The theory is nice but does this actually happen?

My mental model is that money in the pocket of companies is "low entropy money" and money returned to shareholders is "high entropy money".

It's the same amount, but much less effective.

I am not quite sure what you mean, can you elaborate? In my mental model, money in the pockets of shareholders is much more effective than money in the pockets of big corporates.

In my mind, big corporates tend to be large corporations of wealth controlled by few people. And shareholders on average are the same. And therefore neither ought to be considered likely to be particularly effective.

Best would be if the company increased salaries, then their employees could invest themselves in stuff that actually benefit them, boosting the real economy.

higher salaries would be captured by landlords.

Only because there is under-supply of housing at the moment. If we built more houses then landlords wouldn't be able to charge higher rent just because people had more money.

To be clear, I think that we need to address both of these issues: general wealth distribution and lack of affordable housing.

A majority of the population's landlord is the bank that holds their mortgage, and they don't just raise your mortgage payment because your income increases.

Most big corporations are owned by institutional investors which represent the 401ks and pension plans of your average citizen.

Define "effective." A company spends its money on people and other inputs to productivity. To my mind that's a lot more "effective" than giving it to the investor class that "spends" it on other investments (by buying it from other people in the investment class).

Most of the money returned to shareholders isn't going to be pumped back into the economy as money spent on goods and services. It just goes into the casino we call stock and bond markets where it provides some liquidity for some investment into companies, but most of it is just spinning around creating no value.

In an economy, people’s work is transformed into output in the form of goods and services, which are then consumed by people.

It matters whether people’s work is effective or not, because it it’s ineffective, you have fewer goods and services that can be consumed.

The factor that connects work to output is called productivity.

It matters how the goods get distributed, yes. But as communism has shown, it also matters a whole lot how many goods and services are being produced.

> The theory is nice but does this actually happen?

All the time, that's what dividends are. Not something that happens much in growth tech stocks but real common in the rest of the economy.

Stock buy-backs exist, and are controversial for various reasons.

My point is that stock buybacks and dividends are good for the economy.

How are they good? Companies are killing their inventory / safety / rnd / experienced headcount to do buy backs and in the slightest economy disruption they are forcing us to bail them out. Look at finance, airlines, oil, manufacturing for very recent examples.

I think it’s good if human working time shifts from oil exploration to other ventures.

That’s what happens when the oil companies do buybacks instead of investing the money

That's a good point. However why not just hand out dividends? From what I understand stock buybacks are basically dividends with tax benefits.

That’s why they don’t just hand out dividends. If you want to take money out of the business just sell some shares. Long term capital gains in the US isn’t bad.

Plus dividends are independent from the stupid market valuations. Everyone benefits the same, not just the folks who will sell after the uptick of price

If you seek the assassination of a company, it is better to tax them to death instead.

This way at least the money stay in country, instead of sending overseas checks.

They are good for the stock. There is no evidence they are good for the company, its workers, or the economy.

Stock buybacks have destroyed companies like GE and Boeing.

This is very well covered in the book about Boeing - Flying Blind. A bunch of Jack Welch mentees did the same trick, selling the company for parts and buying back the stock - until there was nothing left to sell. It was very "profitable" for a while, though!

It's not a tool for company growth - it's an accounting trick to make the wealthy ultra-wealthy.

There is a reason why buybacks at these levels were illegal (or at least very hard) until the early 80s, but there were multiple pro-big-business "reforms" that took root under Reagan which are now wrecking sensible Capitalism.

> This is very well covered in the book about Boeing - Flying Blind. A bunch of Jack Welch mentees did the same trick, selling the company for parts and buying back the stock - until there was nothing left to sell. It was very "profitable" for a while, though!

Ooh nice, TIL and thanks! I really liked "Lights Out: Pride, Delusion, and the Fall of General Electric" about the failure of GE and was looking for something similar.

On the topic of buybacks and dividends, it's part of the short term quarter-oriented thinking. Spinning off subdivisions and doing stock buybacks and dividends are very popular and look good on the balance sheet in the short term... but if you think about a quarter or two ahead, it's crippling. But it doesn't matter, stock go up, bonus go up, everyone happy for now, kicking the can down the road until it's someone else's problem.

So you’re saying companies paying dividends is bad?

That companies should always operate as worker cooperatives and never return money to shareholders?

Because stock buybacks are just another type of dividends.

> That companies should always operate as worker cooperatives and never return money to shareholders?

Workers are the shareholders in worker cooperatives.

>I don't like pears

>You don't like fruits!?

I personally prefer dividends conceptually but the tax treatment leads to buy backs which are less good.

