their hoards,of cash is m I really important to these CEOs and Boards than American workers which the hoards of cash should be used to hire. Shame on capitalists and governments that allow them to get away with it
3
I am astounded that Mr. Davidson does not even mention what should be the number one conclusion about corporations hoarding trillions of dollars: it puts the Big Lie to the idea that America's economic growth is hampered because taxes on corporations and the wealthy are too high. It smashes to smithereens the Republican mantra that the rich need more tax cuts to foster investment or that increasing their taxes would have negative results. Imagine. Our corporations and entrepreneurial classes are already so awash in cash, they don't know what to do with it. I have been pointing out for some time that the current frenzy of corporations buying back their own stock showed that they had all the investment capital that they needed. I did not know how right I was!
In fact, you know what? I bet if those corporations used lots of that cash to increase their workers' wages, it would have a more direct impact on spurring economic growth than sitting around waiting for the next great idea to emerge. I bet Paul Krugman and anybody with common sense would agree.
In fact, you know what? I bet if those corporations used lots of that cash to increase their workers' wages, it would have a more direct impact on spurring economic growth than sitting around waiting for the next great idea to emerge. I bet Paul Krugman and anybody with common sense would agree.
15
Interesting post, Adam. Would love to see you write about how politicians wanting incentives for small businesses overlook 2 things
- a new restaurant takes diners away from existing restaurants; it doesn't create new ones. Policies to start a new small business don't necessarily create new jobs. Bigger salaries for lower classes create jobs by spending more - creating demand.
- typical analyses categorize small businesses as 500 or fewer employees but the growth in jobs happens in the 250-500 employee categories.
- a new restaurant takes diners away from existing restaurants; it doesn't create new ones. Policies to start a new small business don't necessarily create new jobs. Bigger salaries for lower classes create jobs by spending more - creating demand.
- typical analyses categorize small businesses as 500 or fewer employees but the growth in jobs happens in the 250-500 employee categories.
1
It's hard for me to see how you can square that last paragraph. Republican policies virtually guarantee that less and less will own more and more until our country becomes a virtual slave state, and I don't think that's an overstatement. I don't know what kind of innovation the author is talking about but whatever it is, the same people will buy it and own it and not be particularly interested in sharing it. Only when Citizens United is overturned and money is taken out of politics will any real progress be made possible. Until then, we're just fooling ourselves that things will change.
8
In addition to the cause and effect mentioned. How about: the future is uncertain because the large ( fully integrated) corporation will be something of the past near term. With no clear path forward. Despite the fact that top dogs have leverage in acquisition and deal making as you mention. Growth by acquisition has its limits especially if corporate's identity, valuation, direction is unclear in times where the (sme driven) new economy players are determining pace and direction collectively on the key society transition trajectories. Example? Big oil. Big pharma. Size and scale matter and there is change in how they matter.
1
Or we live in a world where, if you have access to billions of dollars in cash, it's cheaper to buy politicians and laws that give you a regular revenue stream without having to actually innovate or develop useful and desirable products. This seems to be the business model of the cash-rich Koch brothers, and the oil and extraction industries.
And maybe all the rest of the mega companies are waiting for the Supreme Court to take the next logical step and allow them to purchase laws much more directly than having to fund political campaigns--some of which might not pan out (e.g. Jeb!).
Once this floodgate is open, and companies can buy legislation on the open market, it would be foolish to have to sell off some assets at a loss, before you could get your desired legislation through--some other company might have already purchased mutually-exclusive legislation.
And maybe all the rest of the mega companies are waiting for the Supreme Court to take the next logical step and allow them to purchase laws much more directly than having to fund political campaigns--some of which might not pan out (e.g. Jeb!).
Once this floodgate is open, and companies can buy legislation on the open market, it would be foolish to have to sell off some assets at a loss, before you could get your desired legislation through--some other company might have already purchased mutually-exclusive legislation.
2
Collectively, American businesses currently have $1.9 trillion in cash, just sitting around. ... Which leaves one last question: Why?
Some contributing factors:
1. LACK OF DEMAND. The economy continues to struggle, more than at any other time since the Great Depression. We are not in the 1990s anymore, and especially since the 2008 financial crisis people don't have money to spend on the shiny new products that companies could make (with a few exceptions). Corporations hoard cash when the potential payback is limited.
2. WEAK LABOR MARKET. A weak labor market means low wage growth (which companies like to see, actually), and less incentive for companies to invest in boosting productivity. That's what the economic data shows: a big slowdown in productivity growth.
3. OLD ECONOMY VS. NEW ECONOMY. Not all companies are hoarding cash -- it's a lumpy distribution, if anything. But the newer corporations don't follow the same model as in the past. A company like Google/Alphabet or Facebook doesn't need to build new factories or hire hundreds of thousands of workers to grow; they can still innovate and invest -- and do -- but not in the way industrial firms did in past decades.
Some contributing factors:
1. LACK OF DEMAND. The economy continues to struggle, more than at any other time since the Great Depression. We are not in the 1990s anymore, and especially since the 2008 financial crisis people don't have money to spend on the shiny new products that companies could make (with a few exceptions). Corporations hoard cash when the potential payback is limited.
2. WEAK LABOR MARKET. A weak labor market means low wage growth (which companies like to see, actually), and less incentive for companies to invest in boosting productivity. That's what the economic data shows: a big slowdown in productivity growth.
3. OLD ECONOMY VS. NEW ECONOMY. Not all companies are hoarding cash -- it's a lumpy distribution, if anything. But the newer corporations don't follow the same model as in the past. A company like Google/Alphabet or Facebook doesn't need to build new factories or hire hundreds of thousands of workers to grow; they can still innovate and invest -- and do -- but not in the way industrial firms did in past decades.
3
All this proves is that large corporations (and the executives that run them) are not any more efficient, rational or visionary when it comes to allocating spending or capital. The U.S. would have been better off today if those monies were in the hands of consumers where it would have made a difference. All of the rest of it is just more navel-gazing.
3
Hording by Corporations won't stop, yes they could help American overnight, higher wages etc but as the article mentions; they are looking into the future a future where the rest of American or for that matter North America suffers and they prosper, maybe it's to live in Space and build a new world in Space.
Companies like Governments, don't care about the people Governments have become more Corporate because they have back room deals with Corporate.
Companies like Governments, don't care about the people Governments have become more Corporate because they have back room deals with Corporate.
1
You're kind, Adam Davidson. You don't dare suggest the base reason which I fear is "cause we wanna." You present answers such as, "...these industries believe that something big is coming, but - this is crucial - they're not sure what it will be." It will be the implosion of the United States. Corps and individuals have manipulated IRS tax code monstrously to favor themselves. See Jane Mayer's new nonfiction book reviewed in today's Times.
The 1% of people and individuals refusing to honor their proportional tax responsibilities have created a parallel economy in the US. It's one in which the 1% escape responsibility so they can steal our nation's tangible and intangible resources. They hoard them to feather their own nests in perpetuity.
Institutionalizing tax avoidance has starved us to the point of disabling public education beginning with our youngest learners, our infrastructure, job creation, local economies, and basic human rights and dignity.
Charles Holman's companion piece in The Well column: "Enron had been courting collapse for years with its audacious, criminal machinations. The financial crisis was less a freakish confluence than an escalating series of poor decisions, each made out of self-interest or ideology, each cautioned against by soberer voices at the time."
We must reform the tax code immediately. Start there. Its manipulation by self-interested parties have made legal, though unethical, the actions of criminals.
The 1% of people and individuals refusing to honor their proportional tax responsibilities have created a parallel economy in the US. It's one in which the 1% escape responsibility so they can steal our nation's tangible and intangible resources. They hoard them to feather their own nests in perpetuity.
Institutionalizing tax avoidance has starved us to the point of disabling public education beginning with our youngest learners, our infrastructure, job creation, local economies, and basic human rights and dignity.
Charles Holman's companion piece in The Well column: "Enron had been courting collapse for years with its audacious, criminal machinations. The financial crisis was less a freakish confluence than an escalating series of poor decisions, each made out of self-interest or ideology, each cautioned against by soberer voices at the time."
We must reform the tax code immediately. Start there. Its manipulation by self-interested parties have made legal, though unethical, the actions of criminals.
5
Globalization, along with consolidation in creating Mega Corporations who's stock option culture leaves Capital expenditures very low on the list. Stock repurchase in 2015 was running at $700 Billion. The focus shifted to shareholders over employees these last two decades.
4
Pretty obvious to me. The Obama administration's economic and tax policies have staved off economic growth and investment for the companies. They are most likely holding out for the next administration in hopes of a more favorable situation. With constant threats of "punishing" these companies and the so-called 1%ers by the administrations and their ilk, I don't blame them one bit.
2
"These companies would be better off investing in anything — a product, a service, a corporate acquisition "
How about give it back to the owners - the shareholders!
How about give it back to the owners - the shareholders!
1
When I think of the countless artists and cultural workers whose efforts are thwarted because they have no way to fund their projects one can only say what a selfish lack of vision of these hoarders. What survives us is culture. As many economists predicted the End of Work has arrived with robots and automation. What better use of this cash than to invest in our creative minds (not only artists but also scientists, programmers, entrepreneurs) which in turn spur more economic growth. The spin-off industries that support cultural production can resolve the growth crisis of capitalism. We could have a cultural renaissance with a little seed money for our youth. The return on this small investment could be reaped by generations and millenniums to come.
2
Always amusing to observe the Pavlovian response of a great many NYT's readers (or commenters, at least). There will always be the frothing, excessive, unmoored anti-corporate and anti-well-off ranting, no matter what the topic. This article is a good example. Even though it is about why corporations are willfully investing in assets that yield poor returns, the diagnosis is the same as always: It's corporate greed and exploitation of the working class. Well, we might not know why corporations are hoarding cash, but we sure know why a sizable segment of the NYT readership doesn't have two nickels to rub together. How can you make a living for yourself when you spend all your time looking for scapegoats?
1
That's the other hypothesis: That there is a deficiency of good investment opportunities, or almost equivalently, that the risk that is perceived to be associated with existing opportunities is too high to make investments in fixed capital worthwhile. Such a story is consistent with what Larry Summers has been saying about "secular stagnation" (although Summers prefers a somewhat different tilt on the origins of the problem).
2
Point 1 - US companies hold cash overseas and borrow domestically to finance dividends and share repurchases. It's all about tax avoidance....with the unintended consequence of favoring capital investment and acquisitions overseas. (Chinese manufacturing and Indian outsourcing, anyone?)
Which leads to Point 2 - Corporate America is in a staredown with the IRS over tax holidays. The IRS wants the cash, USA Inc. has the cash and they desperately want to bring it home, but not on the IRS' terms.
