Massive share buybacks are just fine, and other mistakes in economic reasoning

I am intrigued by the idea that opinion articles, blog posts and tweets can have “give away” phrases that reveal more bias than the author intends, or perhaps are correlated with errors in economic reasoning. I have a candidate for such a phrase: “massive share buybacks,” or the variation, “massive share repurchases.” The words sound innocuous enough, but such talk ought to raise red flags in your mind.

That is from my latest Bloomberg column, the defense of massive share buybacks then follows.  Of course the share buybacks just push around money, they don’t have to draw real resources away from investment or for that matter a wage boost.  As this piece was coming out I also saw this excellent complementary treatment by John Cochrane.

What are other such “red flag” phrases?  “The big tech companies are selling your data” is a recent one.  I’ve already outlined my “law of gut“: beware anyone who tells you that a particular government program is being “gutted.”  Another bad one is when a review or critique is described as a “takedown.”  That’s a sign that either the reviewer, or the reviewer of the review, is trying to lower the status of somebody rather than to learn from them.


Crumbling infrastructure.

What follows will be a love letter to big government spending.


The share buybacks are used by the sellers to fix the roads you drive on because the ROIC on free roads is higher than building new modern steel making plants in the US, which would destroy 100% of the "wealth" in shares of obsolete asset holding US corporations. If they still they have all been bankrupted and liquidated by MBAs who follow the advice of economists to cut costs, ie, paying workers. Only by nogpt paying workers will workers buy more stuff and drive up prices and profits from not paying workers.

To ensure workers who are not paid spend more, banks must be deregulated so they can lend money to workers and government which will never repay the debt. Only by government putting money in workers pockets to replace the money employers are no longer putting in their pockets can US workers create jobs in Europe and Asia where work is heavily taxed to prevent those workers buying what they produce, forcing their production to be exported to the US.

Took the cliche right out of my mouth


N. Taleb is single-handedly taking down historians and economists.

Tyler +1 ☺

I find it interesting that Tyler thinks tax dodging paying of workers to build productive assets will increase when taxes are cut on the money not paid to workers.

I recall reading Newsweek Friedman columns attacking high tax rates because they made paying too many workers too much money too desirable, leading to too much labor demand, too much production, too much consumer demand, too much consumption, too much tax revenue, too much growth in government investment in infrastructure, education, R&D, all of which lead to too much inflation in wages and consumer prices.

He argued for cutting tax rates and eliminating all the tax dodges for paying workers, and for building productive assets, thus creating labor slack to hold down wages, consumption, tax revenue, ...

I liked his columns because he explained macroeconomics better than all the others.

But I did not understand why he thought my boomer generation should not get paid more so we could buy more, or our parents paid more so they could buy a vacation cabin and boat, or RV, for us to enjoy.

In the 70s, I saw his views take hold and the parents of boomers not only stop buying boats or RVs, but forced to sell them, unless they made boats or RVs, in which case they lost their jobs. I mostly grew up in Indiana, the home of RVs. In the 70s, Indiana switched from growing to generally declining. A big sector in decline was making RVs.

At that time, the auto and steel unions had consumers over a barrel, making terrible products and saddling the auto and steel companies with massive labor costs that made the companies uncompetitive when foreign competition showed up. (In other words, my non-union parents paid for your parents' boats and RVs.) That is not the situation now, and Friedman would have different answers because the questions would also be different.

My gut tells me that a massive takedown of this post may be coming...


The author hates suburbs.

I think you mean "leafy" suburbs. This is a great clue that the author has never left an urban area in his or her life.

The obvious one here is anyone who complains about "assault weapons" in civilian hands. Assault weapons have auto-fire capability and have been outlawed since 1934. The author is either a moron or is deliberately lying to you, in the hope of turning you into a moron.

Also its cousin, "weapon of war." Anyone who tells you an AR-15 is a weapon of war has clearly never been in one, and should spend time lugging one around Kandahar to see how long they last against actual weapons of war.

You mean the M16 (or M4), correct? The AR-15 is the one that lasts, when used against American civilians..

I would add "moron" to the list.

'who tells you an AR-15 is a weapon of war has clearly never been in one'

Tell that to Dick the Butcher and his apparent Vietnam experience. The AR-15 is the civilian version of the M16, with only a single difference in the 1960s - 'The early commercial SP-1 AR-15s used a pair of .250" diameter receiver push pins, identical to those found on the military rifles. In 1966 the company replaced the front pin with a paired nut and screw hinge using a .315" diameter pin to prevent shooters from being able to change receivers with military rifles or competitor rifles without the use of an adapter.'

Though you might be confused because the original military weapon was actually called an AR-15, and was made by ArmaLite - - 'As a result, the Army was forced to reconsider a 1957 request by General Willard G. Wyman, commander of the U.S. Continental Army Command (CONARC) to develop a .223 caliber (5.56 mm) select-fire rifle weighing 6 lb (2.7 kg) when loaded with a 20-round magazine. The 5.56mm round had to penetrate a standard U.S. M1 helmet at 500 yards (460 meters) and retain a velocity in excess of the speed of sound, while matching or exceeding the wounding ability of the .30 Carbine cartridge. This request ultimately resulted in the development of a scaled-down version of the ArmaLite AR-10, called ArmaLite AR-15 rifle.

In 1958, ArmaLite submitted ten AR-15 and one hundred 25-round magazines for CONARC testing.'

'Assault weapons have auto-fire capability and have been outlawed since 1934.'

The first Sturmgewehr was introduced a decade after 1934, by the way -

Always interesting to see the depth of knowledge of some MR commenters.

You are such a disingenuous poster:

"The AR-15 is the civilian version of the M16, with only a single difference in the 1960s"

You linked to the Wiki article but you deliberately left out the first few sentences which directly contradict your point.

"The Colt AR-15 is a lightweight, 5.56×45mm, magazine-fed, gas-operated semi-automatic rifle. It was designed to be manufactured with the extensive use of aluminum alloys and synthetic materials. It is a semi-automatic version of the United States military M16 rifle. "

He does that all time with his tediously long but selective quotes precisely to try to fool you.

