Let's say you got a two dairy farms. They have several hundred cows, dozens of workers, and spend thousands of dollars on equipment, fertilizer, pesticides, and seeds since they also produce the crops to feed the cows. Of course, they sell the milk.
Now one of the dairy farmers is a good operator. He turns a profit and invests it in better equipment, training for his employees, and even a few additional cows every year. The other farmer, well he ain't so swooft. But he turns a profit every year. He doesn't make enough selling milk to cover his expenses, but he sells several cows every year, lays off a few employees, and sells off some of his equipment while replacing it with leased equipment.
Tell me, which one is contributing to the economy and which one is riding along in the cart?
They are both contributing to the economy because they are both engaging in trade. They contribute differently and to different degrees, but they both contribute.
How so. The first farmer, his operation is going to be around for a while. It is growing. Next year this farmer will produce more milk. He is expanding the economy.
The second farmer, well he is on a path to destruction. He is not growing, he is contracting. He won't produce more milk next year, he will produce less. He is contracting the economy.
You see the difference? Same thing is happening with many of our corporations. The cows--well that is capital. Now, a CEO's job is to manage the capital resources of the company, along with labor and materials, and generate a positive return on that capital. Notice, I said "on" and not "of" Notice I also said, "materials" and didn't leave it at just labor and capital. That might be important later on.
But that is not what those CEO's are doing. See, when one uses profits to finance share buybacks they are not managing capital. They are, quite literally, destroying capital. Basically, it is like this. The company was initially provided capital by "investors". The investors believed that the CEO's would manage that capital and provide a better return than the investors could make by placing their money in an alternative investment. When a company conducts stock buybacks they are telling those investors, thanks, but no thanks--here is your investment back, take it somewhere else, we don't have any profitable opportunities at the moment, maybe you can find some elsewhere.
So No, managing the harvesting of capital IS NOT contributing to the economy. It is exactly the same as selling the milk cow. The entire purpose of tax cuts and regulatory reform and all those other wonderful sounding conservative ideas is to encourage the creation of CAPITAL. The only way to expand the frontier curve, again some fundamental freshman level Econ, is to increase capital spending, to generate more capital. And one cannot even argue in regards to tax rates--they are much lower than they were before Ronald Reagan. But the hard cold truth is, adjusted for inflation, we have LESS CAPITAL SPENDING. Almost forty damn years of Reaganomics and we have LESS INVESTMENT. And we have more wealth inequality, real incomes for the vast majority of Americans have went NOWHERE. Dudes, IT DIDN'T WORK.
At some point, you have to start asking yourself WHY?