by Dick Sciaroni
I am a history freak – a geek, even, with two history degrees hanging on my wall at home. History is important to me, not only for what it can tell us about the future but also why we are where we are, not only because it can teach us the lessons of the past, but because it can explain why things are the way they are right now.
History doesn’t focus on what happened decades or centuries ago. What happened weeks or months or mere years ago has an effect on what is happening now. In short, history is the study of cause and effect: what happened back then that has put us where we are right now.
So where are we? How are things now, right now? What is it that happened back then that helps us understand where we are right now? Let’s look, for example, at the American economy, and in particular, at the stock market for which Trump and his minions take such credit.
So how’s the economy doing? Great, say Trump and his followers. Despite its ups and downs, the stock market continues to hum along, making millions for investors. Folks look at their 401(k) statements and think they’re doing just fine, that they’re in the boat headed for prosperity. But behind the hoopla is the sobering fact that the majority of increased stock prices has come not from real economic growth but from corporations buying back shares of their own stock. Buybacks increase stock value by reducing the number of shares and artificially driving up the stock price. Fewer shares mean higher stock prices – at least for now.
Stock buybacks used to be illegal. But the moneyed interests used their millions to lobby (i.e., buy) Congress to legalize them.
Why do corporate managers buy back stock? It’s simple enough: increased stock prices mean increased stock value, and increased stock value means higher compensation for the managers. Investors are only too willing to reward the managers with inflated bonuses – so long as the share value increases.
Like most everything in life, there’s a downside to this charade. The run-up in stock prices through buybacks was not funded with increased corporate income. It was funded through tax savings from the 2017 Tax Cut passed by a Republican Congress that reduced the corporate tax rate some 14 percent. In other words, the increase in stock prices that put more money in investors’ pockets was a gift from the American taxpayer. The figures are staggering. Corporations spent some $1.1 trillion on buybacks in 2018 alone. $1.1 trillion! What’s a trillion? A million seconds is 12 days; a billion seconds is 32 years; a trillion seconds? – you get the picture.
Here’s an example of what this all means for just one company, 3M Corporation. Its third quarter 2018 income was down 0.5%. But thanks to a $5.3 billion buyback program, 3M’s managers were able to raise share earning some 3.5%. This increase went into investors’ pockets, courtesy of the 2017 Tax Cut. In other words, that tax cut financed 3M’s corporate shenanigans that turned a real loss to a paper gain.
One might be tempted to ask, “Where’s the outrage?” Ask the ordinary citizen if his life has improved as corporate managers line their pockets with ill-gotten gains. Chances are that you’ll be told that things haven’t changed. People scrimp and save if they can save at all. Are they putting away anything for retirement? Can they put anything away for retirement?
Where’s the outrage? It’s lost in a palaver of argument and invective fueled by a President who spends his time watching FoxTV and tweeting inanities that divide and disparage, that pit citizen against citizen and group against group. This is nothing new for Trump. After all, he hosted a reality show for years. He ignores traditional journalism, opting for social media because he knows more Americans are reading what’s on their smart phones than what they can learn through traditional journalism, let alone television news programs that at best provide only an abbreviated gloss of the days’ events.
The downside of social media is simple enough. It lets us express ourselves to the world. We post our thoughts on message boards that could be read by hundreds, even thousands, of people. But is anyone listening? Not Trump; he’s busy tweeting.
History is about cause and effect. If we elect Trump again things won’t change: the fat cats will thrive while the rest simply survive.