"sprawl" goes right in there, too.

Usually means "I moved out to get away from people, and then someone other people did the same thing!!!"

My pet peeve is "race to the bottom" in the context of, say, inter-jurisdictional competition. In my neck of the woods, Virginia's failure to raise its state sales tax rate is always threatening to create a famine in Maryland.

Common sense gun control

The author will be proposing the same types of gun control that have been rejected in the past.

Funny how selective the calls for common sense are. Somehow, we don't see calls for common sense mortgage lending requirements, common sense college admission requirements, common sense school discipline policies, common sense military rules of engagement, etc.

Common sense EBT control would save orders of magnitude more lives than a semi-automatic rifle ban. We can’t do that, the left says, because being provided with soda, chips, beef sticks and candy is a right of unemployed Democrat voters.

Yeah, you are correct. The opponents of gun control are very loud opponents of the past and watered down common sense regulations of lending.

Instead they demand regulations that promote lending to people who can't repay the debt.

More lending to private equity for leverage buyouts that lead to bankruptcy and liquidation with high probability.

More payday lending.

More lending to real estate developers like Trump.

More lending to real estate flippers focused on pump and dump.

More lending to the working poor who have by their 50s reduced their mortgage to less than half the property value, or paid it off.

More lending to fund going on a cruise, or to buy a big boat plus big truck to tow it.

Sorry to reflect my view that common sense lending means lending to only those who have demonstrated they could pay cash in a decade or two, by spending the savings of those trying to demonstrate they can buy costly things in a decade or two.

Back in the days of common sense lending, savings paid 4-5%. Milton Friedman argued that eliminating common sense lending rules would mean significantly higher interest rates on savings., plus lower rates on loans than the 12% max.

1. If I have to translate the corporate / personal income tax cut into an equivalent "present value" figure of one-time govt spending, what would that amount be? Let's suppose the govt had chosen not to cut taxes, but instead passed a stimulus bill. What would be the size of that bill?

2. Suppose that figure is $X. What is the multiplier of that amount, for tax cuts vs stimulus package?

3. Do the deficit projections for future just bake in the tax-rate cuts assuming no Laffer-curve math? Or do they assume a certain degree of sensitivity of economic activity to reductions in tax rates?

1) Private investment will almost always earn a higher NPV. Government programs are usually more interested in egalitarian outcomes than efficiency. The profit motive drives the market to seek the highest rate of return on their investment. The government seeks the highest political return. The argument for a stimulus bill is usually because of some perceived market failure; for example, people are afraid to invest because of fears of the future. But If people are willing to invest why should the government intervene.?

2) The tax cut will be more stimulative in most cases, see above.

3) If the market feels that future taxes must be raised to pay for spending today (spending by a stimulus or current tax reduction) the market will use that information to shape current consumption and investment decisions. If current growth is sufficient, then the tax cut/stimulus spending may not have a negative impact and perhaps in some rare cases positive. If the government reduces growth by stupid ideas like wasteful government spending, regulatory restrictions, lousy trade policy, etc. than a forward-looking market may need to prepare for the future tax burden. The market will need to plan how to pay for future obligations or take steps to avoid the tax (which means lower growth except for experts in tax avoidance and contributions to politicians to get favored tax treatment.) In any case, in general, government stimulus spending today will more often lead to higher future tax burdens than a similar tax cut. Also, government stimulus spending can create its own constituency making the stimulus more permanent. Tax cuts tend to disappear over time. Politicians seem to find it easier to adjust taxes than spending.


I want to understand what $X is. I don't have a good sense of how big this tax cut is, in present value terms.

Also regarding 3, when thinktanks make deficit projections for future, do they consider any sensitivity of economic activity to reductions to tax cuts, or do they reject any supply side influences, and assume total insensitivity?

I don't know anyone who has tried off hand. Collecting the data would be difficult and prone to bias. Getting accurate figures on government expenditures would be difficult ( cost overruns, legal costs,) Plus the advocates of the spending will often claim that you can't calculate the actual benefits (psychic or some other ephemeral thing) of the expenditures and attempts to do it would be biased usually.

Groups have been known to cook the books to support their objectives.

Perhaps OMB or CBO have estimates generated by historical data. How much people will respond to a change in tax policy is hard to predict. The direction is easy; the magnitude is difficult.

I'm sure some Ph.D. or think tank has studied past events and come to conclusions about the impact of past similar events. Predicting the future with perfect clarity is harder.

For example, my comments are based on my perception of historical events and my biases. I think it is accurate but remember past returns are no promise of future returns.

Think tanks will select the data that they think best forms an accurate picture. They won't all agree on what model works best. Why they differ you can try to decide.

If you are interested in number three you can read Robert Barro.

A general book that I think is interesting is Blueprint For America by George P Schultz

Do you count administration costs and the stimulus payments themselves as part of growth? If you do, the multiplier for the stimulus bill over a tax cut will always be greater than one; if not, the multiplier will almost always be less than one.

The first part of that statement is borderline tautological. If increased government spending counts as production, taking away money and giving it right back is 'free' nominal growth with minimal impact.

The second part is harder to demonstrate concisely.

Please flesh out argument with references

"Beyond the impact on labor supply, government spending could actually cause private spending to be lower than it otherwise would be. In the old Keynesian one-period models, this could only occur at full employment (i.e. if unemployment is higher than its natural rate, these people could be put to work at zero cost to private payrolls or production). However, in multi-period models, the cost of today’s spending can impact future levels of taxation. This means that households and business managers could respond to deficit-financed spending by increasing their expected future tax rates. The higher assumed tax rates, in turn, cause them to save more today, hold more conservative portfolios, and otherwise wait until the government makes it clear how the increased spending will be financed. Empirical research finds that the defense build-up during World War II had a 0.8 multiplier, as every $1 of defense spending was offset by a cumulative 20 cents decline in private investment, the non-military parts of government purchases, and net exports (larger trade deficits).......

