Warren Buffett, one of the richest people in America, defended stock buybacks in his highly anticipated annual letter to Berkshire Hathaway shareholders, released a few days ago, and touted the significance of buybacks, claiming that President Biden is wrong in taxing buybacks 4%, Robert Reich wrote in an analysis for Raw Story.
Photo Insert: Reich stated that the Oracle of Omaha is dead wrong about buybacks being good for the country.
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive)."
Buffett may be correct about buybacks being good for shareholders, for the simple reason that each remaining outstanding share has more corporate profit behind it. But the Oracle of Omaha is dead wrong about buybacks being good for the country.
They merely enrich people who own shares of stock (the richest 10 percent of Americans own 92 percent of the stock market) rather than add to the productive capacity of America.
Many pundits (including Andrew Ross Sorkin of The New York Times’ DealBook) are failing to draw the distinction — assuming that if stock buybacks are good for corporations and their shareholders, they must be good for America.
Rubbish. To take but one recent example: Last year, the Norfolk Southern Railway enjoyed record revenue and operating income — $3.2 billion in the fourth quarter alone, a remarkable 13% year-over-year increase.
How did the railroad accomplish this? By cutting nearly 10,000 jobs — reducing its workforce by a third while running fewer, longer trains. Some trains now stretch longer than 2 miles.
It made these changes despite warnings that they worsened safety risks. The corporation also refused to provide its remaining workers with sick leave. And it failed to invest in improved safety equipment.
The company also mounted a major lobbying blitz against stronger safety regulations.