Buyback Realities

From Goldman Sachs Research, this is Allison Nathan. Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients. The topic of this episode is buybacks, the practice of companies repurchasing their shares from the public markets. In 2018, US corporate buybacks hit an all time high. This sparked a heated public debate as Wall Street and Washington clashed over the use of corporate cash. Take

a look at today's New York Times because senators Chuck Schumer and Bernie Sanders, they wrote an opinion piece calling for limits on corporate stock buybacks. Buybacks

have been in Democrats' crosshairs for a while, but now a prominent Republican is jumping on the bandwagon as well. Senator Marco Rubio is out with a new proposal today. Many people have weighed in on the debate, including Goldman Sachs' current and former CEOs. Mister

Blankfein framed buybacks as something that boosts the economy and jobs. David,

thank you so much for joining us. Thank you for having me. You

know, companies are stewards of capital for their shareholders. They need to invest in their businesses.

Now for some perspective, buybacks have been on the rise for the past couple of decades, but really took off last year after congress passed the Tax Cuts and Jobs Act. That legislation gave US corporations an incentive to repatriate profits they've been holding overseas. So practically speaking, that translated into a surge in cash sitting on their balance sheets. And this is where we get to the heart of the debate. Is buying back shares a good use of this excess cash or could corporations be spending the money more effectively elsewhere? As rumblings from Congress in support of a curve or eve

there was really a major transformation in the ideology of corporate governance that occurred in the 1980s. That was a part of a larger change in the politics and economics of what was going on in The U. S. Economy. From the economic side there were increasing challenges to corporations in part because of the liberation movement that occurred in the 1960s and then it came unwound in the 1970s where there was this is really beginning of what I would call financialization of buying companies and thinking you can manage them by the numbers and that led to people say, well, let's just bust up thes

market