Stalemate.
Which leads to Point 2 - Corporate America is in a staredown with the IRS over tax holidays. The IRS wants the cash, USA Inc. has the cash and they desperately want to bring it home, but not on the IRS' terms.
Stalemate.
5
Greets Mr. Davidson,
I study code in a physics / evolution context.
In a world of information-in-relationship, code is physics generated (sometimes by human "constructors", David Deutsch) and physics efficacious relationship infrastructure in networks: genetic, language, math, moral, religious, monetary, legal, software, etc.
The integration of following quotes forms part of my argument.
“The most fundamental phenomenon of the universe is relationship.” Jonas Salk
“The story of human intelligence starts with a universe that is capable of encoding information.” Ray Kurzweil
“Any final state contains information about the system’s initial state & about what has happened to it since. So, the motion of any physical system, because it obeys definite laws, can be regarded as information processing.” David Deutsch
Relationship information processing is the primary activity of reality.
Coding structures, like this string of alphabet code, are fundamental to this activity in bio cultural & tech networks.
Exponential complexity, which includes accruing knowledge & a vast expansion of human reach in & across geo eco bio cultural & tech networks & across time, reduces the efficacy of our cultural genome.
Our new reach yields new relationships with sky & ocean.
The dominant world culture information processing mechanism --humans using $ code -- lacks reach, is too slow, weak & inaccurate to generate functional network relationships.
This processing weakness fuels something big: collapse.
I study code in a physics / evolution context.
In a world of information-in-relationship, code is physics generated (sometimes by human "constructors", David Deutsch) and physics efficacious relationship infrastructure in networks: genetic, language, math, moral, religious, monetary, legal, software, etc.
The integration of following quotes forms part of my argument.
“The most fundamental phenomenon of the universe is relationship.” Jonas Salk
“The story of human intelligence starts with a universe that is capable of encoding information.” Ray Kurzweil
“Any final state contains information about the system’s initial state & about what has happened to it since. So, the motion of any physical system, because it obeys definite laws, can be regarded as information processing.” David Deutsch
Relationship information processing is the primary activity of reality.
Coding structures, like this string of alphabet code, are fundamental to this activity in bio cultural & tech networks.
Exponential complexity, which includes accruing knowledge & a vast expansion of human reach in & across geo eco bio cultural & tech networks & across time, reduces the efficacy of our cultural genome.
Our new reach yields new relationships with sky & ocean.
The dominant world culture information processing mechanism --humans using $ code -- lacks reach, is too slow, weak & inaccurate to generate functional network relationships.
This processing weakness fuels something big: collapse.
"If corporate leaders and their investors truly believed that the future were bleak, that innovation and economic growth were irreparably slowing, there would be little reason to hold on to all that cash." In NYT's opinion.
1
A thoughtful article, thank you! What struck me was that while modern companies are "waiting" for the next big thing, their predecessors -- through serendipity (a subject of another excellent NY Times piece) and synergy -- actually "created" the next big thing(s).
To sit on a hoard of cash, modern companies are waiting for Godot.
To sit on a hoard of cash, modern companies are waiting for Godot.
1
Andrew Smithers wrote a book on this, The Road to Recovery, blaming management incentives. One would think that the NY Times would be predisposed to blaming performance incentives for chronically low investment. Book review:
In the UK and the US there has been a major change in the way corporate managements are paid and thus in their incentives. Changes in incentives naturally change behaviour, but the governments, central bankers and the economists from whom they take advice have failed to understand this. The new incentives have changed the risks that management takes. Pricing has become more aggressive and investment scorned, both of which increase long-term business risks at the expense of short-term profits. This has pushed up profit margins and inhibited spending on new equipment. As a result companies run persistent cash surpluses, and budget deficits have risen to prevent these surpluses from causing depression.
In the UK and the US there has been a major change in the way corporate managements are paid and thus in their incentives. Changes in incentives naturally change behaviour, but the governments, central bankers and the economists from whom they take advice have failed to understand this. The new incentives have changed the risks that management takes. Pricing has become more aggressive and investment scorned, both of which increase long-term business risks at the expense of short-term profits. This has pushed up profit margins and inhibited spending on new equipment. As a result companies run persistent cash surpluses, and budget deficits have risen to prevent these surpluses from causing depression.
1
why can't it just be ineptness coupled with greed (tax holiday on repatriation?)
fits my model of the corporate elite just nicely.
fits my model of the corporate elite just nicely.
2
Mr Davidson:
You commit one sin of commission, and one of omission.
First, you clearly state that if companies spent their hoards, they would instantly create jobs. You give previous spending on buildings and factories. But every example you stated was buying a preexisting company. If Google buys Uber, there are no new jobs. You should address this important kingpin within your argument.
Second, you omit the well known statistics within technology M/A that purchasing a company commonly leads to a flat-out loss of investor value. There have been very few canny investments. Google had a strong string of investments - from DoubleClick to YouTube to Android to Nest - but also some real dogs, although it's often hard to track the eventual benefits to an acquisition. AdMob, at a reported $750M, didn't seem to return even money. Motorola can charitably be seen as an acquisition of patents. Reading the list of Google's acquisitions, you'll see they are unusually profligate, not stingy - one can't single out Google.
Having been in a company with a sizable cash horde, I was repeatedly asked to PLEASE come up with new business ideas the company could fund. Yet, those businesses couldn't compete with suppliers or customers, and the investment needed a high chance of making money. Internal projects could not have the 1-in-20 odds that a venture investor tolerates. Fighting internal company power struggles is harder than convincing new investors, so one starts a new company.
You commit one sin of commission, and one of omission.
First, you clearly state that if companies spent their hoards, they would instantly create jobs. You give previous spending on buildings and factories. But every example you stated was buying a preexisting company. If Google buys Uber, there are no new jobs. You should address this important kingpin within your argument.
Second, you omit the well known statistics within technology M/A that purchasing a company commonly leads to a flat-out loss of investor value. There have been very few canny investments. Google had a strong string of investments - from DoubleClick to YouTube to Android to Nest - but also some real dogs, although it's often hard to track the eventual benefits to an acquisition. AdMob, at a reported $750M, didn't seem to return even money. Motorola can charitably be seen as an acquisition of patents. Reading the list of Google's acquisitions, you'll see they are unusually profligate, not stingy - one can't single out Google.
Having been in a company with a sizable cash horde, I was repeatedly asked to PLEASE come up with new business ideas the company could fund. Yet, those businesses couldn't compete with suppliers or customers, and the investment needed a high chance of making money. Internal projects could not have the 1-in-20 odds that a venture investor tolerates. Fighting internal company power struggles is harder than convincing new investors, so one starts a new company.
1
The fact that we have economists and business executives of America's biggest companies thinking that there is nothing left to invent or reform in our physical economy just shows that they are completely without imagination. Maybe they should talk to some scientists and engineers. They have plenty of ideas. Try it. You may discover something.
1
Two things. Much of this money is in overseas countries and bringing the cash back would result in a huge tax bill. But, more significantly, the private equity world, in its quest for decent returns, has bid up the price for quality assets to such a high level, it is not worth it for American companies to buy them. So they shut down the cash until prices of assets come down.
2
"Good news"?!
1) All this corporate cash-hoarding is destroying America's middle class. People are losing jobs right and left and can't find comparable ones--often they can't find any work at all. New college grads must take jobs once held by blue- and pink-collar workers, who wind up permanently unemployed. Non-1%ers--stuck paying taxes the 1%ers get to skip--vote against infrastructure repair and lay off teachers and other public workers.
2) In a few more years, America will be just another 3rd world country.
3) Then the corporations whose hoarding helped cause our collapse will have plenty of money... Their CEOs will, in effect, climb out of their air raid shelters and survey the barren landscape.
What is their plan, if not this?
1) All this corporate cash-hoarding is destroying America's middle class. People are losing jobs right and left and can't find comparable ones--often they can't find any work at all. New college grads must take jobs once held by blue- and pink-collar workers, who wind up permanently unemployed. Non-1%ers--stuck paying taxes the 1%ers get to skip--vote against infrastructure repair and lay off teachers and other public workers.
2) In a few more years, America will be just another 3rd world country.
3) Then the corporations whose hoarding helped cause our collapse will have plenty of money... Their CEOs will, in effect, climb out of their air raid shelters and survey the barren landscape.
What is their plan, if not this?
6
It does not make sense they are destroying the class that the economy is based on and at the same time we the middle class are bailing them out so they can keep there enterprise making money and at the same time we are also keeping the poor afloat because there is not enough jobs??? It has cost us $18.9 trillion so far when is it going to end???
2
Really? If transformative innovation does come, upon which the big business boys can spend their hoardings, it won't be good news for all of us--wages and/or unemployment will continue more or less apace.
1
As these corporations have been hoarding trillions, no one -- not a single CEO or Presidential candidate -- seems to be talking about the rise of technology, the resulting increase in productivity, and how it is eliminating jobs in the midst of a growing population. What does the future hold? Will we see more people idle or on the streets because there are simply way more people than jobs? Do we need to institute some form of job-sharing? Reduce hours, but maintain pay levels?
As the U.S. and the rest of the world began to industrialize in the 19th century, more people moved to the cities, work hours started to decline and leisure time increased. But that trend stopped decades ago. Do we need to start that process again? This is the ticking time bomb in our economy that no one wants to address.
As the U.S. and the rest of the world began to industrialize in the 19th century, more people moved to the cities, work hours started to decline and leisure time increased. But that trend stopped decades ago. Do we need to start that process again? This is the ticking time bomb in our economy that no one wants to address.
10
The best book I have read lately on the effects of technology on employment is "Rise of the Robots" by Martin Ford. This is a new release is thus is up to date on how robotics and smart systems are changing things everywhere and how rapidly this is occurring.
There are machines available today that produce gourmet hamburgers to order with hardly any human intervention. The governor of Oregon wants to raise the minimum wage to over $15 and that will make it feasible for the fast food outlets to automate as they have begun to in Europe. You
can say goodbye to all those burger flipper jobs.
More telling is how smart systems have already changed such fields as medicine and the practice of law. Smart systems (think IBM's Watson) can read an MRI or other diagnostic image with greater accuracy than a radiologist can. One of the most expensive components of legal work is discovery and this too can be done with great speed and accuracy by a smart system/robot.
This is happening everywhere and China is now the largest manufacturer of industrial robots and this will result in severe economic dislocation even in traditional low wage countries.
The semi-permanent unemployment we are experiencing in this country will soon be the norm and perhaps the Charles Murray proposal to provide the populace with an income floor will become necessary.
