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Are Stock Buybacks Bad for the Economy?

They deepen the gap between rich and poor

They don’t hamper corporate investment

 Getty Images: Scott Olson

Corporate America's growing habit of companies buying back their own stock has negatively impacted American workers and the overall economy, asserts Matt Egan in CNN. The main issue is that stock buybacks encourage companies to focus on short-term rewards for shareholders instead of making long-term investments for current or potential employees, such as retraining workers, raising wages and expanding benefits. Stock buybacks do not benefit the middle or working class, only the wealthy. This is because company profits go toward stock buybacks while capital spending on job-creation languishes.

Keep on reading at CNN

While shareholders benefit the most from stock buybacks, this trend is not causing long-term company innovation or economic growth to stagnate, argue Jesse M. Fried and Charles C.Y. Wang in the Harvard Business Review. In fact, looking at CAPEX and R&D as a percentage of revenue over the past 25 years shows that investment intensity of S&P 500 firms over the past decade has risen to levels not seen since the late 1990s. Aside from large shareholder payouts, S&P 500 firms are still putting significant capital toward investments, meaning stock buybacks are not keeping corporations from investing in long-term success, which spurs economic growth.

Keep on reading at Harvard Business Review
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