And, with my 20th business school reunion coming up, here’s the first of my confessions: I didn’t pay a lot of attention in Finance class.
The Cost Of Free Money
But our fine government’s recent decision to pay dividends to all of us to stimulate the economy has me thinking of what I did hear at Columbia. In the corporate world:
- Investors buy stock with money. The investor thinks that the company will be able to make more with the money than the shareholder did when the money was in the bank.
- The company takes that money and uses it in a productive way. If the company is well run (and
lucky), then the company and its stock are worth even more money. That’s because the company
can do better with the shareholder’s money than the shareholder can.
- The company might pay dividends, but only if it can’t figure out how to use the money in a way that is more productive than the investor can. That means, if a company pays a dividend, it just doesn’t have any better idea what to do with the money. They’ve sort of given up. They are out of ideas.
- If the company is making so much money that it truly doesn’t know what to do with the extra money, then I guess they really ought to send me some. In that case, I’m glad to receive a dividend. (But I still wonder why management hasn’t brainstormed some ways to use that money before sending it to me as a last resort. I want to tell them, "Don’t give me the money. I don’t know what to do with it. That’s why I gave it to you in the first place. Now you’re giving it back? Dang.")
Now come Uncle Sam and Aunt Samantha who think they should just give us a dividend. It’s an economic stimulus program.
Wait A Minute:
We Are Sending Ourselves These Checks.
Actually, it isn’t "they." It’s "we." Our government is we. You might like your government. You might not. But it’s your government. With your taxes, you pay the salaries of government officials. And the rent, utilities, doughnuts and jet fuel. And economic stimulus programs.
So we are sending ourselves these checks. We think that we will do better with the money than the government might. We’d rather give ourselves some spending money, hoping we will spend it on things that stimulate our economy. We think that giving money to ourselves is better than investing it in education, or research and development. From a corporate perspective, we’ve sort of given up. We are out of ideas.
We’ve come to this: We are mailing ourselves checks.
And it’s not like we’ve made so much money that we don’t know what else to do with it. As a country, we aren’t making money. (Confession #2: I didn’t pay much attention in Macro Economics class, either.) From what I can tell, we’re going to have to borrow this money from other nations. Which means it isn’t really our money to spend. It’s money we’re going to borrow and spend now — and pay back later.
Plus all this returning of money is expensive. All those paper checks and checking of lists! The transaction costs are surely in the tens of millions of dollars. I’d rather spend that money anywhere else. Why not just send it to the Sunshine Bakery and have them give everyone free Cheez-Its for a year?
Because you know we’re not going to really do much good with this money. I bet we spend it to purchase oil from people who hate us and on down payments for cars that will further crush our environment.
A double irony: we’ll probably have to borrow the money from China and then we’ll use it to buy stuff made in China. Just who are we stimulating? Hey now!
Ouch. It’s a macro-economic ouch, the pain for which will be felt by my grandchildren. (What will they do for stimulation? Beat rocks together?)
So, Artie, Don’t Accept The Check
If You Are Such a Smartypants MBA
Smarter readers (that’s you) will, no doubt, suggest that I put my check where my convictions are: I should send my check back. No way. I don’t know about you, but I find any check of $1,200 (or whatever) pretty stimulating. I like to be stimulated. I invest serious time each day to stimulating myself.
So don’t get me wrong: send me my check. The sooner, the better.
My problem isn’t with my check. My name is Artie Isaac and I approve of my check. My problem is with your check.
Actually, my problem is with all of our checks, all $150 billion of them. We can’t afford to give ourselves this dividend.
There’s a name for self-stimulation and we are doing it in a big way.
If you are smarter than I am or you just paid more attention in Finance and Macro Economics, please set me straight. But don’t do it in a private email. Click below on "comments" and show everyone your big brain. (It would be spoiled on just me.)