There are machines available today that produce gourmet hamburgers to order with hardly any human intervention. The governor of Oregon wants to raise the minimum wage to over $15 and that will make it feasible for the fast food outlets to automate as they have begun to in Europe. You
can say goodbye to all those burger flipper jobs.
More telling is how smart systems have already changed such fields as medicine and the practice of law. Smart systems (think IBM's Watson) can read an MRI or other diagnostic image with greater accuracy than a radiologist can. One of the most expensive components of legal work is discovery and this too can be done with great speed and accuracy by a smart system/robot.
This is happening everywhere and China is now the largest manufacturer of industrial robots and this will result in severe economic dislocation even in traditional low wage countries.
The semi-permanent unemployment we are experiencing in this country will soon be the norm and perhaps the Charles Murray proposal to provide the populace with an income floor will become necessary.
3
Apples and oranges. If most of the money is held overseas for tax purposes the answer is tax reform. This article is a good first start to examination of the broad issue. Any large domestic hoard of cash could be a plea for tax reform and a predictable future for any investment of the hoard. Many things that many think are intuitive and in fact counter intuitive.
4
If we have any hope of avoiding the coming chaos, it will be to reset the playing field so that more people have a reasonably stable stake in the economy. Yes, the old-fashioned middle class. The goal of our national policies should be to support the middle. There will still be opportunity for some people to get filthy, stinkin' rich, and there will still be some people in poverty. We just need fewer of both.
Taxing all income at the time and place it is earned would be a great step in the right direction. If companies can manage to hoard cash AFTER paying taxes, more power to them.
Taxing all income at the time and place it is earned would be a great step in the right direction. If companies can manage to hoard cash AFTER paying taxes, more power to them.
2
Maybe they're waiting for some politicians that are worth buying.
15
I hold cash because I can see no worthwhile place to spend it or invest it. NOw, Mr Genius, analyze that phenomenon and give us a rational essay. Not up to it? I thought not.
6
"I hold cash because I can see no worthwhile place to spend it or invest it."
Unless you're holding billions of dollars, nobody cares.
Unless you're holding billions of dollars, nobody cares.
1
I agree that there is no worthwhile place to spend it or invest it. On a personal level, I have half a million dollars sitting in a 0.05% savings account "because there is no worthwhile place to spend it or invest it".
There is no paradox. This is a function of the US tax code. The author fails to mention that the lion's share of this $1.9 trillion in cash is stuck overseas.
Until there is a corporate tax holiday in the US, the lion's share of the "trillions" of will remain parked overseas.
There are two reasons for this:
1) US companies are truly global, generating a larger % of revenue and profit overseas than ever before.
2) US corporate tax policy double-taxes this income generated overseas, *highly* dis-incentivizing those corporations from bringing that foreign cash back to the US.
If Apple earns a dollar in Brazil, it obviously has to pay full taxes in Brazil. But in order to bring that dollar back home to the US, where it could be poured back into the US economy, Apple would have to pay another 35% tax to the US tax authorities.
There isn't a single company anywhere that would pay 35% tax in order to earn 2%+ on its cash in a US bank account.
For example, Google is a true global company and currently has over 60% of its cash overseas. If it wanted to buy Goldman Sachs, it would have to pay something like $14-15B to the IRS as it repatriated over $45B of cash earned overseas.
Basically Google would have to pay $80B (including the tax penalty) to acquire the US-based Goldman Sachs, which is worth $65B. This would constitute a massive destruction of shareholder value; rational investors would never, ever agree to such a plan.
Until there is a corporate tax holiday in the US, the lion's share of the "trillions" of will remain parked overseas.
There are two reasons for this:
1) US companies are truly global, generating a larger % of revenue and profit overseas than ever before.
2) US corporate tax policy double-taxes this income generated overseas, *highly* dis-incentivizing those corporations from bringing that foreign cash back to the US.
If Apple earns a dollar in Brazil, it obviously has to pay full taxes in Brazil. But in order to bring that dollar back home to the US, where it could be poured back into the US economy, Apple would have to pay another 35% tax to the US tax authorities.
There isn't a single company anywhere that would pay 35% tax in order to earn 2%+ on its cash in a US bank account.
For example, Google is a true global company and currently has over 60% of its cash overseas. If it wanted to buy Goldman Sachs, it would have to pay something like $14-15B to the IRS as it repatriated over $45B of cash earned overseas.
Basically Google would have to pay $80B (including the tax penalty) to acquire the US-based Goldman Sachs, which is worth $65B. This would constitute a massive destruction of shareholder value; rational investors would never, ever agree to such a plan.
15
sorry, it's not Brazilian tax plus 35% (assuming they actually pay the top marginal rate ) it's 35% minus the Brazilian tax (you get a tax credit for taxes already paid)...what they want is to say they've already "paid" their taxes. ..to Brazil. ..which is great, except, well, you are part of the United States' society and, well, it costs money to run the country which allowed you to become so successful in the first place. ..
20
bradley - Agree it's about corporations waiting for a ' tax holiday '. It's also about having cash available to make stock buy-backs to prop up share prices so stock option triggers are met and bonuses can be distributed.
It's a misnomer to say these monies are overseas though, since a huge portion are held in our TBTF banks, just in the names of foreign subsidiaries:
http://www.nytimes.com/2013/05/22/business/for-us-companies-money-offsho...
The monies are parked and waiting/hoping for a holiday like they had in 2004 under the patriotic name ' Homeland Investment Act ', which the corporations utterly disregarded/violated:
http://www.nytimes.com/2009/06/05/business/05norris.html
diverting funds promised for capital investments and training to stock buy-backs and shareholder distributions.
Corporations want the same thing again, but can't get it by a Democratic White House :)
It's a misnomer to say these monies are overseas though, since a huge portion are held in our TBTF banks, just in the names of foreign subsidiaries:
http://www.nytimes.com/2013/05/22/business/for-us-companies-money-offsho...
The monies are parked and waiting/hoping for a holiday like they had in 2004 under the patriotic name ' Homeland Investment Act ', which the corporations utterly disregarded/violated:
http://www.nytimes.com/2009/06/05/business/05norris.html
diverting funds promised for capital investments and training to stock buy-backs and shareholder distributions.
Corporations want the same thing again, but can't get it by a Democratic White House :)
4
This is probably overly simplistic, but I suspect the reason boils down to uncertainty.
First, they are uncertain about consumer demand. Middle income and lower income people are not buying because of their declining incomes and their uncertainly about their futures.
Second, the companies are uncertain how to invest the money because of low demand. They won't build new factories to make more of what people aren't buying, and they do not know what developments might be coming in the future that might make what they are currently doing now either moot or less profitable. In short, because of depressed wages, profits are very high, shareholders are relatively happy, and no one in top management is making risky bets that might cost them their jobs when they are doing quite well the way things are.
First, they are uncertain about consumer demand. Middle income and lower income people are not buying because of their declining incomes and their uncertainly about their futures.
Second, the companies are uncertain how to invest the money because of low demand. They won't build new factories to make more of what people aren't buying, and they do not know what developments might be coming in the future that might make what they are currently doing now either moot or less profitable. In short, because of depressed wages, profits are very high, shareholders are relatively happy, and no one in top management is making risky bets that might cost them their jobs when they are doing quite well the way things are.
11
Everyday investors evaluate what to do with their capital, where to invest it for the lowest risk and highest return. For large corporations today the answer to that question is investing in job creating expansion does not gain a return and is not worth the risk. The choice for them is safety, keeping their capital for a better day, or to fend off economic crisis.
This is direct result of supply side economics that shifts wealth from workers to investors through tax and trade policy. When you implement govt. policy that tilts the free market in favor of one over the other the result is growing supply and declining demand. Do this for an extended period of years and eventually investing in business expansion no longer generates a decent return as demand wanes. Those of us with capital are left to speculate in the latest market bubbles, or as many corporations are doing, invest in short term safe haven investments (hoarding).
There are simple solutions to this problem, but it does require a return to free market economics where taxes on corporations and capital balances with taxes on wage earners and where US wage earners have a fighting chance and don’t have to compete directly with labor in countries that are not democratic and where labor has no rights.
The argument out of many of our representatives today is accommodating investors with low taxes will result in investment and millions of jobs. Unfortunately for America, the results of that experiment are in.
This is direct result of supply side economics that shifts wealth from workers to investors through tax and trade policy. When you implement govt. policy that tilts the free market in favor of one over the other the result is growing supply and declining demand. Do this for an extended period of years and eventually investing in business expansion no longer generates a decent return as demand wanes. Those of us with capital are left to speculate in the latest market bubbles, or as many corporations are doing, invest in short term safe haven investments (hoarding).
There are simple solutions to this problem, but it does require a return to free market economics where taxes on corporations and capital balances with taxes on wage earners and where US wage earners have a fighting chance and don’t have to compete directly with labor in countries that are not democratic and where labor has no rights.
The argument out of many of our representatives today is accommodating investors with low taxes will result in investment and millions of jobs. Unfortunately for America, the results of that experiment are in.
10
"There are simple solutions to this problem, but it does require a return to free market economics where taxes on corporations and capital balances with taxes on wage earners and where US wage earners have a fighting chance and don’t have to compete directly with labor in countries that are not democratic and where labor has no rights."
This "solution" is nonsense.
This "solution" is nonsense.
Taxation and regulation have certainly killed investment in the United States. The first government that offers low and stable business taxes, and rational and predictable regulation will earn a bonanza of investment and growth.
Business enterprises and other investors in productive assets use sophisticated economic evaluation models to decide whether or not to invest in any specific project. If the models indicate that a project cannot earn its cost of capital, it is not funded.
Costs and uncertainties related to taxes and regulation are among the most sensitive variables. Small changes in taxation or regulation can make or break a project. Its that simple. More than politics, ideology, or other reasons to not invest, taxation and regulation prospectively kill lots of big potential investments.
A generation ago, it took a skilled analyst a week with a calculator and spreadsheet to conduct a rudimentary discounted-cash-flow analysis of a proposed project. Now it can be done in a few minutes with sensitivity analysis and all the other bells & whistles. Everybody uses it, even the smallest businesses.
The notion of competition between venues on the basis of taxation and regulation infuriates proponents of the "administered state". But it is here to stay, and there is nothing they can do about it.
Business enterprises and other investors in productive assets use sophisticated economic evaluation models to decide whether or not to invest in any specific project. If the models indicate that a project cannot earn its cost of capital, it is not funded.
Costs and uncertainties related to taxes and regulation are among the most sensitive variables. Small changes in taxation or regulation can make or break a project. Its that simple. More than politics, ideology, or other reasons to not invest, taxation and regulation prospectively kill lots of big potential investments.
