To what extend do stock buy-backs drive deindustrialization?

Les Leopold recently published a piece on Alternet (http://tiny.cc/kgqthy) entitled "CNN Host's Attempt to Explain the U.S. Economy Was So Bad I Started Yelling at the TV" in which he characterized stock buy-backs as a luciferous addiction afflicting CEOs of major US corporations that has undermined the country's manufacturing base while driving the growth in inequality. Do you agree?

Official response from submitted

Stock buybacks reflect (1) a decline in mass purchasing power consequent upon growing US income and wealth inequalities, (2) thus a decline in real investment opportunities, (3) corporate governance rules that reward top executives with stock options etc as major parts of their payments, (4) historically low interest rates making it profitable to shareholders and top executives to borrow for stock buybacks as % rise in stock prices larger than % rise in interest costs....among the other factors helping to cause stock buybacks. Buybacks are effects of inequality as well as among its many causes. The search for "the" cause or chief cause is a hopeless and illogical enterprise. Stock buybacks are part of how contemporary capitalist system works. Its the system that is the problem here, not one detail of its workings.


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  • commented 2016-12-19 18:49:51 -0500
    Thank you, Prof. A direct consequence of the financialization of industry is the diversion of capital away from productive investments in new plant into valueless money-manipulation that boosts the incomes of corporate officers but costs the jobs of workers and leads to loss of productive capacity. You’re right that a systemic problem lies at the root of it. WSDEs would end the practice forthwith. What is needed in addition to cooperatives are state banks whose sole purpose is to lend money to worker-owned and -operated businesses.
  • responded with submitted 2016-12-18 12:37:33 -0500
  • published this page in Ask Prof. Wolff 2016-12-18 10:50:48 -0500

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