This chart tells a shocking story. It says that stockholders of American corporations are taking out more in dividends and stock buybacks than the corporations are earning in profits. They are eating the seed corn. They are taking for themselves the funds the corporations need to reinvest in new products, new equipment and research.
The blue line is corporate profits. The dotted red line in dividends to stockholders. The solid red line is the total of dividends to stockholders plus corporate purchases of their own stock. In some years, the solid red line is below the dotted red line; those are years in which the amount corporations took in more by selling new stock than they paid out by buying back their existing stock.
Somebody who starts a company that produces something of value deserve a rich reward for their risk and effort. The investors who enable somebody to start a successful company deserve a rich reward for their risk. People who keep a company going deserve a reward for their effort. But the passive stockholders who come after contribute very little. They are not the equivalent of venture capitalists. Their only role is to create an aftermarket into which the initial investors can cash out.
I have nothing against stockholders. I put my own savings into Vanguard and T. Rowe Price mutual funds. I would like to earn a return on my savings, but that does not entitle me to go to the front of the line, ahead of the workers, managers, suppliers and others who actually create value in the companies in the mutual funds.
On many levels, the United States is pulling back from investing in the future except for future war. This is not sustainable.
Click on Disgorge the Cash! for more about this.
Phil Ebersole's Blog 