A generation ago, it took a skilled analyst a week with a calculator and spreadsheet to conduct a rudimentary discounted-cash-flow analysis of a proposed project. Now it can be done in a few minutes with sensitivity analysis and all the other bells & whistles. Everybody uses it, even the smallest businesses.
The notion of competition between venues on the basis of taxation and regulation infuriates proponents of the "administered state". But it is here to stay, and there is nothing they can do about it.
5
"Corporations, it seems, may have amassed at least a good chunk of that $1.9 trillion in mysterious savings because the stock market is rewarding them for it."
Legalized accounting fraud, in conjunction with 'new normal' financial engineering have created this wondrous *temporary* condition.
It's Ponzi-nomics on parade. And the crash-and-awe will be spectacular...
Legalized accounting fraud, in conjunction with 'new normal' financial engineering have created this wondrous *temporary* condition.
It's Ponzi-nomics on parade. And the crash-and-awe will be spectacular...
4
This hoard of cash IS the result of of investments in innovative business design over the last 20 years. Tax engineering to increase profit is only one of these. Automation, offshoring, outsourcing, lean operations, and constant restructuring are among the others. Increasing production no longer implies large capital investments or hiring of workers. The result is corporate profits hover near 10% of the GDP, while wages are stagnant and corporate tax receipts are at their lowest point.
This leads to a second conundrum: If we have created this 'magic wand', capable of producing all manner of products and services at low cost and high profit, why are our cities crumbling, our students less educated, and 90% of the citizenry excluded from the party?
This leads to a second conundrum: If we have created this 'magic wand', capable of producing all manner of products and services at low cost and high profit, why are our cities crumbling, our students less educated, and 90% of the citizenry excluded from the party?
15
Whatever happened to the good old Econ 101 model of corporations returning a good chunk of their profits to their shareholders in the form of dividends?
5
Regardless, it is harmful to the economy and the Shared Economic Growth proposal would fix it, liberating all that money to stimulate real growth. http://digitalcommons.pace.edu/plr/vol35/iss3/4/
Based upon its history (bankruptcy!), General Motors probably should hold onto a lot of cash. In general, the organization that has a large amount of cash can really take advantage when times get tough. Remember, one theory for the current draw down in stock price is that the market was way over valued. As prices drop, perhaps the ''cash rich" companies will take advantage and buy companies at normal, rather than over valued prices. Being over leveraged is not an advantage. It is a terrible risk that relies on good times forever. Probably most of these companies remember sweating out the crash in 2008. (In fact, as an investor, I hope they do.)
1
Excluding that minute fraction of companies with bionic balance sheets (e.g., Apple, Google, et.al.), what is the NET CASH position of Corporate America? Because, of course, it's much more difficult to argue that a company is hoarding cash when that cash pile, however large, is dwarfed by its debt...
3
because they can see most of the customers (the people who actually work for their money) have less and less. There is no reason to invest if your customers can't pay.
IOW, what we are seeing is a deliberate, and engineered, decline of the living standards of the working masses, while door revolving artists engineer fed bailouts and "fiscal policy" magic for current regulatees and future employers.
IOW, what we are seeing is a deliberate, and engineered, decline of the living standards of the working masses, while door revolving artists engineer fed bailouts and "fiscal policy" magic for current regulatees and future employers.
3
Spent most of my career with a fortune 500 , then a 100 year old US corporation. There certainly was a period in time, when making acquistions was preferable to attempts by corproations to gain market share. One reason these firms sitting on their cash may sight is, often the buyer is not qualified to manage the acquisition, nor more importantly, change the culture to fit. Very often buyers ruin companies they buy. Currently Apple, Google, Microsoft to name a few are a form of Oligopoly, as in no real competition. They buy upstarts on a smaller scale to keep innovation off the market. Why make a major acquisition? Acquisitions require managing laying off numerous dupicated employees and often dealing with real estate and liability issues that exist.
2
Corporate welfare + corporate tax avoidance = economic decline
18
Might it possibly be that the corporations are simply uber-selfish and egregiously greedy?
6
What if there is an economic collapse and the dollar devalues significantly, wouldn't it be better to have more material wealth of sorts?
Corporations are hoarding money because they sense that times great instability are just around the corner.
Corporations intuitively sense the fragility of peace in the world. Cataclysmic events including ear, famine and pestilence are increasingly looking very possible and perhaps even more likely.
With massive amounts of money on hand for the hard times the corporations hope to survive.
Corporations intuitively sense the fragility of peace in the world. Cataclysmic events including ear, famine and pestilence are increasingly looking very possible and perhaps even more likely.
With massive amounts of money on hand for the hard times the corporations hope to survive.
2
Without going into a long explanation, companies like Google and Apple are world class; their aim is to be the best in the world at what they do. Yes, they could buy more companies, or start more new businesses, and these would be mediocre operations that would be out-maneuvered and outperformed by laser focused competitors in these industries that have all of their management and resources focused on one goal - being the best.
Many of these companies have diversified, when and where it made sense. But to do so to another degree simply because the cash is available would quite often detract from the whole organization and result in an also-ran new line of business.
Many of these companies have diversified, when and where it made sense. But to do so to another degree simply because the cash is available would quite often detract from the whole organization and result in an also-ran new line of business.
This article only focuses on the cash held by cash rich companies. It ignores the mounting debt piling up on other companies' balance sheets. Collectively, debt is growing more rapidly than cash accumulation. So let's stop pretending that corporate America (and Anerican people) are collectively hoarding cash. They are deeper in debt than ever before!
3
Adam,
I really liked your article. Thank you for focusing on this curious topic! It seems to me that you are downplaying the foreign profit tax issue. It could potentially explain all cash holdings. Also, competition with tiny firms to be able to buy them is only one of the strategic motives for cash holdings. Competition with the other behemoths (Az vs Alphabet vs MS vs. FB) is potentially the main concern of each of them and the big pile of cash forces each of them to stay out of the way of each other. I think you are also downplaying the fact that this has been going on for a decade. There is a NYT article, I think from 2006, about corporations hoarding cash back then in prehistory already....!!
Thanks again,
I really liked your article. Thank you for focusing on this curious topic! It seems to me that you are downplaying the foreign profit tax issue. It could potentially explain all cash holdings. Also, competition with tiny firms to be able to buy them is only one of the strategic motives for cash holdings. Competition with the other behemoths (Az vs Alphabet vs MS vs. FB) is potentially the main concern of each of them and the big pile of cash forces each of them to stay out of the way of each other. I think you are also downplaying the fact that this has been going on for a decade. There is a NYT article, I think from 2006, about corporations hoarding cash back then in prehistory already....!!
Thanks again,
Simply because they are circling the wagons, preparing for the inevitable historic lean times, that all know are hurtling toward us, accelerating rapidly.
The $16 billion, that the Fed disbursed to national and international mega-corporations, financial institutions, insurance companies, and others, for the most part never made it into the wider economy, as these companies learned to hunker down, and increase their already obscene profits, through thinning out their labor force, reducing benefits, reducing wages, increasing production through mandatory longer hours for remaining workers, etc., etc.
Zero interest rate Fed money, routinely handed out to corporations, up to a year ago, resulted in still more hoarding, firming up the age old way of increasing share value, through abuse of the working class, the same class that consumes the goods produced by their masters, the corporations.
Corporate avarice has reached truly horrendous levels, as the current worldwide inequality clearly indicates.
A reset has yet to occur, but as history has repeatedly shown, it will, and likely with very unpleasant consequences.
The $16 billion, that the Fed disbursed to national and international mega-corporations, financial institutions, insurance companies, and others, for the most part never made it into the wider economy, as these companies learned to hunker down, and increase their already obscene profits, through thinning out their labor force, reducing benefits, reducing wages, increasing production through mandatory longer hours for remaining workers, etc., etc.
Zero interest rate Fed money, routinely handed out to corporations, up to a year ago, resulted in still more hoarding, firming up the age old way of increasing share value, through abuse of the working class, the same class that consumes the goods produced by their masters, the corporations.
Corporate avarice has reached truly horrendous levels, as the current worldwide inequality clearly indicates.
A reset has yet to occur, but as history has repeatedly shown, it will, and likely with very unpleasant consequences.
2
A conclusion at the end of this article is that the stock market is rewarding the hoarding being done by executives at firms in certain industries, because the market perceives in those executives the ability to innovative profitably in the future—i.e. to increase returns on those cash holdings sooner or later. And the market's way of demonstrating its held good faith for these firms is to, well, drive the stock price up, and make the company more valuable, which makes those cash reserves worth even more per dollar saved than they were a second ago. So, this is a circle, right?
Additionally, Davidson's final rumination on "optimism" seems at odds with at least one of the "camps" discussed above. Per one school of thought, the executives are holding onto cash because they judge that money to be more profitable in reserve—be it for tax avoidance, leverage in acquisitions, etc. If these firms have innovative investment planned for the future, the reasoning of this camp goes, they're not deploying their cash in furtherance of innovating at this time. It could be they've got great and profitable ideas, or it could be they've got no real winners in store, and they're just stalling.
So: How does Davidson arrive back at the optimistic claim that "innovations are just around the corner"? Suppose a firm in an innovative industry sees it'd take major systemic changes/massive investment to continue competing. Wouldn't you hole up with your cash until you can sell high and get out?
Additionally, Davidson's final rumination on "optimism" seems at odds with at least one of the "camps" discussed above. Per one school of thought, the executives are holding onto cash because they judge that money to be more profitable in reserve—be it for tax avoidance, leverage in acquisitions, etc. If these firms have innovative investment planned for the future, the reasoning of this camp goes, they're not deploying their cash in furtherance of innovating at this time. It could be they've got great and profitable ideas, or it could be they've got no real winners in store, and they're just stalling.
So: How does Davidson arrive back at the optimistic claim that "innovations are just around the corner"? Suppose a firm in an innovative industry sees it'd take major systemic changes/massive investment to continue competing. Wouldn't you hole up with your cash until you can sell high and get out?
1
Prudent perhaps.. History has shown corporations with excess cash have committed hara-kiri by investing in dud projects. Keep the cash or better still give out as dividends ( though tax inefficient)
Perhaps software, pharma, and automotive companies don't have reliable metrics for evaluating their opportunities. Maybe in economic sectors that are vulnerable to rapid disruption from novel innovations that come out of left field, it's both difficult to evaluate potential acquisitions, and safer to have a full war-chest to weather the market effects of disruptive technologies.
If cash is being hoarded for the next big thing I can think of one transformative revolution that is surely coming soon--the death of the internal combustion engine and birth of all electric transportation. A shift of this magnitude may permeate many other sectors especially with the astronomical demand for clean electricity.