. Empirical research finds that once economies exceed a certain level of indebtedness, fiscal multipliers go to zero as additional deficit-financed spending generates offsetting declines in private spending. In these situations, an increase in deficits today reduces private spending by increasing the magnitude of future fiscal adjustment costs. As investor Rob Dugger explains, when deficits reach levels that require radical changes in tax and spending policies “executives and investors take protective actions” that include “reducing domestic investment and hoarding cash.”"

"The real advantage of tax cuts is that they’re quick – taxpayers immediately have more money in their paychecks and companies often begin investing before the cuts have taken effect – while the impact of infrastructure or other spending takes much longer, even years, to work its way through the economy. But they both have their place in good economic policy."

Similarly, our results do not speak to the issue of whether taxes are a more powerful tool of fiscal policy than government purchases. The fact that our estimates of the effects of tax changes are larger than conventional estimates of the effects of changes in purchases is of little relevance: conventional estimates of the effects of purchases, like conventional estimates of the effects of taxes, almost surely suffer from omitted variable bias.

A new paper by Price Fishback and Valentina Kachanovska in the prestigious Journal of Economic History provides new evidence on the effect of US federal spending on state-level income and employment during the Great Depression. Fishback (a former student of Robert Higgs) and Kachanovska, estimate state-level multipliers of between 0.4 and 0.96 -- in other words, a dollar of federal spending crowded out from 4 to 60 cents of private investment.

I would need to go back and check. But one question, and I think Greg Mankiw raises this question as well, is, Why does this set of evidence depart from what seems like the standard Keynesian theory that a dollar of spending would have a larger multiplier than a dollar of tax cutting?

I don't think it is really confusing at all, because when you cut taxes there are two different effects. One is that you cut tax rates, and therefore give people incentives to do things like work and produce more and pay more -- maybe, depending on what kind of taxes. And then you also maybe give people more income. This income effect is the one that's related to this Keynesian multiplier argument, where it's usually argued that government spending should have a bigger effect. So that's the income effect. But the tax-rate effect, inducing people to do things like work and produce more and invest more, is a whole separate effect, and that could easily be much bigger than the multiplier thing, than the income thing.

We can consider similarly three other U.S. wartime experiences—World War I, the Korean War, and the Vietnam War—although the added defense expenditures were much smaller in comparison to GDP than that for WWII. When I combined the evidence for all four wars, I got an overall estimate of the mul- tiplier of 0.8, the same value as before.

There are reasons to believe that the war-based multiplier of around 0.8 substantially overstates the multiplier for peacetime government purchases. For one thing, the temporary nature of much of mili- tary spending during wars means that con- sumer demand would not fall a lot. In con- trast, an increase in non-war spending—which historically has been mostly permanent— would tend to reduce consumer demand substantially through a negative income ef- fect.

When I attempted to estimate directly the multiplier associated with peacetime government purchases, I got a number that
was statistically insigni cantly different from zero. In the regression-based results from my 1981 Journal of Political Economy paper, for the sample from 1942 to 1978, the esti- mate was 0.14 with a standard error of 0.51. Thus, the regression did not pin down the non-war multiplier very well.

In designing effective policy responses, much more focus should be on incentives for
people and businesses to invest, produce, and work. On the tax side of scal stimulus, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates—especially where these rates are already high and fall on capital income. We should keep in mind the struc- ture of rate-cutting programs that worked: Kennedy-Johnson 1963–64, Reagan 1981–83 and 1986, and Bush 2003. At the present moment, the full elimination of the federal corporate income tax would be brilliant.

Let's take your logic to the limit. Let's have all investment involve no payment to workers. Thus NPV will be maximized.

Note, paying workers is a tax dodge. The reason to cut taxes on money not paid to workers is to cut payments to workers.

Amazon, Tesla, SpaceX pay no business profits taxes because they pay more money to workers than they have in revenue.They pay exponentially increasing money to workers building assets that can be expenses, and that have high initial depreciation rates (double declining on schedules half the useful asset life).

Tesla, for example, has an operating profit, ie, the marginal cost of making a car is 60-70% of the revenue selling it, but the depreciation on the capital assets is 40-50% of revenue, based on asset life of say five years when a significant portion of the assets are older than five years. But the payments to workers building new assets amount to 80-90% of unit car revenue. But 30% of that cash flow today will represent over half the depreciation cost next year.

For Amazon, depreciation matches the labor costs of new assets, based on mostly a five year schedule for ten year assets, so assets increase exponentially tax free.

A higher tax rate would make Amazon an even better investment than Wal-Mart which is not growing it's assets as fast.

I’m afraid I don’t really follow your argument or understand the point your trying to make

2) The tax cut will be more stimulative in most cases, see above.

No. It won't be.

You need to "look for the biases, reject superficial analysis, strive for a full and deep understanding" in yourself as well as others.

An excellent column. Clear, concise, compelling. Would highly recommend it be included in any reading packet for an Econ 101 class. Always look for the biases, reject superficial analysis, strive for a full and deep understanding.

We all fall short at times. But remember the goal.


Wouldn't you say though that if the management of a company buys shares (or anything else) at prices that are higher than they are worth, that management is in this scenario destroying shareholder value? I understand this to be Buffett's position - share buybacks are just one way of allocating capital and they only make sense if the share price is attractive relative to all the other possible investments a company might make. So sure, you are right, when someone overpays for something, someone else gets always gets the money, and in that sense resources are conserved. But this statement "Share buybacks simply indicate that investors don’t think those particular companies are the most promising outlets for new investment" is not the whole story.

Management feels that their shares are undervalued, so they do a buyback. Any shareholder who disagrees can take the buyback and sell their shares for more than they think they are worth.

Those shareholders who hold onto their shares presumably agree with the new, higher price, and so cannot be said to be harmed.

Why would you ever prefer the company to pay a dividend instead of buying back shares? You can basically synthesize a dividend from a share buy back, but not the other way around (for tax reasons).

