Harvey’s Introduction
This article from the WSJ is a good introduction in explaining what stock buybacks are, and the pros and cons of utilizing them. It is very even-handed in explaining what proponents and detractors believe. If you want to know the arguments, this is a good read. What it doesn’t do, and should have done, is take on the argument directly and explain clearly why and how stock buybacks actually help the economy grow. In sum, detractors say buybacks reduce investments in growth opportunities and make shareholders richer, as opposed to paying workers more. In fact, companies have money for buybacks because they do not have good opportunities for investment in their own companies. Rather than simply building cash reserves, which create no economic benefit, companies return the excess cash to shareholders by increasing share value. Shareholders can than take that return and invest it more productive activities. Its a win-win.