Proof positive that Reaganomics does absolutely nothing for the economy. All those corporate tax breaks and loopholes were supposed to create millions of jobs, weren't they?!
3
With tech companies, it may have to do with the busting of the tech bubble. Showed them how quickly fortunes can change.
2
Your conclusion makes no sense to me. The plutocrats know for a fact that growth is slowing and will slow even more in the future. That's WHY they are holding all that cash. Does this mean the future is bleak? For you and I maybe, but not for them! As Look Ahead says, they are looking to gobble up all the weaker competitors as global markets shrink and bargains abound. Why buy a terminally ill business when you can just wait for it to die and pick up the choice pieces for pennies on the dollar? One thing they are obviously not worried about is inflation - despite what they may say in public. And the idea of the "free market" being a constraint on this behavior? Oh, please . . .
4
You do realize if Google were to buy Uber or any other cash rich company were to acquire another business not a single job is created. Cash simply transfers from Google to the owners of Uber. This kind of spending won't help the economy take off.
These rich companies aren't spending because they know there is a pervasive lack of demand. Those who have money don't have unmet needs and those with needs don't have money.
It's ironic that the super wealthy engineered an economy that enriched only themselves and now that economy has stagnated. It's time to reverse those policies.
These rich companies aren't spending because they know there is a pervasive lack of demand. Those who have money don't have unmet needs and those with needs don't have money.
It's ironic that the super wealthy engineered an economy that enriched only themselves and now that economy has stagnated. It's time to reverse those policies.
3
Could it be that, in some sectors, the ability to hoard so much cash indicates monopoly power and thus the hope for oversized profits throughout the foreseeable future? Call it the peacock theory of corporate decision making.
Well, one might even go inside these firms (and those who invest in them), ask questions, and examine the valuation models they use. The answers are likely there.
Well, one might even go inside these firms (and those who invest in them), ask questions, and examine the valuation models they use. The answers are likely there.
1
The cash is sitting in banks overseas being taxed at a lower rate than in the US domestically.
2
One can only imagine how much better a place the world would be and how much better the U.S. economy would have performed if, over the past 40 years, these corporations had: 1) rewarded workers appropriately for their productivity, 2) paid their fair share of taxes to the federal government, 3) picked up a more reasonable and fair share (or all) of employee health benefits, and 4) had continued to offer retirement pensions to their loyal workers.
3
Did the author or any of the academics try interviewing executives of these corporations to ask them what they're thinking? Rather than trying to read their minds?
2
Why are corporations hoarding trillions?
1) Because they can
2) Because they are controlled by their addiction (insatiable appetite for "more")
3) Because they have enrolled insane enablers (most of us) to participate in the insanity itself
1) Because they can
2) Because they are controlled by their addiction (insatiable appetite for "more")
3) Because they have enrolled insane enablers (most of us) to participate in the insanity itself
1
There's potentially another element at play. The collective corporate realization that employees can be paid less, worked harder, and given less benefits, because others would be more than happy (temporarily, at least) to step into their jobs.
3
This is really quite simple......corporations hold cash when they don't see a good investment for the funds at the present time, but think there may be something worthwhile in the future.
If the shareholders trust management, they will let it continue. If not, they will push for dividend distributions.
If the shareholders trust management, they will let it continue. If not, they will push for dividend distributions.
2
To unravel the mystery one must shake off the engrained notion that money is wealth. It's not. It is an IOU. Money represents an unfinished trade of goods and services. Nearly $3 trillion in cash sitting idle indicates a severe trade imbalance. The simple truth is that hoarders are having difficulty finding what to purchase. Companies can keep buying each other, but the cash will just move between bank accounts without generating anything new.
This trade imbalance is a cash flow leak from consumers to the few mega corporations. The infusion of cash to consumers is sustained by easy credit which perpetuates vast public debt.
Cash hoarding is a symptom of free market breakdown. There is not enough players to ensure competitive product pricing. Why does a pair of prescription glasses cost as much as a decent telescope? Profits of oligopolies have to be regulated.
This trade imbalance is a cash flow leak from consumers to the few mega corporations. The infusion of cash to consumers is sustained by easy credit which perpetuates vast public debt.
Cash hoarding is a symptom of free market breakdown. There is not enough players to ensure competitive product pricing. Why does a pair of prescription glasses cost as much as a decent telescope? Profits of oligopolies have to be regulated.
3
Technological innovation is not the reason for the hoarding. Economic cataclysmic events and wars are the reason.
Whatever happened to the excess business holding rule? I thought it was supposed to discourage this sort of thing?
1
Well the great Global Economy experiment has been going on for almost 20years. This experiment has proven a global economy is a disaster for everyone except the 1% so maybe it is time to announce the result of this experiment. The present model doesn't work for anyone but the 1%.
3
You treat this like a great conspiracy theory but neglect one of the most obvious possible economic answers - economic uncertainty leads to holding cash. This is no different than the advice often given to individual investors in shaky economic times. The fiduciary responsibilities of corporate directors call for trying to both protect and maximize the value of corporate assets. Why is it such a mystery that in a market increasingly volatile that the companies with cash would hold on to more, especially if most alternatives look riskier? Back to Econ 101 with all of you.
2
The article poses the issue as if it were a dichotomy, and inherent in its description is the reason why it is a false dichotomy.
"Will wages continue to fall for many, while rising high for a few?"
This is almost certainly absolutely false. It is myopically focused on the 1 billion or so people who live in North America, the EU, and certain parts of east Asia. There are 6 billion people in the world who don't live in these places. And while 1 billion or so is going to remain the population of the currently wealthy parts of the world, there will be 3-6 billion more people who will be added to the currently relatively poor areas of the world.
So are companies holding cash for for the "next transformative innovation"? Maybe not. Maybe they're holding cash to deploy it to build up their presences in Africa, most of Asia, and most of Latin America when those areas of the world reach the point of having stable enough political and economic systems and well-developed basic infrastructure to ensure that fiber optic cables aren't yanked out of the ground to exchange for the value of the material they're made of, and so that your IT products shop doesn't get looted by the local mob or the local politicians.
Maybe they're even expecting that the 1 billion or so people in the wealthy parts of the world are going to spend a bunch of money helping the rest of the world stabilize and grow, so these companies don't have to.
Perhaps economists are looking in the wrong place for answers.
"Will wages continue to fall for many, while rising high for a few?"
This is almost certainly absolutely false. It is myopically focused on the 1 billion or so people who live in North America, the EU, and certain parts of east Asia. There are 6 billion people in the world who don't live in these places. And while 1 billion or so is going to remain the population of the currently wealthy parts of the world, there will be 3-6 billion more people who will be added to the currently relatively poor areas of the world.
So are companies holding cash for for the "next transformative innovation"? Maybe not. Maybe they're holding cash to deploy it to build up their presences in Africa, most of Asia, and most of Latin America when those areas of the world reach the point of having stable enough political and economic systems and well-developed basic infrastructure to ensure that fiber optic cables aren't yanked out of the ground to exchange for the value of the material they're made of, and so that your IT products shop doesn't get looted by the local mob or the local politicians.
Maybe they're even expecting that the 1 billion or so people in the wealthy parts of the world are going to spend a bunch of money helping the rest of the world stabilize and grow, so these companies don't have to.
Perhaps economists are looking in the wrong place for answers.
1
3/4 of our economy is consumer based. Meaning, based on middle class spending. The middle class hasn't had a raise in 30 years as taxes have shifted to lower income households and wealth has shifted to the top 1%.
The top 1%, like the British aristocracy before them, don't spend much. Warren Buffet can't spend $6 billion dollars a year! And the middle class is strapped.
Contrary to Reagan, demand always precedes supply. Corporations aren't going to expand and hire people as a social service. They need to identify a demand, first. So whats a corporation to do when there is no demand? Hord.
The top 1%, like the British aristocracy before them, don't spend much. Warren Buffet can't spend $6 billion dollars a year! And the middle class is strapped.
Contrary to Reagan, demand always precedes supply. Corporations aren't going to expand and hire people as a social service. They need to identify a demand, first. So whats a corporation to do when there is no demand? Hord.
2
The reason that companies hold cash is because they have little reason to spend money on new projects.
First, they lack profitable projects in which to invest. Unemployment and underemployment is high; for those who have recently found a new job, the wages are often lower than before. As a consequence, consumer spending is down. Why would a company spend money on a new project when there are few consumers willing to buy the output?
Second, there is spare industrial production capacity in the economy. The country is running at 78% capacity, which is low, even for a recovery. Why would a company spend money on new equipment when they can use existing idle equipment to meet any future demand?
Third, there is little danger of new competition. New firms have to steal market share from existing companies, since there is little growth in new market segments that they can exploit. Meanwhile, established companies can spend their time defending their market share. Why invest in new products if no one is eating your lunch?
Because of the lack of profitable projects, and lack of new product competition, established companies sit on the cash, or give it back to owners, or buy existing companies. But you won't see them building new production until the new demand arrives.
First, they lack profitable projects in which to invest. Unemployment and underemployment is high; for those who have recently found a new job, the wages are often lower than before. As a consequence, consumer spending is down. Why would a company spend money on a new project when there are few consumers willing to buy the output?
Second, there is spare industrial production capacity in the economy. The country is running at 78% capacity, which is low, even for a recovery. Why would a company spend money on new equipment when they can use existing idle equipment to meet any future demand?
Third, there is little danger of new competition. New firms have to steal market share from existing companies, since there is little growth in new market segments that they can exploit. Meanwhile, established companies can spend their time defending their market share. Why invest in new products if no one is eating your lunch?
Because of the lack of profitable projects, and lack of new product competition, established companies sit on the cash, or give it back to owners, or buy existing companies. But you won't see them building new production until the new demand arrives.
2
GM might be hoarding cash out of fear of going bankrupt again. Google could be because it makes so much money off advertising and data flow taxing, it doesn't have a clue what to do with it. The company's all over the place. And it seems to lose interest in something as soon as it gets going. Google+, Glass, blogger, other apps, robotic dogs for the Marines, etc. Apple is like a freaking cult with its products. It could sell things for twice the price and still sell more. Pharma makes so much money and spends so little. All legally.
Money in minus money out equals accumulation. Out can't keep up with in right now.
What GM and Silicon Valley have in common is autonomous vehicles and smart transportation. That is going to be expensive as hell to deploy. Also, tech is about 90 percent sales and 10 percent science. Investors think it's the other way around. There's a lot of Wall Street bros thinking the nerds are always onto something disruptive or something and that's going to be huge. Money flows and whatnots are based on perception as much as reality. Cars and tech are the biggest spenders on advertising that distorts reality.