Are shares ever priced for more than they are worth? (I agree with your point and Buffett's, but the market may not.)

I have two that are hardwired by two centuries of economics:

As Don Boudreaux always says, trade “deficit”, as it was a negative thing.

Another I hate is “progressive” and “regressive” taxation. Most people do not understand that is simply a mathematical concept, they think people like me is “regressive”, which sounds to them something they are supposed to be against to.

Regressive taxing is something people are supposed to be against, so I don't see a problem there.

Why so? I am for a flat tax, meaning the same absolute amount per person, hopefully zero. Why people should be against it?

I don't think we will find any common ground since you seem to be fundamentally against the existence of a state since no state can be financed with zero taxes (and neither absolute taxes for that matter, unless they're absurdly high).
While I think the state could well be smaller than it is now, I certainly prefer it existing over not existing at all.

I thought about it and I really can't find a way in which regressive/absolute taxes AREN'T terrible unless they're zero (in which case it's still terrible, but for a different reason). I literally can't find a single economic benefit:

1. If everyone has to pay it, the lowest income households will be incapable of survival and/or end up in a debt spiral. Best case, they end up in debt slavery. Worst case, they starve to death. The only option would be to leave the country, which, from the countries POV, is pretty much the same as them dying and as such also should not be encouraged. We need people to do the badly paid work, like cleaning.
2. If you only have to pay it once you earn a certain amount of money, you actually have a kind of progressive taxing. But the worst possible one. Depending on the cut-off value, for lower class workers, working at all won't be worth it or if it's higher you will have to make absolutely sure you don't work too hard. This will almost guarantee the flourishing of a black market.
3. It strongly encourages and protects monopolies. Already sucessful people pay increasingly less tax relatively, while unsucessful people end up in debt. The same extends to some degree to companies; A single big company would have to pay lower taxes overall than several small ones, again encouraging monopolies.
3a.An extension of the point before, it would stiffle innovation. As exemplified in the post about the steel industry, innovation all too often comes from newcomers in an industry. These newcomers are necessarily small and would thus be punished for being small, slowing big innovations down and making small innovations almost impossible.
4. It strongly encourages high unemployment because it's much more efficient to pay a few people very good instead of having to pay a lot of people given an absolute tax (since the tax load of a higher group of people will be much higher). Likewise, these people will have to work a lot because there will always be hundreds willing to take their place, encouraging the burn-out culture we already have by a decent factor.
4a. A similar point, it encourages companies to use more automation instead of people because it again reduces the overall tax load of the employees.
5. It's very likely to bring down consumption because the very rich generally tend to invest their money instead of using it to consume stuff. We already arguably have too much investment money and too little consumption if you look at the inflation of the stock markets vs the inflation of the regular consumption goods. This can also be seen by looking at the increased number of new businesses, but the decreased lifetime of new businesses. This will further hurt the economy.

The only way I see to fix this would be if the employers would voluntarily work against it, by paying a lot of money even for trivial tasks while only paying slightly more for even the most central and most important ones, as well as by limiting work hours very harshly to discourage burn-out cultures. But as said this would go against their economic interests, and so those companies would eventually go broke, being replaced by companies that don't care.

Sorry for the block of text, I always forget that MR ignores line breaks unless you do them twice.

I am against the existence of the State. There are many ways to overcome its necessity, for example with a world of private communities in competition.

However a minarchist State is better than what we have now. Under Grover Cleveland federal taxes amounted to 3% of GDP. State taxes varied, but in some cases the sum was less than 5%. Gdp in the US is now 57.400$ (2016). The 5% would be 2850$ per person per year, slightly more than 200$ per month. Virtually everybody would be able to pay them. And it would be more than enough to pay for police, judiciary and a militia-based voluntary defense system.

"all of which might boost investment and real wages." Why don't we just avoid the 'might' and just pay the workers more right away? Avoid the middle man!

I agree, lets solve poverty by decree!

But getting back to the post, I avoid anything with 'takedown' written for the exact reason you state.

There is a very high percentage that anybody who writes a 'takedown' is a know-it-all, pretentious windbag. Or, they're just trying to act like one for clicks. Either way it's obnoxious.

"Economists call this a negative externality." It's usually an attempt from the political left to avoid moralistic language in justifying a disproportionate sin tax.

Externalities, both positive and negative, exist in almost every human interaction.

Identifying an externality, whether real or painfully rationalized, isn't much of a justification for government interaction.

Finally. +1

BTW, what is the logic of not putting "likes" buttons here? Maoist hatred of individuality?

The selection of externalities to include in the evaluation often appears fairly capricious as well, almost as though the actual goal was to support a pre-determined outcome.

Anything that uses the phrase "according to science" is nearly guaranteed to contain no science at all.

That column reads like a lot of hand-waving to me: "Nothing to see here! Move along!" If the result of the tax cuts is that a bunch more money sloshes around the financial sector, it seems to me that that is significantly less likely to lead to wage increases than if the companies receiving the benefits either directly raised wages or invested it themselves in increasing capacity.

Tyler seems to be saying that all money is fungible, so the tax cuts are bound to show up somewhere. I would argue that experience shows that the financial sector can swallow a truly astronomical amount of cash without producing a lot of working class jobs, and the jobs that are created may be more fragile (construction, retail) than those you'd get out of, say, a business opening a new factory or moving into a new line of business.

FWIW, I supported lowering the corporate tax rate, but thought this cut was larger than needed to increase American competitiveness and lent itself to the kind of financial gamesmanship we're seeing now. I think it's going to be a sugar high.

Ooh, that's a good one! Anything containing the phrase "Money sloshes around the financial sector" is likely to be worthless. Thanks for the reminder!

I was going to go with 'hand-waving'

I'll accept "money sloshing around," but "hand-waving" doesn't count because that was an attack on the author, and was meant to be pejorative. Hey, bookmark this comment and remind me I'm an idiot if the economy is still growing 18 months from now. I don't think we'll have to wait long to see how this plays out.

