The Corner

Economy & Business

Schumer-Sanders vs. Stock Buybacks

Senator Bernie Sanders (right) and Senate Minority Leader Chuck Schumer speak with reporters following the party luncheons on Capitol Hill in Washington, D.C., October 3, 2017. (Aaron P. Bernstein/Reuters)

Senators Schumer and Sanders — two Class-A scrubs whose combined résumés offer almost no testament to either having had much responsible employment outside of politics, much less to having managed the affairs of a large and complex business enterprise — believe that they are better suited to oversee the operations of American businesses than are the executives and shareholders of those businesses. Arguing for new restrictions on corporate “buybacks,” i.e. a corporation’s decision to reacquire some of the equity it has sold to the public, they write:

When corporations direct resources to buy back shares on this scale, they restrain their capacity to reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages, paid medical leave, retirement benefits and worker retraining.

Really? Does Senator Sanders know what Alphabet’s R&D budget is, how it is invested, and to what ends? His educational attainment suggests very strongly that he almost certainly is not in possession of anything remotely resembling the basic knowledge necessary even to begin considering the question.

Here is an example: In 2018 Applied Materials, a manufacturer of computer-chip and display components, had a very good first quarter: sales up 28 percent, profit per share up 58 percent. Applied Materials looked like a pretty good investment to a lot of people, including the executives of Applied Materials, who repurchased about 10 percent of their company’s equity. Credit Suisse liked the company, too, and upgraded its evaluation of the firm’s stock a little bit, from a $72 a share target price to a $74 a share target price. Currently, AMAT shares are trading at just under $39 a share. Which is to say, both Credit Suisse and the executives at Applied Materials got it wrong — or at least it looks like they got it wrong from the viewpoint of February 4 2019.

The semiconductor market is highly cyclical. A question for Senator Schumer, who went straight from law school into elected office: Calling upon his non-obvious expertise in the field of semiconductors, how does the senator believe Applied Materials should have proceeded back in 2018? Which specific areas of semiconductor research would Senator Schumer have advised Applied Materials to fund in lieu of its stock repurchase? And while his reptilian brain is meditating on that: What strategy would the wooly-minded Senator Sanders, whose previous career included a stint as the author of semi-pornographic political tracts touching on rape fantasies, recommend for counteracting the inescapable volatility in the semiconductor industry?

Senators Schumer and Sanders also complain that companies are paying out too much in dividends. Dividends are post-tax profits paid out to shareholders, who then pay tax on them again as investment income. A question for the senators: Why do they think shareholders invest in shares, if not in the hopes of a return on investment? Also: Since shareholders have only two ways of making money on a stock — by receiving dividends or selling at a higher price — isn’t it clear that an anti-dividends agenda will encourage executives to focus more on driving up share prices by whatever means are available, hence almost certainly exacerbating the very short-termism and share-price focus that the senators criticize? Isn’t paying out dividends — returning real after-tax earnings to investors rather than, say, using accounting shenanigans to make profits disappear for tax purposes — a big part of what companies should be doing?

However the firms of the semiconductor industry manage their affairs, operating those corporations on a fly-by-wire basis from Congress is not obviously the most intelligent choice.

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