“How American CEOs got so rich” — Vox, 2019, 10:07 — https://www.youtube.com/watch?v=ylLTMYt24lA
Tax laws favoring the rich are often cited as a key factor in income and wealth inequality, but this video introduces us to another tool of social class oppression. Stock buybacks have become a popular means of raising a company’s stock price without the company actually doing anything better. Buybacks create artificial scarcity since there is less stock on the open market, and this raises the price of the stock. However, this practice has also reshaped the American economy and is a key factor in the growing productivity-pay gap. Why? This video claims companies use profits to buy back their stock instead of raising wages or reinvesting in the company. We can see the problem intensify when the Reagan administration loosened regulations in the 1980s. In 1982, companies spent an average of 0.5% of their profits on buybacks. By 2018, that figure had jumped to 65%. Companies also began linking CEO pay to the stock price, and as the easiest way to do this is through buybacks, they were less incentivized to boost wages or improve business. This is an American phenomenon as well since other nations have stricter regulations and different corporate cultures. As productivity and profit have risen over time, buybacks have prevented this new wealth from “trickling down” to the workers. The strategy obviously favors wealthy investors as they are the ones who hold stocks. Unfortunately, when the Trump administration cut the corporate tax rate, buybacks reached record numbers. How can we ensure that increases in productivity are beneficial to everyone?
From the video’s description: For a long time, it was off-limits for a corporation to buy back its own stock. Not anymore. American companies today spend billions on stock buybacks. So what does that mean for the US economy? And how did it help make American CEOs so unbelievably rich?