Are Stock Buybacks Bad For America?

Companies have scooped up a record amount of their own shares. It’s a symptom of a bigger problem

- John Authers

Last year, U.S. companies announced they were buying more than $1 trillion of their own stock. This record-setting exercise in financial engineering was spurred by overseas profits they repatriated following tax reform. It brought the total that U.S. corporations spent on their own shares in the decade since the financial crisis to more than $4 trillion. The buybacks have now prompted a political response.

Senators Charles Schumer (D-N.Y.) and Bernie Sanders (I-Vt.) are pushing legislation to stop companies from buying back their stock unless they satisfy a list of conditions to show that they treat their employees fairly. In an op-ed piece for the New York Times, they write that such “corporate self- indulgence” is damaging workers and harming the long-term growth of the economy.

The senators have found an issue that cuts to the heart of the way that capitalism has lost Americans’ confidence and has ratcheted up inequality. Although buybacks play a role in this malaise, Schumer and Sanders may not be treating the root of the problem (often labeled “secular stagnation”) but one of its most obvious symptoms.