So, if the economy isn't growing in 18 months, that means every thought you've ever had is true?
Would it also mean that "massive buybacks" are confirmed as a big problem?

Back off buddy, this is my beat!

Will someone please debunk that post?

Hey! That was gonna be mine!

Yours had more punch than mine would have, though.

comprehensive immigration reform

The author will propose de facto open borders.

Beautiful code word!!!

I wonder if there is a phrase that is used only by people on either bias extreme: both the people who shill for it, and the people who hate it, but not reasonable people in the middle.

Some tech buzzwords might fit into this category. "Gig economy" and other such buzzwords might be used unironically by people who legitimately believe that app-based short order work is the future of our economy and this is a good thing, and ironically by those on the far left who see it as textbook exploitation of labor, but not by folks inbetween.

While we are on taxes, I wanted to get Tyler's views on voluntary funding of government. Others please chip in.

Have donation funds set up by government worked in any part of the world? While the idea may sound quixotic I think they tend not to work because they are not linked to specific projects and incentives for the donors.

How about this? The government earmarks let's say a 1000 infrastructure projects in a year (small and large). It can be something as major as building a bridge or something as small as building a small road in a village. Any citizen is welcome to contribute. And here's the clincher. Suppose you contribute well over 50% for a particular project close to your heart, the product of that project will be named after you for eternity. And the government will promise not to change the name.

So if I provide funds to renovate a dilapidated school in my village, that gets named after me for eternity. This ego-booster incentive can potentially drive a lot of voluntary donations to several projects.

"While we are on taxes, I wanted to get Tyler’s views on voluntary funding of government. Others please chip in."

Indeed! Perhaps the most (unintentionally) humorous comment of the year.

I am serious!

Universities do this routinely; there is actually a price list for many things, see your favorite development office. Major capital items like buildings are negotiated on a bespoke basis. And of course "permanent" naming rights are always subject to change.

Not really the same thing if it only applies to capital. Surely university staff are not paid for by donations? In a similar vain, plenty of government capital projects are funded by donations.

Endowed chairs are explicitly paid for by donations. The Duke price list from a few years ago ranged from $1-5 million depending on the seniority of the professor.

In addition to naming rights, I can think of other incentives too -

How about "Coffee with Trump" or "Lunch with Steven Mnuchin".

You can even bring in celebrities to support this initiative. Significant donors can have lunch with Kobe, play tennis with Serena, or have a date with Scarlett Johanssen.

It wouldn't work as well as you might think, I reckon. Lots of people think of the government as "the things we do together," to borrow a phrase; an expression of the popular will, a cooperative effort that affirms our ingroup status, in other words. Dan Klein's term for this is The People's Romance. Auctioning off lunch with somebody, as an example, makes it an individual endeavor where people compete with one another for some privilege, which undermines that function in the minds of the kinds of people who'd be inclined to donate money in the first place.

Coffee with Trump's wife or Lunch with Steven Mnuchin's Wife!

Much charity funding runs along these lines. You get a tax break to fund a charity that may fulfill a government role. Milton Friedman frequently argued that private charity is sometimes more efficient. Of course, he didn't see the Clinton Foundation.

There was a brief fad of experiments with crowdfunding scientific research. All of the amounts raised were tiny (to my knowledge, never enough to fund a full time researcher for a year), and the topics leaned heavily towards the popular: cute animals, recreational drugs, and super long shot, 'miracle' treatments for major diseases. There are of course large private funders (HHMI, templeton, sackler, etc.), but still pretty small potatoes compared to the government. And even these tend to rely on governments/universities to pay for a lot of the infrastructure and support staff (no one wants to pay for secretaries, even if it makes a lot more sense for the people doing research and the people doing clerical work to be different people).

"the product of that project will be named after you for eternity"

Well, until you get accused of sexual assault.

"And the government will promise not to change the name."

What good is a government promise?

Besides, you'd end up with overinvestment in infrastructure with naming rights. Maybe it's a lesser evil in our situation where infrastructure suffers from underinvestment but it's not an optimal solution.

Buybacks are economically equivalent to dividends, tax considerations aside. Certainly I see nothing wrong with a business returning profits to its shareholders.

My problem is with the level and source of those profits. Profits are already unusually high, and there seem to be very few capital-constrained corporations. Corporate America didn't become any more productive, they just had good enough lobbyists to get their taxes cut. Accordingly, I don't see what problem this tax cut was trying to solve. Such a large portion of the tax cut being used for share buybacks indicates that the case that it would increase investment, wages, etc was bullshit.

So that's the issue. The administration's signature economic policy is bullshit. But instead we're gonna talk about how what related phrases might lower somebody's status.

The tax cut allows investors (corporate or individuals) to seek the highest return. The firms do a buyback because they don't see an investment the firm can make that generates a higher rate of return then what the stockholder could earn by investing by themselves in the general market. i.e., profits are not unusually high for the firm, and they are no better than the general market risk-adjusted rate of return. If you disagree with company management and think that firm will generate higher profits and a higher stock price, keep the stock,

From John Cochrane

The economic argument for the corporate tax cut is that companies with good ideas, projecting a better after-tax return on new capital investments, will make such investments. This new investment will let companies expand and make their workers more productive. When that happens, companies will compete for workers, leading to higher wages. Not all companies should make new investments, and some of the best investments come from new companies that don’t have profits yet.

I'm perfectly aware of all this- see my post in response to jdm above, which contains some of the same points.

Its true that profits are not unusually high for any given firm doing buybacks, but that was not what I was saying. Take a macroeconomic view- corporate profits as a share of GDP have been up around 10% for several years, and that was before the tax cut. The average since 1947 is around 6.5%.

In of themselves, share buybacks are fine. But the current crop of buybacks are a symptom of a profoundly stupid pro-cyclical fiscal policy. To miss that and focus on whether somebody is playing status games is foolish.

And not all firms are doing buybacks. Also, earnings cannot grow faster than the economy in the long run. Firms doing buybacks are correctly assuming that future profits will return to long-term averages consistent with the growth of the economy.

