Stock buybacks used to be illegal, once considered a form of stock manipulation until 1982 when the SEC passed rule 10b-18 legalizing the practice under Reagan’s failed trickle-down agenda. Over the past 10 years, companies on the S&P 500 have put $5.4 trillion into purchasing their own shares instead of investing in the economy and workers. For this reason, the recent $2 trillion stimulus plan aimed at combating the economic downturn has banned buybacks up to 12 months after the government assistance ends. Under just almost two months of a pandemic-induced recession and many companies are now filing for bankruptcy, so why didn’t they “save for a rainy day” as the underpaid working-class advised? Stock buybacks should be permanently outlawed again, and companies should start investing their free cash flow in human capital and the economy. Stock buybacks are just a legal way companies conduct insider trading without investing in the economy.
During the two years following the 2017 corporate tax cuts, companies on the S&P 500 spent $1.5 trillion in share buybacks instead of investing in the US economy. And in the past 10 years, the top 20 companies on the S&P 500 bought back $1.3 trillion in shares.But common share buybacks from the open market leaves little shares outstanding. Trickle-down failed to trickle-down again, absolute shocker. The airline industry has recently garnered criticism for this practice. Boeing and other airlines regularly buy back shares from the stock market to increase their share price. Over the past 10 years, the top U.S. airlines have spent 96% of their free cash flow buying back shares.
Instead of creating jobs, investing in the economy, workers, and raising their wages, they are enriching stakeholders instead of those actually driving their businesses. Buybacks are an indolent way to increase stock prices without actually growing the company.
Companies increase their share prices by purchasing back their own shares and leaving fewer outstanding shares in the stock market. This boosts the EPS (earnings per share) and enriches stockholders. This is all without ever investing in capital expenditures, research and development, or ever giving back to workers by increasing their stagnant wages.
Stock buybacks should be permanently outlawed long after the March 27, 2020 $2 trillion stimulus plan expires. This bill gave $50 billion in stimulus assistance to cargo and passenger airline and $17 billion for businesses considered critical to national security such as Boeing. It also placed a ban on share buybacks on any company receiving assistance. Buybacks are essentially insider trading, they’re a lazy way to increase stock prices without ever growing the economy or company and investing in workers.
In the deficit-increasing aftermath of the 2017 corporate tax cuts, it should be clear that unchecked late stage capitalism fails to invest savings back in the economy and its workers. The legalization of stock buybacks has only given CEO’s more reason to exploit workers by not paying fair wages while they opt repurchase their company’s shares instead. This is why CEO pay increased 438% between 1990 and 2016 while the average adjusted hourly wage in the U.S. only grew 12% between 1964 and 2018. It’s time to invest back in the American worker whose wages haven’t kept up with the 657% rise in inflation & 176% rise in productivity over the past 50 years.
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