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Friday, October 8, 2010

The Enemy of Growth, ctd.

Oct 8th, 2010

by F. Grey Parker

Several days ago, I noted the announcement of stunning profit gains amongst the S&P 500. I used the figures coupled with the apparent disinterest amongst those companies to hire or expand to advance my theory that their is a now a slavish and crippling devotion to stockholders over all other concerns. It is, in my estimation, the real enemy of growth.

In spite of some blowback from readers (one chastised my "simplistic thinking"), I was not alone in expressing alarm at the "hoard and keep" phenomena.

Jia Lynn Yang writing in the Washington Post yesterday:

"Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year, according to Birinyi Associates, a stock market research firm. But the rise in buybacks signals that many companies are still hesitant to spend their cash on the job-generating activities that could produce economic growth."

Over at the Daily Beast, there was a blurb earlier in the week stipulating a causal relationship between higher unemployment and higher profits. That it's plausible these companies are making more money because they are not hiring bodes poorly for recovery any time soon.

Newsvine noted that "Big Business and Corporate America have been given every incentive, as is obvious by their record cash reserves. But they clearly don't know what to do with it except squat, and wait. Wait for unemployed people to magically start buying things again with the paychecks and credit they DON'T HAVE!"

Some commentators, such as liberal firebrand Ed Schultz, have gone so far as to call the behavior unpatriotic. As hyperbolic as that view may seem, it is high time we had a national discussion on the entrenchment of situational ethics in our publicly traded companies. There has to be some middle ground between Ed's position and it's opposite; That there are no inherent responsibilities a corporation has to the economy of it's home country other than paying as little in taxes as possible.

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