The 85-year-old Friedman phoned back, collect as usual, from his office at the Hoover Institution. “Would you accept the charges from Milton?” asked the operator. I said I would, and Friedman got straight to the point. “Beware of predictions that earnings can grow faster than the economy for long periods,” he warned. “When earnings are exceptionally high, they don’t just keep booming.” Eventually, Friedman explained, profits must move back down to their traditional share of GDP. Earnings can get only so high, Friedman said. “They can’t break loose from economic gravity.”

I think I read somewhere that CEO's love buybacks, because it boosts the value of the shares they own as well as options they haven't exercised yet, whereas dividends only benefit existing shareholders. It's a principal-agent problem, in other words.

Borjidgid, I call BS on you. We don't know, a priori, what the data will show about investment and wages after the tax cut.

Your implied theory, stated in a falsifiable way: tax cuts that lead to buybacks will not increase investment nor wages.
The Trump admin theory: tax cuts will lead to more investment and/or wages in the USA.

Data so far: more US investment AND more wage bonuses (sort of like a one-time share buyback, but for workers) AND more employment AND less black unemployment.

Current data based conclusion -- your theory is wrong.

Tyler, no fan of Trump, is at least honest enough to explain: "Share buybacks simply indicate that investors don’t think those particular companies are the most promising outlets for new investment."

Every economy needs new investment that generates high Rates Of Return (Of Invested Capital; or Return On Investment). I recall reading why Japan's high savings rate didn't translate as well into econ growth -- they didn't choose high ROI projects.

I'd guess you do support boondoggles like Obama's Solyndra or Moonbeam Brown's high speed rail ($77 billion estimate cost and rising). The data consistently show that the free market, over time, is far better at getting actual ROI than overpaid gov't bureaucrats.


Almost every piece here has an axe to grind:

Great point, "quietly" is a description ripe with negatives.

But what it also does is let the media smugly pat itself on the back -- "you were trying to do this quietly but haha we found you out." (As opposed to the usual modern news-gathering method of rewriting press releases or gaping at twitter feeds)

Re: share buybacks - yes tax cuts leading to share buybacks just really change who gets to control the spending/investing of the money the private sector or the govt. However, don't we really need tax increases to balance the budget?

So here's one for you TC: Re: tarrifs. Let's also admit that they are just sales taxes/VAT taxes and as such should be analyzed in a revenue neutral framework - ie they generate net revenue. Don't we need tax increases to balance the budget? Is there a good argument for them being 100% uniform across all goods and countries? Really? don't economists like consumption taxes?

"The People's Flag is deepest red,

It shrouded oft our martyred dead,

And ere their limbs grew stiff and cold,

Their hearts' blood dyed its every fold."

Good to see you again, Thiago. How was the vacation as Charbes?

Please, do not assure me that you do not know what I am talking about and that you are yourself.

Thiago and Charbes actually enjoyed some intercourse recently in previous posts. Does that mean he f***ed himself?

But I am myself. I really think you are mistaking for another person. I have been used the name "Our petitions have been slighted; our remonstrances have produced additional violence and insult; our supplications have been disregarded; and we have been spurned, with contempt, from the foot of the throne" to confuse the minions of malefactors of a great wealth who had banned me.

“Austerity” is a throwback but a personal favorite of mine.

I have always loved “transparency” as well.

“Targeted investments” is another favorite. Completely vacuous term that rallies mood affiliates making them believe that wasting money isn’t just wasting money if you act superior while you do it.

More recently, you could try “collusion,” “meddling,” and “interference.”

Oh also “slash,” as a cognate of “gut.”

"Investment in the American economy therefore is likely to rise, even if we don’t always know where or by how much."

And yet I would prefer full expensing.

"Massive" has always made me laugh -- it's just writers or newsreaders worried that "big" or "humongous" would sound kinda dumb. So we get massive delays, massive heart attack, massive snowstorm ...

"Controversial" is a good basic red flag to watch out for. A controversial proposal is simply an idea the writer opposes. (As compared to "comprehensive," which generally signals support)

Watch your mouth!

Quietly, blasts, shocked/shocking

If I see a headline with one of those words, it's an instant pass.

This seems like a question of Economics vs Politics

Does your reasoning jive with our understanding of economics. Sure does. That money likely will be reinvested.

Does it jive with the arguments made to support passing this tax cut? Not so much. The President and Congressional Republicans argued that a tax cut would directly allow these companies to raise wages. They argued that labor bears 70% of the tax incidence from the corporate tax, so the large majority of the tax cut should directly end up with workers. They did not argue that this tax cut would make rich investors richer, thus allowing them to reinvest their money elsewhere, which might then eventually lead to increased wages ... or it might be invested overseas or in capitol-intensive sectors that have less impact on wages (which is actually pretty likely).

I think that the economic argument was never that the specific cash-rich companies that now pay less taxes would necessarily increase wages. The economic argument is that some companies in the economy invest more in equipment, higher level of equipment will increase the productivity of labor, and some fraction of that higher labor productivity will lead to higher wages.

Saying that it's these companies either repurchasing stock or investing in machinery is a distortion of the actual argument. A distortion for political purposes.


"for the rich"

Using the words "oligarch" and "plutocrat."


Comparing some "stock" quantity to the annual "flow" quantity of some country's GDP. That's a proven credibility eraser, in my opinion.

How about when a celebrity doesn't invite the press to, say, her wedding, it's now a "secret" wedding.

In the tech world, especially mobile, my two favorites are "-killer" and " is dead". The former always means "I like this product more than the other" and the latter always means "I don't like this product". They're supposedly objective statements meant to cover subjective opinions.

Red flag: When articles in magazines like the Atlantic start by asking whether some phenomenon is "problematic", it is a fairly safe bet that the author already decided it is deplorable, and that a long sermon will follow.

Cowen writes a book complaining about the lack of dynamism in the economy, but then writes a column assuring us not to worry about the “massive stock buybacks” because of the dynamism in the economy.

