Because the talk about inflation and high gas prices is endless, we can assume that it's pretty much empty. What is of much greater importance, and never makes the headlines, or has little political value for both the mainstream left and the right as a whole, is stock buybacks, which, according to Associated Press, reached a mind-boggling $882 billion in 2021. And "Goldman Sachs is forecasting [that this form of stock manipulation will] reach $1 trillion this year." When the justification of stock buybacks is applied on the present state of affairs (pain at the pump, the shrinking value of wages), it becomes obvious as the day is the day and night is the night that the price inflation that mainstream media and economics can't stop going on about has nothing to do with demand or uncertainty. Here is the evidence.
The logic (or justification) of a buyback is actually confidence in the future. A company repurchases its stock because it has, according to the Harvard Business Review ("The Case for Stock Buybacks"), "spare cash left over after taking all value-creating investment opportunities..." So, in a year when corporations have the greatest amount of confidence in the future, as demonstrated by the repurchases, they are increasing prices because of variables such as supply chains stressed by the pandemic, or by out-of-control government social spending during the pandemic, or uncertainty resulting from this or that hotspot in the global economy.
With this in mind, let's turn to a story that received very little press or attention on Capitol Hill:
Bloomberg reports that a minimum of 21 major North American energy companies engaged in stock buybacks in Q4 2021, and that buybacks continue to gain significant momentum as Russia’s invasion of Ukraine escalates.
In total, analysts expected big oil to conclude $38 billion in share buybacks this year, and possibly more, with all seven oil supermajors pursuing the return to shareholders based on bumper profits.
The momentum started even before the Russian invasion of Ukraine, with Devon Energy a prime example. Devon’s Q4 2021 earnings report on February 15th showed a complete reversal from a $2.5-billion loss in 2020 to a $2.8-billion profit in 2021. That led to a 45% dividend raise and some $600 million in buybacks, compared to only $38 million in buybacks for 2021, CNBC reports.
Earlier this month, Chevron said it would increase buybacks, with a plan to buyback between $5 and $10 billion in stock per year, up from a range of $3-$5 billion previously.
Again, I must stress that buybacks directly transfer accumulated capital to shareholders by destroying purchased stocks. This is what Joseph Schumpeter's creative destruction has come down to. Not the destruction of technologies by business revolutions. It's now a destruction that inflates the value of the stock by reducing their volume. And so it is not a surprise that Amazon's first, and certainly not last, buyback earlier this month caused a five percent jump in the value of its shares. (As expected, Seattle Times's business reporters had nothing to say about the major financial event of a locally based corporation. Because it was clearly beyond the imagination of these writers, the paper only posted a couple syndicated stories on buybacks. Again, remember Seattle Times's coverage of Boeing.)
Amazon Stock Forecast: How Will The $10 Billion Buyback Impact Investors? https://t.co/BwO2gNrQAW
— finostock.com (@finostock) March 24, 2022
But how did "investors" explain Amazon's buyback? A BofA Global Research analyst: "To state the obvious, buybacks also suggest Amazon sees value in the stock here." (The buyback was accompanied by a 20-1 stock spit, which signaled to the psychology of "investors" that Amazon is feeling bullish.) So, when you read about high gas prices and the oil industry's buyback bonanza occurring simultaneously, this is the most direct evidence that the form of inflation we have today is not caused by demand but cost pull. Meaning, producers are pulling the price up to make bank.
There are several ways to deal with inflation if its cause is correctly assessed as having nothing to do with too much money chasing too few goods or uncertainty. The one I turn to immediately is Marxist, which sees capitalism not as an economy proper but as a cultural institution that bluntly controls class power by the representation and exertion of monetary mechanisms. In this reading, the solution is the raw overthrow of the capitalist masters.
Post-Keynesians, also known as heterodox economists (this school is as far left as academic economics goes, and, as a consequence, its practitioners are few in number), argue, on the other hand, for a government-imposed income policy. This view sees inflation as one form of income (say that of oil companies) expanding by contracting another form of income (say wages). In this solution, the government redistributes gains in one form of income to that of another, so that the price of inflation is shared by different economic blocs in capitalism.