What does a BIDEN Presidency look like?

[DGuller]

This line of discussion strikes me as a silly rabbit hole.  Taking the chain of logic from the beginning to end, it seems like we're saying that Elizabeth Warren is right to want to forbid stock buybacks because Apple needs help understanding where they can make profitable investments.

I think it is more that rejection of the Warren position that stock buybacks should be restricted based on the presumption that companies are all super smart and know best what is best for everyone is pretty easily refuted with some examples that in fact companies often do not make optimal decisions, and there is no particular reason to believe that buying back stock is somehow magically a thing where simply because a company does it, we should a priori assume that was the best possible use of that money for all stakeholders involved.

I don't know if anyone is saying that companies are super smart about their stock buybacks, but you don't need to say that in any case to defend their right to buy back stock.  When you say that companies shouldn't be able to buy back stock, you're basically saying that some entity other than those companies in general know the best how the corporate money should be invested. 

All of us who worked in corporations know that the decisions made are often suboptimal, it's just that there is no evidence that Elizabeth Warren or Minsky making investment decisions for corporations is an approach that would reduce the number of such suboptimal decisions.  When you have systems with people making decisions, every system is the worst, but some are more worst than others.

[DGuller]

This is why my question to AR wasn't what are the benefits to a company for doing buybacks, but what are the benefits to the economy for buybacks because I think that's the frame that government should look at things.

The benefit to the economy is that companies aren't forced to make investments that are suboptimal because they have no other means of getting rid of the excess cash.  Every suboptimal investment decision is ultimately a waste on the economy level, sooner or later that percolates down to lower productivity, and productivity is ultimately what determines the standard of living.  The capital that dilettantes use to dabble in areas they know little about is the capital that can't be used by more competent actors, or by Elon Musks of this world.

[crazy canuck]

This line of discussion strikes me as a silly rabbit hole.  Taking the chain of logic from the beginning to end, it seems like we're saying that Elizabeth Warren is right to want to forbid stock buybacks because Apple needs help understanding where they can make profitable investments.

I think it is more that rejection of the Warren position that stock buybacks should be restricted based on the presumption that companies are all super smart and know best what is best for everyone is pretty easily refuted with some examples that in fact companies often do not make optimal decisions, and there is no particular reason to believe that buying back stock is somehow magically a thing where simply because a company does it, we should a priori assume that was the best possible use of that money for all stakeholders involved.

I don't know if anyone is saying that companies are super smart about their stock buybacks, but you don't need to say that in any case to defend their right to buy back stock.  When you say that companies shouldn't be able to buy back stock, you're basically saying that some entity other than those companies in general know the best how the corporate money should be invested. 

All of us who worked in corporations know that the decisions made are often suboptimal, it's just that there is no evidence that Elizabeth Warren or Minsky making investment decisions for corporations is an approach that would reduce the number of such suboptimal decisions.  When you have systems with people making decisions, every system is the worst, but some are more worst than others.

No, there is nothing about this policy about what a company ought to invest in.  This is about restricting one of those options -  the ability of the executive of a company to act against the interests of shareholders and general societal interests.  That is the point of regulation.   The company can make what ever other investments it wants. 

[Sheilbh]

The benefit to the economy is that companies aren't forced to make investments that are suboptimal because they have no other means of getting rid of the excess cash.  Every suboptimal investment decision is ultimately a waste on the economy level, sooner or later that percolates down to lower productivity, and productivity is ultimately what determines the standard of living.  The capital that dilettantes use to dabble in areas they know little about is the capital that can't be used by more competent actors, or by Elon Musks of this world.

But surely that applies to any way of returning capital to shareholders? So in what ways is this better for the market (including all shareholders) than other methods of doing that such as dividends?

[Valmy]

My understanding is that stock buybacks were illegal until the 1980s and have been controversial ever since. I usually hear that some company fired tons of people or got some big bailout and then used the money it saved to buy back stock.

So I guess my question is why was it originally illegal and why was the decision made it should be legal? What benefit does society actually get from it?

[Sheilbh]

My understanding is that stock buybacks were illegal until the 1980s and have been controversial ever since. I usually hear that some company fired tons of people or got some big bailout and then used the money it saved to buy back stock.

In the UK they're allowed but there's a lot of process and transparency around them. Also in the sort of guidance by investment trade bodies - so associations of asset managers, pension fund managers etc - they are generally viewed negatively and dividends are preferred.

[DGuller]

The benefit to the economy is that companies aren't forced to make investments that are suboptimal because they have no other means of getting rid of the excess cash.  Every suboptimal investment decision is ultimately a waste on the economy level, sooner or later that percolates down to lower productivity, and productivity is ultimately what determines the standard of living.  The capital that dilettantes use to dabble in areas they know little about is the capital that can't be used by more competent actors, or by Elon Musks of this world.

But surely that applies to any way of returning capital to shareholders? So in what ways is this better for the market (including all shareholders) than other methods of doing that such as dividends?

It's desirable for dividends to be stable and predictable.  You don't want to ramp them way up one year and ramp them way down the next year.  However, your excess cash may not come and go on such a precise schedule.

[crazy canuck]

My understanding is that stock buybacks were illegal until the 1980s and have been controversial ever since. I usually hear that some company fired tons of people or got some big bailout and then used the money it saved to buy back stock.

So I guess my question is why was it originally illegal and why was the decision made it should be legal? What benefit does society actually get from it?