Let's be blunt: he is a puppet of malefactors of great wealth.

I agree with the examples you've identified so far. I'm legitimately interested in whether you would consider the statement your second paragraph, "Congress recently passed a 'major tax reform bill'..." is an example of this phenomenon. The only "major" and "reform" elements appear to be reductions in tax rates - and not just for the rich but across all incomes. Many of the other proposed changes to the tax code were not passed by Congress. By some analyses (generally left-leaning ones), the tax code become more complicated, not less.

“Refuted” used for “disputed”

There are a lot of people who won't let having absolutely no idea how taxes work stop them from writing about taxes. Good ways to tell you're about to be confronted with a bunch of nonsense are "tax loophole" or "[Company] paid no taxes last year".

Out of curiosity, there certainly exists *something* that people would classically call a 'tax loophole', so how would you call it?

A tax loophole is a real thing! The problem is that most people seem happy to use "tax loophole" as shorthand for "any deduction regularly taken by rich people" or "any reason that a company's tax bill isn't exactly 35% of its GAAP net income" so it's pretty difficult to have a serious discussion on the subject.

(The conservative equivalent is saying "let's simplify the tax code" as shorthand for "let's keep all the deductions I/my business takes and get rid of the rest".)

Hmm okay, then it seems we're on the same page in principle.

However, most times I hear people saying a companies 'uses tax loopholes' and 'pays nearly zero taxes', it's about companies that pay sub 1% taxes, so it's not really that far away from zero. I rarely hear people complain at all about companies that pay, let's say, 10% or in that ballpark.

Likewise, I do think that a genuine tax simplifications would be possible, it's just that strong lobby groups usually manage to avoid them because a more complicated tax code favors them.

We are constantly told about where "the benefits of growth go to" (i.e. the 1%).

Where do the benefits of growth come from?

"public good"

Used in economic discussions but without the meaning ascribed it by economics. Instead means "I like this."

Do massive stock buybacks contribute to productivity, increased wages, and economic growth? No, they contribute to rising asset prices, flat productivity, rising inequality (who owns the assets?), slow growth, and financial and economic instability. For Cowen to provide assurances that massive stock buybacks are just fine, he has to engage in contortions not seen since the Olympics ended.

To be maximally contrarian, in my experience 'red flag' is the worst red flag. If people think that they can dismiss other people's writing just because they dislike certain phrases, that's generally not a good sign. Especially since words are usually group signifiers, dismissing them thus often is done by people who generally tend to dismiss everything from other groups than their own.

In the same vein, 'toxic' is also often, well, a toxic words because it is usually used to imply that even though someone doesn't actually do anything that actually hurts anyone in a reasonably explainable manner, it's still obviously wrong and he needs to be punished.

I read an article in Evonomics where "supply and demand" was in air quotes. Anyone who doesn't believe supply and demand are real phenomena probably doesn't have anything useful to add to an economic discussion. And yes, I am aware that the fact that it was an Evonomics piece should have been evidence enough already.

"Slam" is up there with "takedown." "Cis" and "wage gap" are pretty much dead giveaways about where an author sits on gender issues.

From the Bloomberg article.

'A basic principle of economic reasoning is to think in terms of real resources, not just the first-round flows of money. If a major corporation engages in buybacks, that simply transfers money from one set of hands to another -- from the corporate entity to the shareholders.'

This is a case of removing a tax wedge so zombie corporations become discovered. The effect is the very definition of tax wedge, a wedge being an institutional fee that restricts mobility. Market volatility gets a bit higher as stocks sort themselves out relative to safe rates.

I think the first and last paragraphs of this column kind of suck. Why does this straightforward defense of buy-backs need to be overladen with a confusing evidence free meta-claim about what other people think? TC does not actually know what these unnamed writers or speakers actually understand and he presents exactly zero evidence from which a reader might infer that one or more of these unnamed writers misunderstand the economic import of stock buy-backs. This framing makes the entire column more confusing and less persuasive and adds a veneer of schoolmarmish superiority that smacks of arrogance and pretension rather than intellectual humility.

The issue with "massive share buybacks" is that the proponents of the 2017 tax bill which is causing these transaction to occur explicitly argued that the effect of corporate tax cuts would be substantial increased spending by corporations subject to corporate income taxes on capital investment by that corporation and increased hiring and wages by that corporation and more favorable prices for consumers.

Opponents of the bill argued that instead the main result of the corporate tax cuts would be that corporations would transfer the tax savings directly to their shareholders.

The opponents of the bill have overwhelmingly been proven to be correct in their predictions of corporate behavior in response to the tax cuts, while the predictions of the proponents of the corporate tax cuts have been proven overwhelmingly to be mistaken on a point that they argued strenuously justified the passage of the bill.

Some of my "red flag" phrases:

-"market based reforms," especially in regard to health care
-"we need smarter regulation, not more regulation."
-a declared opposition to "one size fits all" policy.

Share repurchases may not divert resources away from productive uses. But they are a way for management to benefit by increasing their bonuses or by reducing their 'skin in the game' as Nassim Taleb may point out. The tax reduction was a good thing because it lets people redeploy money that they earned. But that does not mean that the incentivized managers will do what is good for their shareholders by buying overvalued shares just so that they can get a bigger bonus or sell off their holdings at a better price.

So let's see. The tax cut will increase wages because companies will invest more.

But they buy back shares instead. OK. So the sellers will invest the proceeds, which comes to the same thing. How many rounds will Tyler go, I wonder.

Perhaps I read different commentators, but 'massive share buybacks' indeed seems to me to be used appropriately, and the column didn't seem to be a defense of those second order flows. In effect the share buyback is a transfer between the company and shareholders, but most shareholders are, well, wealthy. So the correct analogy there is a tax cut for wealthy individuals - last time I saw the phrase this was what it was getting compared to. I'm a little unclear why this is a better outcome than other uses of the money, or why 'corporate tax cut mostly spent on share buybacks' isn't something worth lamenting.