Money in minus money out equals accumulation. Out can't keep up with in right now.
What GM and Silicon Valley have in common is autonomous vehicles and smart transportation. That is going to be expensive as hell to deploy. Also, tech is about 90 percent sales and 10 percent science. Investors think it's the other way around. There's a lot of Wall Street bros thinking the nerds are always onto something disruptive or something and that's going to be huge. Money flows and whatnots are based on perception as much as reality. Cars and tech are the biggest spenders on advertising that distorts reality.
Manufacturers like GM need immense amounts of cash for a rainy day to sustain capital expenditure through a cycle, holding cash has got to be better than requiring a bailout by the taxpayer. In a downturn, companies like GM occasionally produce huge amounts of negative cash flow, that's when those cash positions comes in handy.
From memory Warren Buffett once said something akin to that it is not shameful to hold cash when you are not truly behind an acquisition / investment, which he typically makes in a downturn. This is better than making a bad bet just for the sake of it.
Perhaps more corporations are now more cautious; they may have finally woken up to looking at the statistics that about 2/3 of M&A were never successful.
From memory Warren Buffett once said something akin to that it is not shameful to hold cash when you are not truly behind an acquisition / investment, which he typically makes in a downturn. This is better than making a bad bet just for the sake of it.
Perhaps more corporations are now more cautious; they may have finally woken up to looking at the statistics that about 2/3 of M&A were never successful.
Or could it be that the average American has less buying power now than they did 30 years ago? Consumer spending drives 70% of our economy, and the working and middle classes spend a larger share of their income. With a greater share of our collective national wealth held by fewer and fewer individuals, there is less overall consumer spending (as a percentage of the economy). Maybe companies aren't hoarding their cash waiting for some "awesome unknown", but because there aren't enough people willing to buy the goods and services new investment would produce to justify the risk. There is too much capital chasing too few investment opportunities and companies realize it. It's what happens when the wealth distribution becomes more and more highly skewed.
2
Perhaps the largest part of the build up in cash and cash equivalents (which is I assume what he means by "cash") in the US is the result of new liquidity and capital regulations imposed on the biggest US banks following the financial crisis, which are required to hold a large cushion of high quality liquid assets and which cannot return capital as easily to their shareholders because of CCAR and other rules limiting banks' ability to make distributions (whether in the form of a dividend or share repurchase). It's odd that this wasn't even mentioned since it is clearly one of the biggest reasons for the build up.
1
There's nothing like hearing your employer is considering workforce reductions because their earnings target has "narrowed"--even though they are still making boatloads--while the company is sitting on a pile of cash and is buying back its own stock. Plus, your CEO is one of America's (and therefore the world's) highest paid. And employees routinely work 50-hour weeks, work on vacation, and are perpetually available to work in order to turn out the product/services. It feels like enslavement.
1
Adam- it looks like you are using the words "profit" and "cash" interchangeably.
They are not the same.
They are not the same.
1
Once upon a time, companies used to pay shareholder for the risk with dividends. Since the Dotcom bubble, companies have been changing how they compensate shareholders by price-action alone. Eg., AOL, Apple, MS, etc..
Since the Dotcom, investors have become acclimated to expecting price action instead of dividends... Maybe we can think of the hoarding of cash as another way to keep shareholders out of the windfalls. Of course, this is for publicly traded companies.
The world of private equity trades shares among themselves privately, until such a time comes that the company is ready to have its shares dumped on the public. The same public that will not see any dividends, hope and prey for price-action to the upside, and generally be left in the cold with the only up being included in the S&P index.
IPOs have become last method to cash-out, not in. If shareholders would dump companies with such huge balance sheets, companies may be more careful of hoarding. The new normal may not have been absorbed by either shareholders or corporate officers. Such wealth is making big corporations greater in wealth than most countries. One thing corporations don't have yet is what has been the domain of nation-states; a monopoly of force.
Additionally, the trend toward legally binding arbitration, instead of a national court is making this corporate business landscape feel more like a paradigm shift away from nation-states toward the corporate-state. Keep your eyes on Putin.
Since the Dotcom, investors have become acclimated to expecting price action instead of dividends... Maybe we can think of the hoarding of cash as another way to keep shareholders out of the windfalls. Of course, this is for publicly traded companies.
The world of private equity trades shares among themselves privately, until such a time comes that the company is ready to have its shares dumped on the public. The same public that will not see any dividends, hope and prey for price-action to the upside, and generally be left in the cold with the only up being included in the S&P index.
IPOs have become last method to cash-out, not in. If shareholders would dump companies with such huge balance sheets, companies may be more careful of hoarding. The new normal may not have been absorbed by either shareholders or corporate officers. Such wealth is making big corporations greater in wealth than most countries. One thing corporations don't have yet is what has been the domain of nation-states; a monopoly of force.
Additionally, the trend toward legally binding arbitration, instead of a national court is making this corporate business landscape feel more like a paradigm shift away from nation-states toward the corporate-state. Keep your eyes on Putin.
1
"Why are corporations hoarding trillions?" Because they CAN, and because they clearly perceive an advantage to themselves in doing so. There's nothing altruistic about this behavior.
1
Profitable investments in different countries 2016
http://www.bizfactoryideas.com/slideshow/new/
http://www.bizfactoryideas.com/slideshow/new/
Time again for an excess profits tax? Apple Tim Cook says that subjecting Apple's foreign earnings to a 40% (state & federal) tax on that repatriated income is too much. In other words, he prefers earning 2% on those untaxed/lightly taxed foreign profits to paying Uncle Sam and all the states where Apple has a taxable nexus - revenues that could be used to rebuild bridges, improve our schools, etc. and lessen the tax burden on the middle/working class. US CEO's and US CFO's are allowed to determine where corporate profits are "earned", taxed (if at all), and if and when foreign profits are to be repatriated.
I wish that Adam Davidson would address the income tax avoidance by the many foreign based corporations who have been operating in the US for decades. They can shift 100% of their pre-tax US profits overseas...profits that are not subject to repatriation! This is why Pfizer wants to move to Ireland...much lower taxation on corporate profits.
I wish that Adam Davidson would address the income tax avoidance by the many foreign based corporations who have been operating in the US for decades. They can shift 100% of their pre-tax US profits overseas...profits that are not subject to repatriation! This is why Pfizer wants to move to Ireland...much lower taxation on corporate profits.
1
Is the hoarding of cash for political reasons? Deliberately holding back a robust economic recovery to hurt the Democrats and help the Republicans?
Yes, all these obscenely compensated super-geniuses are sure something big is coming, yet they don't know what. It's dismaying the omniscience we ascribe to these people, who nevertheless claim to know nothing whenever they are put before a Congressional panel. This article does nothing to dispel such mythology.
They don't see any good investments.
OK. Pay it out in dividends and let your stock holders invest it.
1
Many already pay dividends.
This is the direct result of Regan's trickle down scheme, and the fools who believed it- those who then put Bush Jr. in office and declared unjustified war to continue economic thievery, and who so strongly advocate for the know-nothings like the present slate of Republicans, to allow this to continue.
12
You're only looking at one side of the corporate balance sheet. Compare with debt outstanding and you'll get a clearer picture of where the cash, in aggregate, came from.
5
I wonder what the CFOs would say if they were asked directly why they're hoarding so much cash. Wouldn't it be worth trying?
1
It would most likely amount to a survey of currently popular lies, mistaken notions, and self-delusions. But even that might be of some value.
"Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years."
Not even close to being true.
https://en.wikipedia.org/wiki/National_debt_of_the_United_States
Not even close to being true.
https://en.wikipedia.org/wiki/National_debt_of_the_United_States
1
It was obvious that all that money printed by generous government woild have to wind up somewhere, now we know where.
1
Could it be that in the past few seven years that the price of cash (i.e. interest rates) has been low, so companies borrowed more?
It seems more useful to look a the ratio of cash to debt than simply the cash itself.
It seems more useful to look a the ratio of cash to debt than simply the cash itself.
It is an interesting question: Why ARE they holding on to all that cash?
I think your optimistic final paragraph is probably not the right answer. It assumes that these CEO's know something as a group that the rest of us do not.
I think the answer is simpler-- there is no good reason why they are hoarding cash. Perhaps each one is looking at the other and is frozen assuming the other must 'know' something. On such insanity is economics based and fortunes lost.
I think your optimistic final paragraph is probably not the right answer. It assumes that these CEO's know something as a group that the rest of us do not.
I think the answer is simpler-- there is no good reason why they are hoarding cash. Perhaps each one is looking at the other and is frozen assuming the other must 'know' something. On such insanity is economics based and fortunes lost.
4
companies are hording cash because the Obama administration has let loose the dogs of war through its regulatory agencies.
Obama decided that the auto industry has to raise the average MP to 48 by 2025. The technology does not exist. It's likely that new cars will cost $5-10,000 more on an inflation adjusted basis, which will cause owners to hang on to their old cars longer.
After many years of threats, the government has imposed "net neutrality" rules that favor Amazon and Netflix over internet service providers. It's not clear how the rules are ultimately going to shake out, so the wealthiest players in the game are holding onto cash so that they can eke out extra profit when they get the rules tweaked to favor themselves.
Any business that consumes electricity knows that the Obama regulatory regime is going to increase energy costs. Google made a public relations foray into solar, but their experience has told them that even with a 30% subsidy on installation cost, they are paying three to four times what they were paying in utility bills. They are holding cash offshore until they figure out how they can consume energy anywhere except the US.
Socialism is the form of government in which private ownership of capital is allowed, but the government controls businesses. The rhetoric about safety net spending is intended to conceal reality from low information voters. There is nothing about capitalism that says the government cannot provide for the needy.
Obama decided that the auto industry has to raise the average MP to 48 by 2025. The technology does not exist. It's likely that new cars will cost $5-10,000 more on an inflation adjusted basis, which will cause owners to hang on to their old cars longer.
After many years of threats, the government has imposed "net neutrality" rules that favor Amazon and Netflix over internet service providers. It's not clear how the rules are ultimately going to shake out, so the wealthiest players in the game are holding onto cash so that they can eke out extra profit when they get the rules tweaked to favor themselves.
Any business that consumes electricity knows that the Obama regulatory regime is going to increase energy costs. Google made a public relations foray into solar, but their experience has told them that even with a 30% subsidy on installation cost, they are paying three to four times what they were paying in utility bills. They are holding cash offshore until they figure out how they can consume energy anywhere except the US.
Socialism is the form of government in which private ownership of capital is allowed, but the government controls businesses. The rhetoric about safety net spending is intended to conceal reality from low information voters. There is nothing about capitalism that says the government cannot provide for the needy.
