Secular Stagnation (Or Corporate Suicide?)

Robert Ayres and Michael Olenick, INSEAD


We advanced the null hypothesis that stock buybacks will have a positive impact on the market value of a business over a five-year horizon. We find that there is a negligible chance for this to be true (with a two tail heteroscedastic p=.000023).

We find that the more capital a business invests in buying its own stock, expressed as a ratio of capital invested in buybacks to current market capitalization, the less likely that company is to experience long-term growth in overall market value.

Our findings, for US firms worth more than $100 million, suggest that long-term investors, such as pension funds, should be wary of investing businesses that have engaged in significant cumulative stock repurchases (i.e. 50% or more of current market cap.)

We find that excessive buybacks in the past decades are a significant cause of secular stagnation, inasmuch as they effectively reduce corporate R&D while contributing, instead, to an asset bubble that creates no value.

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Cornucopians versus Doomsters: On Julian Simon’s Refutation of Global 2000 (and the Club of Rome)

man-chart-growth-copernius-viewRachel Carson’s landmark book “Silent Spring” was published in 1962. It, alone, of the important environmental best-sellers of that era, had a significant impact: it led to the banning of DDT (at least in the Western world) and major shifts in agricultural practice.

Paul Ehrlich, a noted American biologist, best known for his warnings about the consequences of population growth and limited resources,  was the author of a famous book “The Population Bomb” (1968), in which he claimed (as Malthus had claimed in 1798) that increasing population – demographic catastrophe — would inevitably outstrip food and resources, and that hundreds of millions of people would starve to death in the 1970s.

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