If we need to go through a few rounds of 'share buyback -->invest elsewhere-->share buyback' before we get to the point of 'wages go up' (or whatever you're aiming for), I would have suspected that the proportion going to wages/whatever is less depending on the number of rounds (for probabilistic reasons mostly - each company with more investment/more demand splits it between X activities).


"push around money" vs "investment" or "a wage boost"

Can you explain more what this difference boils down to? I've often suspected that I it doesn't make sense to fret about the price someone paid for a piece of art or a company, since the money is still around it just changed hands. Is that another example of just pushing money around? What would it mean for something to be an investment, since even buying anything whether it be a good or service is also just money changing hands. I'm just not sure what the right way to think about this is...

One telltale sign of red flag phrases might be that they can be used to argue that a given observation or policy is bad or that it is good, i.e., the objective reality doesn't matter and the red flag phrases do all the work. It seems like all statements regarding privilege fit this pattern. Any observation *and its opposite* can be shown to be evidence of privilege as can any policy and its opposite be shown to perpetuate privilege. Observe this generic template for deploying red flag phrases to establish privilege and victimhood:

If P and V interact, then P is *exploiting* or *appropriating* something belonging to V.
If P and V don't interact, then P is *ignoring*, *neglecting*, or *excluding* V.

If P buys something from V, then P is *using*, *taking advantage of*, or *exploiting* V or V is a *slave* of P.
If P doesn't buy something from V, then P is *denying* V a chance to earn a livelihood. If P buys from P' instead of V, then P' is *siphoning* income away from V.

If P sells someting to V, then P is *getting rich* off of or *profiting* from V's *needs*.
If P doesn't sell something to V, then V is being *denied access* to a basic *need* or even a basic *right*. If P sells something to P' instead of V, then P' is driving up prices and making things *unaffordable* for V.

So, all interaction and non-interaction and all economic transactions or non-transactions are evidence of privilege with enough red flag phrases. Here are some more examples:

1) Observe men outearn women: Women are *underrepresented* or *excluded* from high wage jobs.
Observe women outearn men: *Society* places undue *pressure* on women to over-*burden* themselves *trying to meet unrealistically high expectations* around work and career. (Witness: women outearning men in home production becomes women bear disproportionate *burden* of housework. Female supermodels more famous and higher paid than male supermodels (Do those even exist?) becomes *society creates unrealistically high expectations* around female beauty.)

2) Diversity in college admissions, pro: women and minorities deserve equal *access* to higher education.
Diversity in admissions, anti: the brightest women and black students should not be *siphoned away* from women's and historically black universities just so privileged white students can *appropriate* their stories and insights. Women and minorities should be able to *retain ownership* over their stories by sharing them only with other women and minority students.

3) Pro-immigration: immigrants from poor nations should not be excluded from wealthy nations.
Anti-immigration: wealthy nations should not *siphon* workers away from nations that are already poor enough as it is.
(Note: the good pro-immigration argument is a liberty-coercion, not privilege-based, argument. It's about *individual* freedom of migration and association, not group rights. That's why siphoning away or brain-drain arguments are invalid within a liberty-coercion framework but not a privilege framework.)

4) Gay marriage, pro: We should not *stigmatize* gay relationships as somehow less worthy than straight relationships.
Gay marriage, anti: Once gay marriage is legalized, *societal norms* will *pressure* gay couples to conform to heteronormative notions of family. Gay couples that remain unmarried will be negatively *stigmatized*. Widespread *expectations* that gay couples should enter monogamous, lifetime marriages will also inevitably *pressure* those same couples to adopt children. Essentially, gay couples will be *shamed* into "acting straight".

5) Pre-abortion waiting periods/counseling, anti: Waiting periods have one purpose: to deny women access to abortion through *shaming*.
Waiting/counseling periods, pro: Women deserve *protection* from being *bullied* into abortions by men. Why are consumer protection laws always weakest when those consumers happen to be women?

6) Promoting/selling male products, e.g., Viagra: It's interesting how *Big Pharma* devotes billions to create products for men, but entirely *neglects* women's health. Women have to die of breast cancer so that men can have sex.
Promoting/selling female products, e.g., cosmetics: An entire industry exists for the sole purpose of *making women feel insecure* about their physical appearance and *shaming* them into trying to meet unrealistic standards. Female-Viagra: We now have a product that literally allows men to legally drug women into having sex.

One last example: share buybacks.

Companies do share buybacks: Rather than invest in their companies and pay workers, companies *prop up* their stock prices by *giving* that money to the *investor class*.

Companies don't do share buybacks: Rather than return to mom-and-pop shareholders money that belongs to those shareholders to begin with, *CEOs* would rather retain *control* over that money for themselves.

Watchdog instead of regulator.

I'm certainly no expert, nor have spent the time of looking for data, but it seems an outlet for short term strategy rather than long term. Motives for that could be management compensation etc. as other have noted. And while not related directly to this, borrowing at very low cost for share buybacks is good for the investor today, but seems problematic for a number of reasons for someone saving for retirement in thirty years.

“Not for profit “ - euphimism for tax-exempt. Best translated as “rent seeking parasite.”

'Debunked'. At least 80% of the time, its usage is bullshit and the user is an idiot.

I see I'm not the first on this post to make the claim. Hat off to the others sceptical of debunking

"Studies show"

From John C.'s excerpt:
"Nothing about who gets what part of today's profits has anything to do with it." << this is almost always wrong.
For top management decision makers, the agency problem often dominates, but is always an influence. If bonuses/options/benefits are based on "higher share prices", there will be an agency bias towards safer buybacks to increase the price.

If not, there should be dividends, acquisitions, reduced debt, increased R&D, or increased wages -- all of which are valid alternative uses of buyback cash, with their own sets of advantages & problems.

Maximizing the marginal increase in company value from the mix of these alternatives is part of the strategic "entrepreneurial premium" each firm is paying it's top execs for deciding on; the mix includes top exec bonus formulas.

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