Recent headlines have given me pause. In a June 6, 2019 article in Axios, the writer, Dion Rabouin, reported the following: “Wealthy People and Corporations have so much money they literally don’t know what to do with it.” In 2018, companies bought back $1.1 trillion in stock buybacks, and have record cash holdings of close to $3 trillion. The top 1% of U.S. Households are holding a record $303.9 billion in cash, before the financial crisis this cohort held just under $15 billion in cash.
So when I read the following headline on CNBC “It is no longer a question of if the Fed will cut interest rates, but when.” It caused me to ask, are they looking to ensure that the Top 1% continue to suck the “value” to the top? At it’s most basic level, the Stock Market is a system of trust that “values” businesses listed on its exchange and rewards those who take the risk of “investing” in that business. While there are no guarantee’s, lowering interest rates, reducing borrowing costs, encouraging companies to take on debt, thus allowing for an increase in stock buybacks, providing additional cash reserves to people already flush with funds, strikes me as odd.
Yes, lowering interest rates makes mortgages more affordable and keeps student loan interest rates from spiking, but if all that value, is sitting on the sidelines, how are the “incentives” in our ecosystem working at solving the issues that confront us?
I am always struck that the “conventional” wisdom is when there is a weak jobs number, that the prescription is to lower borrowing costs, to spur investment, but are surprised when the “numbers” demonstrate that that isn’t happening. This feedback loop has been the soundtrack playing throughout our ecosystem, and makes me feel like Bill Murray in Groundhog Day.
As an economic journeyman, I have earned a wide range in wages and one thing is always a constant. I am more willing to fertilize local businesses, merchants, purveyors of food, and the cinematic distraction when my wage allows me to pay it forward. There is logic in Henry Ford’s belief that it is always “good business” to pay ones workers wages that allow them to be a positive force in their ecosystem. Isn’t it time we start to see the “value” in this part of our ecosystem? Or, if we truly want to reap the benefits of what Einstein deemed humanities greatest invention “compound interest”, how about every company provide a workers dividend that allows the workers that make the Executives profit possible to enjoy a share of those record buybacks?
Economic Journeyman 