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BUYBACKS, DIVIDENDS AND UNEMPLOYMENT (PART IV)

January 10, 2014

 

BUYBACKS, DIVIDENDS AND UNEMPLOYMENT (PART IV)

Parts I through III of this essay point out that corporate America has historic amounts of cash in its coffers but will not spend it on new plant, new heavy equipment and hiring new personnel. We are told by corporate spokespeople that they cannot justify such exposures because of weak demand both in this country and around the world, and that without robust demand they are forced to tread water and wait on aggregate demand to pick up before they can even think of expanding facilities to produce more goods and services for which there is currently no market.

While there is some validity to that proposition, how will demand ever pick up if its mortal economic enemy, unemployment, doesn’t plunge as well? People have to have money in their pockets to buy what corporations produce, and since corporations will not expand for lack of demand, it seems the rest of us are stuck in the economic mud of near-recession since we allow corporations to make economic policy decisions for us and, as we have seen, they have no incentive to spur demand since they can maintain profits for distribution to shareholders even as their overall economic performance remains lethargic at best. With buyouts and layoffs available to corporate America, why worry about unemployment? That’s a problem for the rest of us.

Until more people are employed and/or until wage inequality (or both) are addressed for those who are working, demand will remain in the doldrums and we will remain in near recession. Occasional bumps in hiring, contrary to the claims of politicians, are weak and consist mostly of minimum or near minimum wage jobs and, as we have seen, are offset by corporate America’s layoffs of its employees (along with stock buyouts etc.) on the other side of the coin in order to preserve shareholder fidelity. The fact that such layoffs increase unemployment and decrease aggregate demand is not a problem corporate America is called upon to solve. It’s our problem, not theirs. They have other ways of making money and squeezing profits out of layoffs, outsourcing etc., a flexibility the unemployed do not have while sitting at home with bills that continue even as their employment status does not.

Let’s take a look at some of the numbers involved in buybacks and layoffs, courtesy of Howard Silverblatt, a senior Standard & Poor’s analyst. In the third quarter of 2013, large S & P companies devoted more than 200 billion dollars to dividends and buybacks, the largest amounts since the last quarter of 2007. Dividends have reached a high of 310 billion dollars this year compared with 286 billion dollars last year (and in a near recession economy?). (These numbers properly exclude financial and utilities corporations since they are regulated and must hold certain amounts of cash in reserve.)

Silverblatt notes that cash hoards have been building for 93 consecutive weeks and corporations have been able to generate record profits – but not through the sale of their goods and services. They have generated such record profits through cost-cutting and a tight workforce. They are demanding that their workers work harder and longer or suffer layoff or outsourcing. Working Americans are underpaid and exhausted while the unemployed are impoverished and corporations are reporting record profits. Is there something wrong with this picture? I think the adjective “disgusting” is descriptive.

Companies in 2013 announced over 745 billion dollars in buybacks compared with only 477 billion the year before (which may explain what that 93 consecutive weeks of cash buildup helped fund). With a 25% increase in the S & P in 2013, buybacks of one’s own stock did become more expensive, but with such enhanced value of the stock purchased (and with the consequent increase in the availability of money for payment of dividends), it worked out for corporate America. If, after all, you needed more profit to add to your depleted cash coffers, you can always lay off employees and demand yet further hard work from your remaining employees.

Microsoft had a buyback of 40 billion dollars and Apple had a buyback of 50 billion dollars in 2013. Cisco has announced a 15 billion dollar buyback and a layoff of 4,000 employees in the same press release. Boeing and Archer Daniels Midland announced just last week that they would do some buybacks as well as offer dividend rewards this week. Boeing boosted its dividend by 51 percent, apparently after bullying its union workers to surrender their hard-earned gains in return for keeping it 777X airline production in Seattle. Archer Daniels Midland is best remembered for paying millions of dollars in fines for its attempt (along with two Swiss corporations) to corner the world market on corn syrup several years ago. It seems that greed and bullying and even crime have a common base, and that it is alive and well in corporate America, especially in its banking sector.

Corporate America is hysterically opposed to Keynesian solutions of unemployment by government since such is an exercise in socialism – and our economy and how it functions are the sole preserves of private enterprise. Apparently the people through their government are to have nothing to say about how our economy should deal with unemployment and other functions of an economy owned by the people and not the corporate players who have so arrogantly seized control of economic policy with a result, among others, that makes it profitable to corporations when they increase unemployment by laying off employees so that corporate stock values are maintained. Such an arrangement may make shareholders happy while impoverishing former employees and adding to the social safety net the rest of us must pay for the unemployed to keep life and limb together, but someone tell me how that is good policy for the people who own this economy.

Keynesian policies in reducing unemployment have been shown to work, and when applied to rebuilding of infrastructure, the country gets something tangible for its money as opposed to tax cuts and other advantageous payoffs to corporate America which enrich the investment class at the expense of the rest of us, who not only are charged with paying for their deductions and even their stock, but don’t get the improved infrastructure such giveaways could otherwise have funded.

Someone tell me how such current corporate-made policy is good for America where corporate America decides our unemployment and wage rates and trade policies via their legislative toadies whose hands are always out in the pursuit of “campaign contributions.” When are we the people going to make our own economic policies based upon what is good for America and all of its people rather than just the select few?  It’s our economy and not that of any select few. Let’s act like it.  GERALD  E

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