The law used to do a better job protecting shareholders.  Then de-regulation hit, riding high on the market knows best - the best government involvement is no government involvement mantra.  Some of that regulation was built back after Enron, but has since largely been gutted again.

The greatest ill is the fantasy that there is a perfect market in which all decisions ought to be made.

[Valmy]

Yes I am aware of all that. I was just curious about the legalization of stock buy backs and why they were illegal in the first place specifically.

[DGuller]

Yes I am aware of all that. I was just curious about the legalization of stock buy backs and why they were illegal in the first place specifically.

I imagine that a lot of financial regulations that existed at one time were well-intentioned but ill-advised.  Just because the regulatory regime was more robust 50 years ago, and arguably better served the interests of society overall, doesn't mean that every regulation from that time was benefitting society.  The development of taxpayer-insured casino economy in the financial industry definitely hasn't been a good thing for society, but I fail to see how stock buybacks are in any way the culprit.

[Valmy]

Yes I am aware of all that. I was just curious about the legalization of stock buy backs and why they were illegal in the first place specifically.

I imagine that a lot of financial regulations that existed at one time were well-intentioned but ill-advised.  Just because the regulatory regime was more robust 50 years ago, and arguably better served the interests of society overall, doesn't mean that every regulation from that time was benefitting society.  The development of taxpayer-insured casino economy in the financial industry definitely hasn't been a good thing for society, but I fail to see how stock buybacks are in any way the culprit.

Yeah I wasn't saying we should outlaw buy backs I was just curious what the rationale was for outlawing them and why it is a good thing they are currently legal, or at least not a bad thing.

[The Minsky Moment]

It's desirable for dividends to be stable and predictable.  You don't want to ramp them way up one year and ramp them way down the next year.  However, your excess cash may not come and go on such a precise schedule.

the concept of a special (extraordinary) dividend has been around for a long time.

[The Minsky Moment]

All of us who worked in corporations know that the decisions made are often suboptimal, it's just that there is no evidence that Elizabeth Warren or Minsky making investment decisions for corporations is an approach that would reduce the number of such suboptimal decisions.  When you have systems with people making decisions, every system is the worst, but some are more worst than others.

That's a strawman argument, no one is taking that position.
Every economic system consists of a set of rules, norms and practices: the question is at any given time is whether those rules, norms and practices are working they way they should to give economic actors the proper incentives.

The US has struggled to maintain full employment since recovering from the 08 financial crisis.  It has succeeded in keeping unemployment rates down but the employment rate never returned to pre crisis levels - and even that was achieved by running continuously large government deficits.  This all points to a chronic post-crisis weakness in private investment and raises the policy question of whether economic policy should be oriented towards encouraging more productive investment and less financial card shuffling.  The alternative is a future where the government has to assume a increasing role as investor of last resort while the private sector retreats into expertly managed and profit generating stagnation.

[Sheilbh]

The US has struggled to maintain full employment since recovering from the 08 financial crisis.  It has succeeded in keeping unemployment rates down but the employment rate never returned to pre crisis levels - and even that was achieved by running continuously large government deficits.  This all points to a chronic post-crisis weakness in private investment and raises the policy question of whether economic policy should be oriented towards encouraging more productive investment and less financial card shuffling.  The alternative is a future where the government has to assume a increasing role as investor of last resort while the private sector retreats into expertly managed and profit generating stagnation.

Also the employment rate is significantly below the UK, Germany and Japan which was not historically the case. In part this may be partly because the US had more unemployment and less job protection policies in 2008, which raises a risk that the same happens after covid.

[DGuller]

All of us who worked in corporations know that the decisions made are often suboptimal, it's just that there is no evidence that Elizabeth Warren or Minsky making investment decisions for corporations is an approach that would reduce the number of such suboptimal decisions.  When you have systems with people making decisions, every system is the worst, but some are more worst than others.

That's a strawman argument, no one is taking that position.
Every economic system consists of a set of rules, norms and practices: the question is at any given time is whether those rules, norms and practices are working they way they should to give economic actors the proper incentives.

The US has struggled to maintain full employment since recovering from the 08 financial crisis.  It has succeeded in keeping unemployment rates down but the employment rate never returned to pre crisis levels - and even that was achieved by running continuously large government deficits.  This all points to a chronic post-crisis weakness in private investment and raises the policy question of whether economic policy should be oriented towards encouraging more productive investment and less financial card shuffling.  The alternative is a future where the government has to assume a increasing role as investor of last resort while the private sector retreats into expertly managed and profit generating stagnation.

Maybe I didn't interpret your posts properly, but didn't you pretty much come out and say here that Apple would manage GM better than GM would, and that Apple senior management is making a mistake by not taking over increasingly diverse swathes of the economy to put their management magic to use? 

I'm not arguing against the notion that there is a lot of dead wood thinking in the industries such as car making, but at the same time there is also a lot of know-how.  When you're making machines with thousands of moving parts (there is a lot more to cars than IC engine), the boring know-how from engineers that interests no one other than said engineers adds up to a pretty penny. 

I myself work in an insurance industry, which is second only to automakers in blind stupid stubbornness in doing things the way they've always been done, and yet all the fresh "disruptors" so far are more of a joke than a threat.  Does it mean that insurance industry can't be disrupted by outsiders?  Not at all, in fact I believe that one day it will happen (hopefully with my help), and the old farts in the industry will absolutely deserve their fate, but it's not going to be easy.  The reason old-fartism can persist in the market is precisely because that old-fartism is coupled with a lot of specific domain know-how, and sometimes it takes the genius of someone like Elon Musk to overcome it.