Richard Brand: Trickle Down?

The economic theory that if you give corporations more money, they will hire more people, invest in research,  and open more stores continues to be a myth.  The Trickle down politics of the Republican Party since Reagan forward has not happened, is not happening, and will not happen.

The News and Observer from Raleigh on Sunday, December 22 has on page 1 of section E further evidence that trickle down does not happen.  The article is entitled “Firms buy stock to give shareholders a bonus.”  The story is the Cisco has authorized the buying back of $15 billion dollars worth of company stock in the coming year. That is more than the $10 billion they made in net profits last year.  It is two and a half times what it spent on research and development and it comes just after Cisco has announced that it will lay off 5% (4000 people) of its employees.

The article says, “This is what U.S. multinationals do now with their cash. Rather than tout big new investments, raise workers wages or hire more employees, companies are more likely to set aside funds to reward shareholders.”  The 30 companies of the Dow Jones industrial average have authorized $211 billion in 2013″ in stock buy backs in 2013. That is three times what those companies spent on research and development.

Buy backs reduce the number of shares outstanding which is supposed to mean that each of the remaining shares becomes more valuable;  the reduction in the number of outstanding shares means that the earnings per share goes up, and more importantly CEO’s salaries go up because their pay is linked to stock performance and so as share price goes up the CEO’s performance rating goes up.

Cutting taxes for the rich, for the major corporations, for the fortune 500 does not “trickle down” to workers, to communities, to more research, but to those who own shares. Most minimum wage workers do not own a lot of shares.  It is just another reason why the rich are getting richer and the middle class is getting poorer and the poor are really getting punished.  It is one of the reasons that Pope Francis says that the current operation of the capitalist system is flawed and dangerous.

Rick Brand