Maybe companies, like people (but not in a Citizens United kind of way), figure "Why pay taxes?" when the government wastes that money on absurd wars to the tune of a couple trillion.
This analysis is interesting and seems to make sense, up to a point. But I'm missing any mention of weak demand. A large part of the supply of this hoard of cash must come, ultimately, from the combination of the Fed's quantitative easing plus the continuing flow from foreigners (mostly foreign central banks, i guess?). That's the supply half of the equation. The demand half seems to be lack of demand, which is no doubt due to several important factors of which one has to be our contractionary fiscal policy. One doesn't have to be a Krugman fan to see the obvious: the US government as a whole has failed to meet our last crisis effectively; it has been too contractionary on the demand-creating side, leaving the Fed to be too expansionary on increasing the money supply.
Too simple? Sometimes Macro 101 gets it perfectly...
Too simple? Sometimes Macro 101 gets it perfectly...
1
American business does not invest in research and development. That should be clear.
Digital business is interesting, certainly, but it produces nothing of real value.
Our civilization is not moving forward, in terms of improving people's lives.
Why are we still burning fossil fuels? Why are we still flying planes using 40s and 50s technology?
What happend to our technological development?
Digital business is interesting, certainly, but it produces nothing of real value.
Our civilization is not moving forward, in terms of improving people's lives.
Why are we still burning fossil fuels? Why are we still flying planes using 40s and 50s technology?
What happend to our technological development?
1
The answer is obvious! Consumer demand is insufficient to attract investment in new and expanded products and services. Have you not noticed that Walmart's shelves and Amazon's warehouses are fully stocked?
Capitalism depends on the circulation of money. Accumulated capital should be invested in job-creating enterprise, which increases consumer demand, which in turn, provides new opportunities for profitable investment.
Capital that is taken out of risk, either hoarded or parked in financial instruments that do not create jobs, is an indication of underpaid labor or insufficient taxation of capital gains.
In a properly regulated capitalist economy, unneeded capital would be returned to circulation by distributing it as aid to the poor who will spend it.
Capitalism depends on the circulation of money. Accumulated capital should be invested in job-creating enterprise, which increases consumer demand, which in turn, provides new opportunities for profitable investment.
Capital that is taken out of risk, either hoarded or parked in financial instruments that do not create jobs, is an indication of underpaid labor or insufficient taxation of capital gains.
In a properly regulated capitalist economy, unneeded capital would be returned to circulation by distributing it as aid to the poor who will spend it.
14
Used to be that investors would demand dividends if the company were sitting on too much cash. Given the current atrocious interest rates as well as significant market uncertainty, investors don't see that they could do any better if the cash were returned to them.
Too much money floating around at the upper levels. If the tax structure were adjusted more toward historical norms, that money would trickle down to the little guy who would put it in motion immediately.
Too much money floating around at the upper levels. If the tax structure were adjusted more toward historical norms, that money would trickle down to the little guy who would put it in motion immediately.
2
"If corporate leaders and their investors truly believed that the future were bleak, that innovation and economic growth were irreparably slowing, there would be little reason to hold on to all that cash."
What is the basis of the above position? It seems that hoarding cash is the best thing to do on the verge of a disaster or in a period of great uncertainty. Slow or no growth means everything but cash loses value. What am I missing here?
What is the basis of the above position? It seems that hoarding cash is the best thing to do on the verge of a disaster or in a period of great uncertainty. Slow or no growth means everything but cash loses value. What am I missing here?
The corporate tax avoidance really gets my goat. These people want to live here, take advantage of the security the children of the middle class and poor fight to provide and use what's left of our infrastructure and legal system but don't want to pay their own freight. Believe or not, unbridled capitalism is not enshrined in the Constitution. Two words: Bernie Sanders.
22
Neither is the corporate income tax. Added later.
Why should corporations not hoard billions, trillions or quadrillions?
It is better than to be in debt, and one never knows what the Democratic-Republican holders of power would do next to the economy and the coin of the realm.
It is better than to be in debt, and one never knows what the Democratic-Republican holders of power would do next to the economy and the coin of the realm.
Another, much more straightforward explanation is that keeping giant piles of cash on hand makes it very easy for CEOs to manipulate stock prices by buying back shares. In recent years the value of share buybacks has increased from a tiny fraction of the economy to a number larger than the total profits of all industry. For CEOs whose option-driven compensation hinges on the absolute share price, it is far easier to guarantee huge paydays for themselves by simply calling up a broker and spending a few billion dollars on their own company's stock than the difficult and risky process of actually inventing new products, building production facilities, or, God forbid, hiring more people.
A second, related reason that companies would rather hang onto cash than invest it in themselves is that Wall Street today frowns on companies actually owning things. Analysts focus on return on invested capital as a metric of corporate health... and the easiest way to make that number as high as possible is not to invest in the first place. That philosophy has given us Apple, the immensely valuable phone and computer manufacturer that doesn't own a single factory - that doesn't own anything, actually, aside of software and design blueprints.
Companies are hoarding cash because that is what CEOs and Wall Street want, each for their own selfish reasons. Not that complicated.
A second, related reason that companies would rather hang onto cash than invest it in themselves is that Wall Street today frowns on companies actually owning things. Analysts focus on return on invested capital as a metric of corporate health... and the easiest way to make that number as high as possible is not to invest in the first place. That philosophy has given us Apple, the immensely valuable phone and computer manufacturer that doesn't own a single factory - that doesn't own anything, actually, aside of software and design blueprints.
Companies are hoarding cash because that is what CEOs and Wall Street want, each for their own selfish reasons. Not that complicated.
17
Your answer has the best ring of truth so far.
I have also been wondering if the stockpile of cash was to be used to undermine takeovers - maybe by buying stock or raising price. The goal of any corporation, after paying off its officers seems to be to survive consolidation and being gobbled up by international investors or broken up by activist investors based on three month performance metrics.
I have also been wondering if the stockpile of cash was to be used to undermine takeovers - maybe by buying stock or raising price. The goal of any corporation, after paying off its officers seems to be to survive consolidation and being gobbled up by international investors or broken up by activist investors based on three month performance metrics.
1
Interesting article. The answer to your question is lies in the history of how we got here.
First,see the 100-year plus history of the S&P 500 P/E ratio (either raw or Schiller). You'll see that in the 1980s we uncoupled stocks from the physical economy and put them in the "trading economy". That means we began trading on pure expectations, and government policies, not on cash flow from customers.
The dot.com boom started about 1994, and this allowed the trading economy to invent new fantasy stock valuations like "250 times losses". This accelerated the growth of fantasy cash, based on imagination not cash flow from customers.
As the dot.com bubble burst, we moved that frothy fantasy cash to the housing stock of USA - inflating the value of geographically-fixed houses like they were internet stocks.
This created the hard money crash of 2007, and the soaring debt load of the world.
We tried re-inflating the trading economy with 0% interest Fed money and fantasy expectations of China (which worked for a bit), but now corporations, who actually have to pay their debts, know that...
...the best financing comes from their customers, not fantasy trading cash, and they see huge IPO multiples again, so after being burned three times they are using the cash they get from customers to save for a very uncertain future.
This is not hoarding. It is one of the few things that is holding the economy together.
Why would you have them join the lottery of Uber wannabes again?
First,see the 100-year plus history of the S&P 500 P/E ratio (either raw or Schiller). You'll see that in the 1980s we uncoupled stocks from the physical economy and put them in the "trading economy". That means we began trading on pure expectations, and government policies, not on cash flow from customers.
The dot.com boom started about 1994, and this allowed the trading economy to invent new fantasy stock valuations like "250 times losses". This accelerated the growth of fantasy cash, based on imagination not cash flow from customers.
As the dot.com bubble burst, we moved that frothy fantasy cash to the housing stock of USA - inflating the value of geographically-fixed houses like they were internet stocks.
This created the hard money crash of 2007, and the soaring debt load of the world.
We tried re-inflating the trading economy with 0% interest Fed money and fantasy expectations of China (which worked for a bit), but now corporations, who actually have to pay their debts, know that...
...the best financing comes from their customers, not fantasy trading cash, and they see huge IPO multiples again, so after being burned three times they are using the cash they get from customers to save for a very uncertain future.
This is not hoarding. It is one of the few things that is holding the economy together.
Why would you have them join the lottery of Uber wannabes again?
1
They are hoarding because they have no idea how to run the business. Giant bonuses and stock buy backs to raise the value of options comprise the total extent of their ideas. Wall Street rewards stunts not business building which usually takes more than a quarter.
15
Er...most of it is parked in tax shelters.
9
I thought the bulk of this money was invested in stocks and bonds. I would wonder how carefully-researched this article is.
4
Huh, a 2-cent return on the dollar the author refers to is return on 10 yr U.S treasuries. In other words it is invested in bonds in the safest asset that wouldn't lose money. You have missed a simple point and gone on to accuse the author of not thinking as "deeply" as you do.
The author did mention a lot of the liquidity being in U.S. Treasuries and, on the part of the tech companies, quite a bit of mergers and acquisitions activity, so I'm not sure what generated your impression.
Personally, the end of the article intrigued me the most. Rather than avoiding taxes, hedging against poor performance, or just waiting around for the revolution, I wish management was spending more of its cash on research and development, in trying to invent and cultivate those Next Big Things rather than looking to someone else to do it and then buying it. I like the optimistic note of there being "something in the air," but would feel even more hopeful if companies were more active about trying to make the vaguely positive atmosphere more concrete (and steel and silicon, or ...?).
Personally, the end of the article intrigued me the most. Rather than avoiding taxes, hedging against poor performance, or just waiting around for the revolution, I wish management was spending more of its cash on research and development, in trying to invent and cultivate those Next Big Things rather than looking to someone else to do it and then buying it. I like the optimistic note of there being "something in the air," but would feel even more hopeful if companies were more active about trying to make the vaguely positive atmosphere more concrete (and steel and silicon, or ...?).
I've worked with hundreds of companies around the world. The common pattern among the better ones is complete reorganization of the supply chain, shop floor, back office operations and sales distribution. The results have been dramatic and perhaps under-appreciated by economists.
A large complex product might now require less than half the labor hours to build. The same factory footprint might now produce 50% to 150% more products with far greater flexibility. Pre-assembled material moves directly from the receiving dock to the final assembly line. Similar gains have been made in office operations. Weak operations were acquired by others in roll-ups and improved or closed.
Hence, industrial capacity utilization remains at 77%, even after years of recovery and record sales, so new capital investments are not needed to increase output. Businesses have gotten a lot smarter about buying computers and other assets as well, which is why PC sales are tanking and Dell went private.
