Stock Buybacks

I often find myself thinking about a junior high Earth Science teacher, who in 1961 was so embarrassed that President Kennedy had to step in front of the nation and show Americans where Vietnam was and what it looked like, that he was compelled to action the very next school day.

An imposing figure, boxer, adventurer, weight lifter, and mountain climber, his furiosity over the situation got our attention when he said, "This atrocity will not stand as long as I have the control to do a small part to alleviate the situation. This being Earth Science, I have decided that you will learn the earth.

"Every river, every country, every mountain range, every state, province, continent, ocean, major lake, desert, plateau, and whatever I can't think of right now will be burned into your American brain.

"I fear the day that a future president will have to stand in from of America with a map of the United States and show them where South Dakota is.

"For this semester you will be immersed in maps: first with the names of all the natural and political features, then tested with blank maps you will be instructed to fill in."

And we did.

I wonder if JFK felt like apologizing for being so elementary.

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The study and learning of our economic system would also seem to be important, but judging by people's comments on social media, very few Americans have the slightest clue how our economy and money systems work, and why they work so well. Many of these commenters consider a corporation's main purpose to be at odds with the vague concept of the Common Good, which has a variety of definitions in the minds of the beholders that are all far from common. Without discussing the unfortunate mistake of thinking that our system itself is wrong, and therefore whatever the main actors in our system (corporations) do to advance their purpose is wrong, I'll be Mr. Prentiss. On the fact that the system is the best, most efficient, fairest, and most commonly good that man can come up with, consider the following: The purpose of a pure corporation is to grow wealth and profits, and, as a result, to maximize shareholders' wealth by paying dividends and increasing the stock price. it is a wonder that the tax reform has motivated so many corporations to reward their employees rather than plow the money into wealth growing activities. After a short lesson on the very basic concepts of corporations and stock prices, I'll

try to answer that. Shareholder wealth is the appropriate goal of a business firm in a capitalist society. In a capitalist society, there is private ownership of goods and services by individuals, and to survive it must show a stream of increasing profits. Those individuals own the means of production to make money. The profits from the businesses in the economy accrue to the shareholders. When business managers try to maximize the wealth of their firm, they are actually trying to increase their stock price. As the stock price increases, the stockholders' wealth increases. As the stock price goes up, the market cap of the firm increases and the net worth of the stockholder increases.

Profits and a good outlook toward the future economic climate does this every day, but... A fast and effective way to increase shareholder wealth is a stock buyback. The company goes into the stock marketplace and purchases its own stock, driving up demand for the stock, and decreasing its supply. (I can almost see you, Mr. President.) This makes the price go up. Kind of basic, but either misunderstood, or considered an evil system because some people believe that all income should be equally distributed, and the wealth in a system like this is distributed unevenly, as is all wealth, everywhere, under all economic systems. So why would a corporation, if pure to its tenets, use tax reform to increase the wealth of its employees? It doesn't make sense in a linear, scientific corporate definition way, but may become clear with addition of the human nature variable. The motives to reward employees are as varied as the people who run these corporations. Some may think it is being socially responsible and think that is a pure and noble pursuit, but for the most part, they are directly bowing the first and foremost purposes of the organization - to survive and grow shareholder wealth.

And it follows that loyal, qualified, long term employees with high morale will help the corporation achieve its goals, work hard to advance themselves and the company.

Whatever the reasons, as a person who appreciates how near perfect our system works as it parallels the currents of human nature, I am comforted to see how surprised the critics were when so many corporations have been and will continue to generously reward employees with the tax reform money.

As an additional note to those who philosophize failure, the corporate tax reform has no expiration date and you can't buy your own stock forever. They will have to do something else with all that money very soon.