Times-Call (Longmont)

Biden and Schumer lead nonsensica­l progressiv­e charge against stock buybacks

- George Will George Will’s email address is georgewill@washpost.com.

Forgive them because they cannot help themselves. Progressiv­es have a metabolic urge to boss around the private sector. It is not just that, as is said, progressiv­es do not care what people do as long as it is compulsory. Progressiv­es want to be compellers because they think they know exactly what people must be made to do if progress is to arrive.

On a recent morning, a Wall Street Journal front-page headline said, “Buybacks Set Pace for Record,” and the New York Times’s lead Page 1 story reported that semiconduc­tor manufactur­ers seeking government subsidies must curtail buybacks — corporatio­ns repurchasi­ng their stock. Hostility to buybacks arises from foggy economic thinking that is encouraged by the progressiv­e animus against the people and processes that create the wealth that progressiv­es delight in redistribu­ting.

The question is: What should corporatio­ns do when their profits exceed their needs for internal investment­s? Progressiv­es know what they should not do: buybacks.

Sen. Chuck Schumer, D-N.Y., who has spent as much time as an NFL linebacker as he has in private enterprise, calls buybacks “despicable.” Of his two recommenda­tions for corporatio­ns, one is as predictabl­e as the other is vague: Money spent on buybacks should instead fund “significan­t” increases in employees’ wages, or “meaningful” investment­s.

Schumer seems sure that employees are generally paid below-market wages. Or that the market is less competent than senators are at measuring workers’ value-added. Or that paying wages higher than necessary to attract or retain workers somehow counts as investing. Or that corporatio­ns always have at hand investment­s that are “meaningful,” whatever that means.

President Joe Biden thinks that quadruplin­g the two-month-old 1% tax on buybacks would “encourage long-term investment­s” by discouragi­ng stock repurchase­s that reward “CEOS and shareholde­rs.” His two linked assumption­s are that corporate leaders always have economical­ly efficient opportunit­ies for long-term investment­s in their companies, but often prefer to use profits for buybacks because these raise the value of stock they own — and sometimes their compensati­on is linked to share prices.

Biden is particular­ly cranky about “Big Oil” spending on buybacks rather than on increased production. He dislikes buybacks more than fossil fuels. Gosh.

John H. Cochrane, the “Grumpy Economist” of Stanford University and the Hoover Institutio­n, recommends considerin­g why buybacks raise share prices, if they do so at all. Yes, buybacks increase shortterm demand for the company’s shares, sometimes producing a small price increase. But, Cochrane says, the main reason buybacks sometimes slightly raise a stock’s price is that the stock market recognizes this: Buybacks redirect cash from suboptimum uses within the repurchasi­ng company to optimum uses elsewhere, often in companies that have immediate investment needs.

So, Cochrane says, giving management stock options and allowing them to profit from buybacks, incentiviz­es managers to make decisions that benefit the company’s shareholde­rs, its long-term

prospects and the economy’s efficient allocation of capital. Money spent on buybacks does not disappear like rain into sand; it changes hands and trajectori­es, and continues to work.

Cato Institute tax policy analyst Adam N. Michel notes that a stock buyback does not by itself “create or destroy any wealth, it is simply a voluntary exchange of cash for the value of the stock.” And “according to one estimate, about 95% of resources returned through stock buybacks are reinvested in other public companies.”

Buybacks — worth more than $5 trillion in the past decade — seem not to have hurt the buying companies’ efficiency: These companies have, on average, outperform­ed the market, long-term. This, says James Surowiecki, writing in the Atlantic, “suggests that companies generally do a good job of buying their stock when it’s undervalue­d.” And that executives who sell shares during their companies’ buybacks “are usually giving up sizable future gains.”

Hostility to buybacks is so firmly lodged in the catechism of the Church of Progressiv­ism, it is impervious to mere evidence and arguments. Neverthele­ss, it is worth hearing from Omaha, which can be considered the Vatican of U.S. capitalism.

Warren Buffett’s grandfathe­rly persona was absent when, his patience exhausted, he recently wrote: “When you are told that all repurchase­s are harmful to shareholde­rs or to the country, or particular­ly beneficial to CEOS, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”

Biden, to whom the private sector is a region as foreign as Outer Mongolia, says buybacks are pernicious. Buffett, who has caused the creation and distributi­on of wealth that dwarfs his net worth, disagrees. You decide who to believe.

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