[postpawl]

GM announced a $10 billion stock buyback in November 2023, literally weeks after claiming they couldn't afford worker raises during the UAW strike that cost them $1.1 billion. Since 2015, GM has authorized $37.7 billion in total buybacks while their new UAW contract costs $9.3 billion over four years. When you can find $10 billion for buybacks immediately after settling a strike, the problem isn't "expensive labor". It's management that chose financial engineering over building competitive manufacturing capabilities.

[impossiblefork]

Yes, but companies run for investors will always have to pay investors, so it would have either been a buyback or dividends. When interest rates go up, companies end up competing with government bonds, and they must give dividends that keep them competitive, and in 2023 that was something like 4.3%.

For investing in the future to be possible interest rates must essentially be low.

I've thought a little about this problem, because recently we had situations where we simultaneously had inflation and needed investments to produce products in new ways to counter that inflation, and this obviously leads to a situation where it's difficult to get out of the problem. If we increase the interest rates then we stop the inflation, but the interest rates will be too high for investments to counter them. Concretely: Northvolt was trying to do American-style doomscaling and then interest rates went up, so they went under.

I believe that there is a solution: giving the central banks the additional tool to set a mandatory savings fraction of wages-- that is, that the central banks are allowed to set a fraction of wages that must be saved, and which may be invested or used to start a company but which isn't allowed to be used for consumption.

If you then have inflation and consumers are bidding over each other for goods and driving up the prices the central bank can increase the savings fraction without changing the interest rate. So plausible, in case of inflation you'd look at the need for capital to get out of it: if there's no need for capital to build new things and get out of it, then you just increase the interest rate, if there is, you increase the mandatory savings rate.

I thought about voluntary solutions, but suppose that we consider a savings pacts-- i.e. ordinary people get together and agree to all save a certain fraction of their income, then this drives down prices, so whoever deviates from the pact gets so much goods that he's really happy with what he gets for his money. Consequently such savings pacts are unstable and the savings pact must be mandatory.

I also think this is especially right for Europe. I calculated that if the central banks set this at 5% then this is enough for Draghi's €800B of needed investment, but it's obviously also applicable to the US if the US wants to transition to EVs, and now you have even higher interest rates than we do, so this policy might actually be the right thing for you too.

[BoiledCabbage]

Not to pick on you, but you stared your pay with a series of trivia steak arguments - but all examples of things I see repeated with little consideration.

> Yes, but companies run for investors will always have to pay investors, so it would have either been a buyback or dividends.

Your argument here is that the pivot two things companies can spend money on is dividends or stock buybacks? An incredibly false choice. They can also clearly invest in staying competitive.

> When interest rates go up, companies end up competing with government bonds, and they must give dividends that keep them competitive,

Why do you think they must do this? These aren't bonds - people aren't looking to park money at a risk free rate. They are stocks - different investments with different expectations. Setting the expectation of one based on the other is false. They should be ensuring the can keep with with short term growth of more than 4% per year non adjusted, which should be easy in an inflationary environment.

And let's dig further into what you said about this "must". Must implies no other reasonable option - the consequences of anything else would be to negative. So when you say they must do buy backs or higher dividends, I ask "or else what?". Simply put, what hairband is they don't? The company doesn't fold. Consumers don't suddenly stop buying their products. What actually happens that they need to avoid?

Not much really much of note really. They say/signal "instead of giving you this money right now, we're going to invest it to remain competitive and more productive in the future".

If some investors don't believe them or doubt want to wait the stock price dips for some period of time and then rebounds as those investments become realized with increased efficiency and superior products.

> For investing in the future to be possible interest rates must essentially be low.

Finally this is wrong. It doesn't require low interest rates is you're flush with cash. If you've given away all of your cash then yes you need to borrow to invest. But if you have tons of cash you don't need to borrow to have cash.

[ProfessorLayton]

GM's stock price is below inflation since new-GM went public 15y ago, and that's with 37B in buybacks. What do you think would've happened to the stock without them?

Do you think investors, especially institutional ones that manage retirement funds etc. would just ignore the CEO/board and not receive any returns?

[impossiblefork]

Yes, they can also invest in staying competitive, but when interest rates are high this is often not practical. Especially if there are competitors.

My observation is that great care is taken to keep companies competitive with government bonds when taking risk into account.

[owebmaster]

> Yes, but companies run for investors will always have to pay investors

> I believe that there is a solution

If changing the first is not your solution, you have no solution.

OP was saying that US companies will keep losing market until they are completely outcompeted. Finding a way to win this competition while keeping "investors" pockets full is impossible.

[impossiblefork]

Yes, but in this case the investors will be ordinary people, and the payment will effectively be the products that ordinary people want.

Suppose that cheap electric car mass production is possible with new production technology, and that there's inflation because of high petrol costs. Suppose that interest rates are 5% to prevent inflation. Even if the automobile manufacturers understand that it has to be done and is feasible with some for them to survive they won't be able to do it.

However, with this interest rates can be lower because inflation is prevented by the mandatory savings. The resources to build the cheap thing will actually be available.

If done internationally this will also greatly reduce the profits of oil producing countries: suppose that the US, the EU, China and India, all big consumers of oil, agreed on a mandatory savings rate of at least 1%. Then the ordinary people have less money to bid up the price of oil against each other, but do have money to invest in businesses that substitute for oil production. The co-ordination allows ordinary people and non-resource extracting countries to get more of the pie.

[owebmaster]

You are describing socialism. The US won't ever be socialist. And it works, China is proving that.

[impossiblefork]

How is it socialism? There's no löntagarfonder, there's no requirement to sell parts of companies-- wage labour still exists and while this would create a force which would lead to ordinary people owning a lot of capital, since the fact that companies would be making less profit on some goods would thus end up with reduced value, thus a reduced price, and that these people who are now required to be capital owners would likely buy at this reduced price, but it is not a socialist idea.

It's a patch on the floating-exchange-rate-and-policy-by-interest-rate of monetarist and Keynsianism to make it function in situations where there's both inflation and a need for investment.

I think the transition to this sort of as the US decision to decouple the dollar from gold. A way to get things more sensible.

[bigbadfeline]

> How is it socialism? ... There's no löntagarfonder

And yet that's also you:

> Yes, but in this case the investors will be ordinary people, and the payment will effectively be the products that ordinary people want.

Well, this is essentially löntagarfonder but worse because it's funded by the people under the threat of violence (mandatory savings), not from corporate profits.

> that these people who are now required to be capital owners would likely buy at this reduced price, but it is not a socialist idea.

So, the people are forced to buy the ridiculously inflated marked at ridiculously inflated prices for the faint hope that "likely" they'll get lower prices on something far in the "glorious bright future" (tm). And that's not socialism?

Well, a careful analysis reveals that "likely" is quite unlikely, the people forced to "invest" are going to lose their shirts and inflation will actually accelerate, only the well connected will benefit because they will be in control of this devious scam.

You are obviously not familier with the many forms of socialism and you argue about irrelevant details. Mandatory savings equals socialism, monopolization equals socialism - it's not Stalin's socialism, it's Mussolini's socialism - lets not forget, he was the Duce of the Italian Social Republic. As Hitler was the head of the National Socialist German Workers Party.

[piva00]

Thank you for providing another example for me to use when arguing against stock buybacks[0], it's an absurdity of perverse incentives.

[0] https://news.ycombinator.com/item?id=44590826