The Withering and Shrinking Middle Class
I think the above photo illustrates where the sentiment of the Middle Class of America is today. The Democrats abandoned them for the siren song of Marxism. They see Trump as their last hope for a lot of reasons. They aren’t loyal to Republicans per se, but loyal to Trump as a Republican. They will vote down ballot for Republicans because they know Democrats will not work with Trump.
We know for a fact that there is a problem in America with the middle class, and the growth of it. The question is why? It’s a serious problem. When society is stratified into one wealthy class, and one poor class, it doesn’t make for a good society. Societies that are stratified like that have underlying problems that make it hard to move from one class to the next.
America has always prided itself on the merit-based ability to move up the wealth ladder. Go to school, work hard, earn a living, save, live within your means and your wealth grows. Your kids might have better opportunities than you did and get wealthier. Their kids might become fantastically wealthy. Or not. There are no guarantees, there is just opportunity.
and,
He’s still incorrect but the version is more palatable.
Mr. Leopold blames corporate stock buybacks and NAFTA for the gutting of the American middle class. Taibbi agrees. They couldn’t be more incorrect.
Buybacks are when a corporation goes into the stock market and purchases its own stock. This has the effect of reducing the companies “cash” and simultaneously taking stock out of circulation and decreasing the amount of outstanding shares. If there is demand for the stock, the price will rise higher than it would have previously.
“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),”-Warren Buffett.
“The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices,” Buffett said. “Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in every respect.”
I know this is long, but it is very important for this nation that at least a majority understand these principles.
For those who don’t have a handle on how corporate finance works, here is a simplified primer. I will do this in memory of my Corporate Finance Professor Kevin Rock may he rest in peace.
- Company satisfies customers and sells goods or services. In return, it receives cash.
- Cash is used to support existing operations. It pays the bills, pays employees, and keeps the lights on. If a company is growing, it will start to accumulate excess cash on its balance sheet.
- Companies that keep too much cash on balance sheets become takeover targets. If I want to purchase another company for $2 billion dollars and that company has $1 billion on its balance sheet, I can use that cash to purchase that company lowering the actual cost by 50%! Hence, companies need to find an outlet for excess cash. What do they do?
- Company has some uses for excess cash. There are benefits and costs to each and sometimes they aren’t readily apparent. They are:a) Issue a dividend to shareholders (these are heavily taxed by the government and what happens to share price if dividends become unpredictable)
b) Invest in property, plant, and equipment so they can expand operations (what if you can’t use the capacity or the market changes?)
c) If possible, expand existing operations by instituting a second or third shift. Or, pay current employees overtime and work a little more.
d) Increase all employee pay. Or, pay employees a one time cash bonus. (what happens if you don’t hit your sales targets)
e) Buy another company that competes with you (and deal with the US Govt looking at the transaction)
f) Let the cash accumulate, and become a buyout target
g) Buyback existing stock, decrease your float, and increase the value of the outstanding stock to shareholders.
RTWDT.
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