Well, uh, nothing actually. Okay, not nothing. Some things- sure. There’s no perfect system. But the real problem is that what we actually have is less and less like real capitalism. Adam Smith’s invisible hand and Schumpeter’s idea of creative destruction have both taken it on the chin. Quantitative easing, low to negative interest rates, too much debt, and the growth of oligopolies and perverse management incentives are knocking capitalism for a loop.
Follow this link to Epsilon Theory and read Ben Hunt’s article, “Yeah It’s Still Water.” Please take the time to understand his analysis of what Texas Instruments has done with its cash flow in recent years. Recognize that this is going on all across the public company space in our industry as well as others.
When you’re done, you might consider signing up for Epsilon Theory’s free weekly emails or putting the web site in your favorites for occasional consideration.
If Texas Instrument had taken all that cash flow and put it into competitive enhancements rather than share buybacks and management compensation, what might they have accomplished? Our GDP as a country only grows because more people are working (population growth) or they are each making more for each unit of labor (productivity growth). With population really only growing due to immigration we are dependent on productivity growth. Unfortunately, stock buy backs, dividends and management compensation don’t contribute anything to it.