Basically, most capital intensive industries have lowered their profit breakeven point and are better positioned for cyclical conditions. Hiring is more cautious, given the pain and expense of firing good people they have invested in.
Being leveraged to the hilt may be what some investors see as maximizing ROE, but many business leaders are starting to realize that growing your market share and bargain hunting is best done when your competitors are pulling back.
And that takes cash.
A large complex product might now require less than half the labor hours to build. The same factory footprint might now produce 50% to 150% more products with far greater flexibility. Pre-assembled material moves directly from the receiving dock to the final assembly line. Similar gains have been made in office operations. Weak operations were acquired by others in roll-ups and improved or closed.
Hence, industrial capacity utilization remains at 77%, even after years of recovery and record sales, so new capital investments are not needed to increase output. Businesses have gotten a lot smarter about buying computers and other assets as well, which is why PC sales are tanking and Dell went private.
Basically, most capital intensive industries have lowered their profit breakeven point and are better positioned for cyclical conditions. Hiring is more cautious, given the pain and expense of firing good people they have invested in.
Being leveraged to the hilt may be what some investors see as maximizing ROE, but many business leaders are starting to realize that growing your market share and bargain hunting is best done when your competitors are pulling back.
And that takes cash.
32
Growing your market share requires customers with cash. Businesses can used that hoarded cash to buy out all the competitors they want, but if there are no customers, there is no growth. It doesn't take an economist to figure that out. Just some common sense which seems to be greatly lacking today.
1
I find this well-informed comment very astute and wish the workforce wasn't paying such a price, when it comes to this cautious approach, in terms of downward pressure on wages, fewer opportunities, and less security. It's like the only people who have faces and value within the corporate structures are those belonging to the executive class, who seem more and more committed to putting themselves first than doing what's in the best interests of a larger chunk of humanity. I saw this even in my industry, higher education, where senior management ALWAYS feathered its own nest before enhancing the lives of faculty and staff, let alone students. This pattern among the upper echelons of self-protection and continual self-aggrandizement is part and parcel of the enormous transfer of wealth and power to the top few percent. And, as opposed to the fairly optimistic tone at the end of the article, I believe it bodes most ill for our individual and collective future.
1
get this person somewhere important cause that's the most sense I've read in a year.
At some point, various industries are going to start to realize that their consumers are being squeezed out of purchasing they're products at sustainable (for the companys') levels. Will they take steps to assist or seek better opportunities elsewhere?
At some point, various industries are going to start to realize that their consumers are being squeezed out of purchasing they're products at sustainable (for the companys') levels. Will they take steps to assist or seek better opportunities elsewhere?
1
Rremember Mitt Romeny? He insisted that his election as president would result in an immediate burst of positive economic activity simply because he was in the White House. Multinational corporations aren't hoarding money because they don't want positive economy to reflect well on President Obama. But the Republican mindset of denying this president any success at all - see Mitch McConnell - meanders both up and down the economic continium. Big companies know that the Republican controlled Congress isn't going to approve anything that might possibly end up making the president look successful.
That is at least a part of it.
That is at least a part of it.
47
Baloney. Companies aren't hoarding cash to make Obama look bad. They're hoarding cash because it's the safest move while Obama is still in office. He's proven to be way too unpredictable with how he deals with the business world. My company is doing the same thing as all the others..
McConnell or nobody else has stopped anything that kenyan destroyer has tried to do. That is precisely why not only us,but the whole world is upside down and on fire. What's happening is all part of the globalists' demented plan.
Republicans are denying Obama of success? This is complete and utter nonsense. If you were a CEO or business owner and had to face the prospects of potentially crippling regulations, stagnant to negative revenues from local and federal anti-growth policies, and constant bashing in the public media for being part of the evil 1% you would be afraid to invest as well.
Why are they hoarding trillions, spending record amounts on buybacks and M&A? Because we're producing less and less, consumer real incomes are falling, governments are drowning in debt, the population is aging, and most of us already have basic necessities of life.
38
Government is NOT drowning in debt but it is true that in a consumer driven economy when you underpay your employees they don't have the money to buy your goods or to live a middle class life. These businesses have lost their hunger to do better because the people who run them get to keep so much of what others produce. What's the point of investing in anything when your holdings in the corporation grows simply by doing nothing?
1
I disagree. There are generally three things a business can do with its money: hold it, make capital investments (including purchase other companies), and make labor investments.
Corporations aren't hoarding cash because consumer real incomes are falling (and hence, consumption has been slowed)... no, consumer real incomes are falling (and hence, consumption has been slowed) BECAUSE corporations are hoarding cash!!
Each dollar spent with a small business has a multiplier effect of 5. Each dollar spent with a corporation used to have a multiplier of 3-4, but the multiplier has fallen to 1-2 because of corporate cash hoarding.
Low-income workers have a high propensity to spend, and having corporations paying them more would have a much larger stimulus effect on the economy than almost anything, including a one-time government check for $300.
Corporations aren't hoarding cash because consumer real incomes are falling (and hence, consumption has been slowed)... no, consumer real incomes are falling (and hence, consumption has been slowed) BECAUSE corporations are hoarding cash!!
Each dollar spent with a small business has a multiplier effect of 5. Each dollar spent with a corporation used to have a multiplier of 3-4, but the multiplier has fallen to 1-2 because of corporate cash hoarding.
Low-income workers have a high propensity to spend, and having corporations paying them more would have a much larger stimulus effect on the economy than almost anything, including a one-time government check for $300.
2
Western govts are not drowning in debt; certainly not the US govt. Debt-to-GDP ratio is in line with historical values and the Feds can borrow money at rock-bottom interest rates. Any claim to the contrary is RW nonsense.
If you doubt me, search Paul Krugman's blog archives. He'll set you straight.
If you doubt me, search Paul Krugman's blog archives. He'll set you straight.
1
As with every aspect of Economics, all the "experts" have only questions and theories--no answers. Prior to the great financial crash of '08, almost no self-proclaimed expert saw it coming. At least none would publicly admit to it.
It looks like capitalism is running its course with its inability to grow, grow, grow, while consuming more and more resources destroying the planet. Of course there is no money in betting against capitalism so best to continue spinning theories and asking endless questions.
It is clear the World needs to drastically change how we work, produce and consume. It is equally clear the corporate overlords will never let that happen. So, we will continue to engage in a slow death spiral until it becomes too late to make any meaningful change.
One thing is clear--huge corporations are bad for the World. They are only concerned about perpetuating themselves and have absolutely no concern about society and People.
It looks like capitalism is running its course with its inability to grow, grow, grow, while consuming more and more resources destroying the planet. Of course there is no money in betting against capitalism so best to continue spinning theories and asking endless questions.
It is clear the World needs to drastically change how we work, produce and consume. It is equally clear the corporate overlords will never let that happen. So, we will continue to engage in a slow death spiral until it becomes too late to make any meaningful change.
One thing is clear--huge corporations are bad for the World. They are only concerned about perpetuating themselves and have absolutely no concern about society and People.
130
Ah, but our GOP-appointee majority Supreme Court ruled that corporations ARE people for the purpose of political speech in "Citizens United," thus turning Constitutional democracy into a corporate pornocracy.
1
These words could have been, and were spoken 100, 200, and thousands of years ago.
It is important to notice that once we started measuring economic value of society, the vast bulk of that has come from private industry of all forms.
Steam engines, threshing machines, hydro-power, telephone, railroad, automobile, anesthesia, transistor, airplanes, bicycles, computing, etc......all came from private "corporations".
Starting with the Atomic Bomb, the "government" in Northern Hemisphere nations has become dominant in basic science, but the innovative deployments, including deploying 7 billion mobile phones worldwide - including to 90% of the worlds poor....all came from private corporations.
The world has already changed how we work, produce, and consume.....many times.....and India and China are leading the way this time.
China is doing so by becoming rapidly capitalist.
India is doing so as the largest democracy on Earth.
This newspaper would not exist were it not for the private sector of commerce.
Entrepreneurial thought and action of all kind has not run its course. And its re-invention is being clearly led by private corporations.
It is important to notice that once we started measuring economic value of society, the vast bulk of that has come from private industry of all forms.
Steam engines, threshing machines, hydro-power, telephone, railroad, automobile, anesthesia, transistor, airplanes, bicycles, computing, etc......all came from private "corporations".
Starting with the Atomic Bomb, the "government" in Northern Hemisphere nations has become dominant in basic science, but the innovative deployments, including deploying 7 billion mobile phones worldwide - including to 90% of the worlds poor....all came from private corporations.
The world has already changed how we work, produce, and consume.....many times.....and India and China are leading the way this time.
China is doing so by becoming rapidly capitalist.
India is doing so as the largest democracy on Earth.
This newspaper would not exist were it not for the private sector of commerce.
Entrepreneurial thought and action of all kind has not run its course. And its re-invention is being clearly led by private corporations.
The US is a democracy which has a socialist rather than capitalist economy. Regulators have decided the voters should have no voice but are controlled by unelected, unaccountable bureaucrats.
ObamaCare legislation was written by big medicine to ensure that money would flow to them. No input was sought by the elite intelligentsia from patients, physicians, operators of rural or inner city hospitals that serve the poor, or the electorate. Watch late night cable television for an hour. You will be treated to ads for catheters, incontinence and diabetes supplies, knee braces. All of which will be provided free if you have private insurance, Medicaid or Medicare. Doubtless at a cost to the third party payer that is three or four times what they would cost at the local CVS or Walmart. There is so much money sloshing around in the system that American medicine has not operated as a free market in 50 years, which means that it is not capitalism, it is crony socialism.
Voters have not had input to the energy and environmental regulatory regime since the Nixon administration. The regulators, citing externalities valued at infinity, issue pointless regulations whose costs far exceed any value. Why is it that there is no mechanism for the public to be informed of the cost and to make a judgement?
ObamaCare legislation was written by big medicine to ensure that money would flow to them. No input was sought by the elite intelligentsia from patients, physicians, operators of rural or inner city hospitals that serve the poor, or the electorate. Watch late night cable television for an hour. You will be treated to ads for catheters, incontinence and diabetes supplies, knee braces. All of which will be provided free if you have private insurance, Medicaid or Medicare. Doubtless at a cost to the third party payer that is three or four times what they would cost at the local CVS or Walmart. There is so much money sloshing around in the system that American medicine has not operated as a free market in 50 years, which means that it is not capitalism, it is crony socialism.
Voters have not had input to the energy and environmental regulatory regime since the Nixon administration. The regulators, citing externalities valued at infinity, issue pointless regulations whose costs far exceed any value. Why is it that there is no mechanism for the public to be informed of the cost and to make a judgement?