I agree the difference in the tax treatment is bad and should be fixed.

But besides that, is there anything that makes buybacks worse than dividends?

The cost of buybacks is affected by timing, unlike dividends.

Dividends are cleaner and affect the price in well understood ways: you set a date for the elegibility, and if you bought before that you get the dividend, if you buy after you don't.

Stock buybacks are less transparent (you don't buy them all at once).

Yes, it concentrate/centralize power. If you want a new aristocracy, continue buybacks until a share is worth so much, people will start to buy share fractions, with all the shit and overhead that'll bring.

>people will start to buy share fractions, with all the shit and overhead that'll bring.

Which is to say, very little overhead

Companies do share splits all the time.

Dividends also give money to people who have shares.

There is not difference beteeen these two mechanisms in who gets the money.

Dividends are better because you don't have to sell to realize the gains. I'd love to own Google and Facebook and get dividends regularly.

How is that better? With buybacks if I want to reinvest I don't have to pay taxes on them and if I want to realize the gains I can decide when to do that myself (of course seem more like an issue in Europe and with companies which only payout yearly).

Because it encourages longer-term ownership, and gives shareholders a stake in the future cash flows of the business.

Like I said, it's the tax treatment that basically stopped growth companies giving dividends. I think that we should change said tax treatment and also make buybacks illegal but that's a bit more controversial.

In any case, for both G and FB, they'd need to do buybacks anyway because of their employee share programs.

Buybacks have the same effect of encouraging long-term ownership.

Given a certain amount of money, spending it on stock buybacks vs spending it on dividends returns the same amount of money to each HOLDING shareholder.

In one case, they receive a small sum. In the other case, the value of their stock goes up.

The point is that they are good for management, share prices and share holders. The economy is made of more than just those groups.

Stock buybacks are good for the economy because they allocate money to where it can be used more efficiently, which is usually not in existing big corporations.

The alternative to stock buybacks is that the corporation make stupid acquisitions and try to integrate them into their processes, thereby killing them.

Shouldn’t the money be used more efficiently for society’s benefit or not concentrated by the share holders? Share holders will only further their own interests and not society’s interests.

How do you accomplish that? Historically "shareholders" as a group have been quite effective (often but obviously not always) have been quite effective at using at their money for society’s benefit.

In fact every society which tried to take all of their money away and eliminate them as a class (more or less violently) has failed economically. Turns out when it works properly free market competition is strongest force for economic and technological progress that has ever existed.

The closest alternative to buybacks is dividends. But to be honest I'm not sure if that's what the critics want the money going.

Stock buybacks and dividends are the same thing economically, I mean both when I say “stock buybacks”. The difference is only in taxation.

They are also good for everybody else, because they incentivise investment that grows the economy, which means rising real wages.

Now that you link stock buybavks to growing salaries, I cannot ignore it anymore.

Stock buybacks only benefit shareholders and companies, not the economie. Trickle down and all that doesn't work, stock buybacks reduce a companies tax burden, especially when leveraged which they often are, do not lead to more investment. And they make the rich even richer.

See, for example, here:

https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...

And salaries rise, primarily, through labour organization and collective bargaining.

If I get RSUs quarterly and my company additionally buys back 10% of stock. My post vest RSUs should also be worth 10% more. This is effectively a bonus and my tax obligation would be lower than cash.

I'm all for it as a employee AND a shareholder.

In theory (and sometimes/often in reality) it results in more effective allocation of capital. It's not about "trickle down "econonomics"" but about those investors using that money to invest into more productive businesses.

> And salaries rise, primarily, through labour organization and collective bargaining.

No. Supply and demand is and pretty much always was a much stronger force.

Stock buybacks are not “trickle down” economics. It’s returning money to investors who then have to rebalance their portfolios and find something new to invest in. This is what is good for the economy.

> It’s returning money to investors

I believe the parent commenter's point was exactly this. Giving money to the investor class and expecting it to benefit everyone is the definition of trickle-down economics.

The comparison is leaving it with the company and hoping something good comes out of it. That’s also trickle down economics by that moronic definition.

This...exactly

Buy backs are just tax preferred dividends, they are controversial for the taxes and not their existence.

But big old companies can acquire new companies and startups already...?

And then they kill them, most of the time. Sometimes intentionally, usually unintentionally.

The money in the pockets of shareholders is more effective at finding good investment opportunities than the innovation department of big ol’ corporate.

But yes, there is an argument to be made, that acquiring small companies can be a valid strategy for big companies. Overall, I think this is bad for the economy though, therefore I am glad that antitrust is pushing back on this.