Why Stock Buybacks Do So Little for Americans
Instead of restricting share repurchases, expand the pool of people with a stake in markets.
Bloomberg, February 07, 2019
This column was originally going to be about stock buybacks. It no longer is.
I was going to address the proposal by the unlikely Senatorial duo of Chuck Schumer and Bernie Sanders, who together penned a screed against share repurchases (“Limit Corporate Stock Buybacks”) in this past weekend’s New York Times. Their complicated prescription limited stock buybacks to only those companies paying a national corporate minimum wage of $15 hour.
I have never been a fan of stock buybacks and I have written positively on the raising the minimum wage. But this unwieldy mess, mashing two unrelated issues together made no sense. Well-intentioned, but not well crafted, replacing management’s judgement on matters of corporate capital allocation with that of Congress’. No thanks.
However, Schumer and Sanders make an important point — but then inexplicably ignore it. Their very first plank is to observe that stock buybacks do not benefit the vast majority of Americans, but they never address why. The short answer: Most Americans have little or no stake in the U.S. stock markets.
Edward Nathan Wolff, an economics professor at New York University, found that the wealthiest 10 percent of households held 84 percent of all stocks.” If fractions are not your forte, allow me to restate that: 90 percent of households hold less than 16 percent of all public equities in the United States. The capital markets, which readers of these pages have devoted so much time, attention, study and career to, is pretty much meaningless to nearly all of your fellow Americans.
Let that sink in for a moment. Equity markets, one of the most effective savings and wealth creation mechanisms ever created, are not relevant to Americans. Forget Bloomberg or the Wall Street Journal or CNBC or Fortune, when it comes to stocks, bonds, 401ks, IRAs, REITs, Mutual Funds, etc., and simply are not do not matter.