Stock Buybacks, the Culprit Behind the Chasm?

To be clear, stock buybacks per se is not necessarily a bad thing. When the stock is undervalued, executives with a vision of long-term growth can buy them to take ownership into their own hands. Warren Buffett used this kind of buybacks in the 1980s at his company GEICO---now Berkshire Hathaway. Another condition to be fulfilled is that the company must be profitable enough so that real investment plans can be realized.

Admittedly, bringing the U.S. back onto the path of the so-called American dream needs more than just this. There is also the problem of employer-employee power dynamics, which have brought the attention of thousands of scholars---including economists Gabriel Zucman, Thomas Piketty, Dani Rodrik, and Ha-Joon Chang---and made them call for the democratization of work. There is also an idea that is gaining ground of profit sharing to not only shareholders, but also workers. An already popular and less radical idea would be to raise the minimum wage.

However, those are ideas for future discussions. For now, the U.S. have faced the urgency of declining living standards, support has been acquired from both ruling parties, and there is only one thing left to be done. Ban stock buybacks.

References without hyperlink

Benmelech, E., Bergman, N., & Kim, H. (2018). Strong employers and weak employees: How does employer concentration affect wages? (No. w24307). National Bureau of Economic Research.

Lazonick, W. (2014). Profits Without Prosperity. Harvard Business Review.

Mishel, L., and Wolfe, J. (2018). CEO compensation has grown 940% since 1978. Economic Policy Institute.

By Rosalia Marcha Violeta | Economics batch 2018 | Head of Economic Studies Division Kanopi FEB UI 2020