[darawk]

> Here's the longer paper the author wrote a couple years ago that explains his reasoning. You may disagree with his argument, but to dismiss it outright as having no merit says more about you than it does about the author or the NYT.

I criticized him for not making an argument in the article. He didn't, nor did he link to this paper.

But sure, let's address this argument:

> >If hundreds of billions of dollars annually stop flowing out of the nation’s major corporations to do buybacks, then vast amounts of resources will become available to provide the financial commitment that innovation requires.84 Ban buybacks, and companies will be able to use these funds not only, or even primarily, to finance capital expenditures but more importantly to attract, train, retain, and motivate their career employees. In high-tech companies a significant proportion of these employees will be engaged in R&D, but the innovative enterprise needs experienced and motivated employees in a range of other functions as well. And some of the funds made available by a buyback ban can flow to the government as tax revenues to enable it to invest in physical infrastructure and human knowledge that can underpin the next generation of innovation.

If the problem with buybacks is that they return capital to shareholders then you're going to have to do a lot more than ban buybacks to stop it. If you want to argue against buybacks, you need to argue that they are worse than other methods of returning cash to shareholders. Arguments that they are bad because they return capital to the people who invested the capital are arguments against capitalism itself. And by all means, if you want to make an argument against capitalism, go for it. But don't pretend it's got something to do with buybacks.

[aslkdjaslkdj1]

>I criticized him for not making an argument in the article. He didn't, nor did he link to this paper.

But he did make that argument in the article. It's a short-oped so he didn't make it in the same amount of detail, but it is in the article. Did you read the entire article?

>A company’s profits are, however, the financial foundation for investments in productive capabilities, first and foremost in employees. Investment in training and retaining employees is the key to productivity growth and innovation, for individual companies and for the economy.

I'm not saying the argument is right or not. I'm saying your outright dismissal of the entire premise as garbage and a meme not worth considering is wrong.

[darawk]

> But he did make that argument in the article

No, he actually didn't. He did not articulate the idea that buybacks cause an increase in overall shareholder remuneration. You read that into what he said, but he didn't actually say it.

> I'm not saying the argument is right or not. I'm saying your outright dismissal of the entire premise as garbage and a meme not worth considering is wrong.

I stand by it. The argument is terrible and financially illiterate, even if you grant him the implied argument you make for him.

[aslkdjaslkdj1]

The line I quoted was from the article. It's a summary of the argument from the much longer paper. It's not an implied argument. I repeat the quote from the article below.

>A company’s profits are, however, the financial foundation for investments in productive capabilities, first and foremost in employees. Investment in training and retaining employees is the key to productivity growth and innovation, for individual companies and for the economy.

[darawk]

That quote is just an explanation of what you can do with profits. It doesn't say anything about buybacks diminishing investment in R&D. Secondly, net income and profit are not the same thing. If a company is allocating more profit to buybacks, that doesn't funge against R&D or employee salaries. It funges against dividends and retained earnings.

[aslkdjaslkdj1]

>If you want to argue against buybacks, you need to argue that they are worse than other methods of returning cash to shareholders.

He does make that argument. He argues that buybacks incentives cause a higher % of net income to be spent on buybacks than dividends.

>We found that from 1981 to 1983, these companies spent 4.3 percent of profits on buybacks. In comparison, from 2014 to 2016, these same companies spent 59 percent of their profits buying back their own stock. Dividends absorbed just under half of profits in both periods.

[darawk]

Profit is not necessarily the same thing as net income. Net income is Revenue minus Cost of Goods Sold. Overall profit includes capex. If you use the 'net income' definition, then yes, he makes that point.

[aslkdjaslkdj1]

You are thinking of gross income. Net income includes depreciation for assets acquired under capital expenses.

[darawk]

You're right. Gross income is the correct measure. Then his paper uses the wrong measure too.