So today on CNBC Cisco CEO, Chuck Robbins explained that if they were to repatriate their offshore cash back to the US he would use the money to reward shareholders through buybacks and dividends and then do some M&A. He claims cash distribution to shareholders in lieu of actual economic stimulating investments creates jobs by way of mutual funds, which make the soon to be out of work Americans from his M&A activity feel good about their income….
I mean where does one even begin picking apart this absurdity of logic?? It probably is not even worthy of a detailed response. But I wanted to note, on record, that these are the type of moronic and asinine thought processes coming out of corporate America that are killing the American middle class and will destroy even most on top unless the bottom 80% are handed a stipend to go out and buy products produced by corporations. If Chuck truly believes what he says, well he is an idiot. If he has even a shred of economic acumen then he is a liar. I’ll leave it to you to decide.
But before you decide let me show you a few charts. First chart below depicts real total wages and salaries (i.e. labor income) as a multiple of real corporate dividends paid. You will notice the multiple peaks at 24x in 1975, averages 20x from1950 through 1990 and bottoms today at 8x.
But remember cash distributions don’t just reallocate capital from labor income they also reallocate away from domestic private investment. So let’s take a look at the multiple of domestic private business investment to corporate dividends as well.
Clearly we see a pattern of forsaking economically stimulative investments for cash payouts of which 85% get reinvested into secondary financial markets that have zero economic stimulative effect i.e. never hit a corporate balance sheet or income statement.
Now Cisco CEO Chuck Robbins suggests that this phenomenon of shifting capex and labor income to dividends is actually a positive thing for the economy. So let’s have a look. The next chart depicts a 5 year moving average of per capita real GDP growth over the same period.
What we find is that average real economic growth per capita (this is an important measure of individual prosperity) has fallen by more than 50% over the same time period.
Over the past 6 months I have provided a library of research proving that reallocating capital from domestic private investment and labor income in favor of cash distributions has not only resulted in massive deterioration of economic growth but has necessarily relied on private and public debt to fund the deteriorating growth that remains. I’ve had several prominent PhD experts call me names but I’ve had none of them challenge my research and argument. I challenge any and all economists to attack my assertion that this secular trend of reallocating capex and labor income to profit (which is the most economically inefficient use of capital) is destroying the long term US economy. I’m sincerely looking to receive the strongest arguments as this only helps us at the Institute for Sensible Economics refine our research.