Amazon CEO Jeff Bezos. Reuters
On June, 7, 2019,
- The top 1% of earners are holding record amounts of money: $303.9 billion to be exact.
- Despite growing income inequality, the richest households collectively have more than ever before.
- The top 1% had only $15 billion just before the financial crisis, a fraction of what they hold a decade later.
- Large companies are overwhelmingly and uniformly choosing not to reinvest much of it into their businesses; instead, they’re hoarding it in cash and buying back stock.
A truly bizarre trend is having an impact on the economy — wealthy people and corporations have so much money they literally don’t know what to do with it.
Why it matters: At a time when growing income inequality is fueling voter discontent and underpinning an array of social movements, the top 1% of earners and big companies are holding record levels of unused cash.
The big picture: US companies raked in a record $2.3 trillion in corporate profits last year, while the country’s total wealth increased by $6 trillion to $98.2 trillion (40% of which went to those withwealth over $100,000).
So, where is all the money going? The IMF notes large companies around the world are overwhelmingly and uniformly choosing not to reinvest much of it into their businesses. They’re hoarding it in cash and buying back stock.
“There are only 2 things that money can do— sit on a balance sheet unused, where it’s just earned income earning an interest rate of zero,” ICI chief economist Sean Collins points out. “Or it makes sense to release it to share buybacks or dividends.”
- Companies could pay their workers more, but “that would be terrible for the stock market,” says Neil Shearing, chief economist at Capital Economics — half-jokingly.
- Companies made a record $1.1 trillion in stock buybacks in 2018 and are on track to surpass that number this year. But they still have record cash holdings of close to $3 trillion.
Wealthy households and individuals are pouring money into asset managers, betting on companies that lose $1 billion a year, bonds from little-known Middle Eastern republics, and giving hot Silicon Valley start-ups more venture capital than they can handle.
- And private equity has seen so much cashflow that firms have $2 trillion of unused capital.
But even that hasn’t been enough to account for all the new money. The top 1% of US households are holding a record $303.9 billion of cash, a quantum leap from the under $15 billion they held just before the financial crisis.
How we got here:
- The Fed’s quantitative easing program pushed the cost of borrowing money to next to nothing for nearly a decade, allowing companies to splurge on debt for mergers and acquisitions and to boost revenue.
- At the same time, globalization allowed them to reduce labor costs, meaning that gains effectively were returned as profit and used by public companies to boost stock prices.
Between the lines: These factors, combined with legislative policies that have consistently favored business owners over workers, eroded unions and reduced employees ability to demand higher wages.
- The Tax Cut and Jobs Act— i.e., the Trump tax cut —exacerbated these issues, slashing the share of US taxes that companies paid to its lowest level in at least half a century and provided companies even more capital for buybacks, dividends and executive compensation.
- “Perhaps the fallacy of the tax plan to begin with was companies were not starved for capital coming into this,” Mark Hackett, chief of investment research at Nationwide, tells Axios. “They were starved for growth opportunities.”
The end result is money that would previously have been split between businesses, workers and the government for projects like schools, health care and infrastructure is instead sitting in corporate accounts earning little to no return.
Gary Reber Comments:
While the national focus is always on job creation instead of ownership creation, our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success –– always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent is not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the goods, products, and services produced as a result of substituting “machines” for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.”
Abraham Lincoln said that the purpose of government is to do for people what they cannot do for themselves. Government also should serve to keep people from hurting themselves and to restrain man’s greed, which otherwise cannot be self-controlled. Anyone who seeks to own productive power that they cannot or won’t use for consumption are beggaring their neighbor — the equivalency of mass murder — the impact of concentrated capital ownership.
