How much of a stimulus did the economy receive from the 100’s of billions in tax cuts corporations received? Reuters/Yahoo reports that U.S. companies used the money to go on a shopping spree for their own stocks to raise their own share prices.

These stock buybacks were a major factor behind the 2018 bull market. “Companies bought back around 2.8 percent of shares outstanding in 2018. That was a substantial support to the market and bigger than dividends,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago. 2018 will go in the books as a record for buybacks. Through the first three quarters of the year companies bought $583.4 billion of their own stock, just shy of 2007’s full-year record of $589.1 billion, according to S&P Dow Jones Indices data.

Strategists say U.S. companies spend heavily on their own shares as they have plenty of cash and tend to favor buybacks over dividends and major capital investments in times of economic and policy uncertainty. Goldman Sachs has forecast a 44 percent jump in buybacks to $770 billion for 2018, with growth slowing to a 22 percent rise to $940 billion for 2019.

After rushing home some $295 billion of foreign profits in the first quarter of 2018, the pace of repatriation by U.S. multinationals has since slowed sharply, Commerce Department data shows. In the third quarter that was down to about $93 billion. About $190 billion, or about a third, of repatriated funds were used on buybacks in the first three quarters of 2018, JPMorgan strategist Nikolaos Panigirtzoglou wrote.

FEEDING THE BULL

Buybacks have been a major support to the bull market that began in March 2009. S&P 500 companies bought roughly $4.5 trillion worth of their own shares, equal to about a third of the benchmark’s $15 trillion gain in value over that time, according to Audrey Kaplan, head of global equity strategy at Wells Fargo in New York. Datatrek Research said U.S. companies tend to spend between 40 percent and 60 percent of operating income on buybacks and only breach the low end in “the direst times.”

The country might be getting tired of this kind of winning, as Menzi Chinn points out in his update of Trumps fixation of the China-US bilateral trade balance:US merchandise exports to China (blue), and seasonally adjusted using X-13 with lunar new year dummy (bold dark blue), and US merchandise imports from China (red), and seasonally adjusted (bold dark red), both in billions US$, at annual rates. NBER defined recession dates shaded gray. Trump administration shaded light orange. Source: BEA/BuCensus, NBER, and author’s calculations.

Of course, examining any bilateral trade balance is not the right metric (see here). If any trade balance matters, it is the overall, not a bilateral. Also, this is part II of the ongoing series “tired of winning the trade war”

27 Nobel Laureate economists, 3 other former Chairs of the Federal Reserve and 15 former Chairs of the Council of Economic Advisers and thousands of economists from around the country are signatories of the Economists’ Statement below. The statement was released today on the opinion page of the Wall Street Journal. It outlines what we believe is the most cost-effective, equitable and politically-viable national climate solution. Now more than ever, it is critical for economists to point the way forward and coalesce around a bipartisan climate policy.

ECONOMISTS’ STATEMENT ON CARBON DIVIDENDS

Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations. 

I.          A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future. 

II.         A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services. 

III.        A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives. 

IV.        To prevent carbon leakage and to protect U.S. competitiveness, a border carbon adjustment system should be established. This system would enhance the competitiveness of American firms that are more energy-efficient than their global competitors. It would also create an incentive for other nations to adopt similar carbon pricing. 

V.         To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.