks but we have had 4 Presidents since Reagan who could have undone it so why didn't they.

  10. The people who sold their shares got the money, money that they can now spend in the economy if they choose. The money is still circulating.

  11. Not only do the CEOs use the stock buyback to inflate their "salary", because they are cashing in stocks held for more than a year, they receive Capital Gains tax rates (14%) on their "salary", instead of the marginal tax rate that might apply to their earnings (30+%) if they were paid like the rest of the W2 wage earners… So, they MAKE more AND they KEEP more.

  12. I used to think Regan was an alright guy. Now I learn he was another republican story teller distracting us from the truth.

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