One could make a full time job out of critiquing the numerous Socialist proposals laid out by the 2020 Presidential hopeful. In fact, that is my full-time job.
Yesterday, Sanders released his plan to grant employee ownership in all publicly traded US corporations. The plan would issue new stock shares to the point that there would be enough available to give employees a 20% ownership stake.
This proposal would also grant first privileges to buy a company that is “for sale,” to the employees. No problems here, right? All good, prosperity had for all.
Not so much.
1. Effects on the Stock Market
It might not seem like a bad thing that this would have detrimental effects on the US Stock Market, but it’s more important than you might think. After all, 50% of Americans have money in the market.
When we initially think of the Stock Market, we generally have this vision of a greedy white man sitting in a glass office overlooking New York City, probably drinking bourbon and smoking a cigar. He’s got a limo, a couple houses, and more than likely mistreats his employees.
You can have that image if you want, but the bulk of the people with money in the market do not look like this. They look more like your mom or dad, hoping that their retirement portfolio grows enough to make their life somewhat easier as they grow older. Maybe they look like a school teacher, paying bi-weekly into their pension fund.
When you correct your view of those that make up the majority of people in the market, you can begin to understand the problem with Bernie’s plan.
This plan is yet another step in Sanders’ attempt to destroy the stock market. It was preceding by his proposed tax on “speculation,” another plan that would for sure decrease your retirement portfolio.
This plan would take the current shares offered by a corporation, and increase them by 20%. This is also known as ”diluting shares.” Put simply, it will decrease the value of all the existing shares on the market.
Why would this decrease share value? Imagine you have a company that is worth $100, and that company has 100 shares. Easy enough to understand that each share is worth $1, right? Well, what happens when you add in an additional 20 shares, raising the total number of shares to 120? Here’s the problem: The company is still worth $100, but now there are 120 shares available. This takes the shares that were previously valued at $1, and reduces the value of those shares to $.83 ($100/100 shares VS $100/120 shares).
That's an immediate 17% decline in value for the people that owned shares in the company. That’s not just a 17% decline for the evil rich greedy white man you were previously imagining- It’s a 17% decline in your retirement savings.
2. Workers get the first option to buy the company
This might seem harmless enough, after all, people who own large stakes in a company often have the right of first refusal to buy a company when it‘s offered for sale.
There’s one major difference though- Normally someone who wants to buy a company can use their own money, or go to a bank to secure the funds to buy the company. In this case, Bernie has proposed that a new Government bank be created for giving loans to employees that want to buy the company, but do not have the funding themselves to secure the purchase.
Just think about that for one minute. If a government bank is actually buying the company, then the bank owns the company until the employee pays off the loan. Why would a business be looking to sell? Maybe because it isn’t profitable. This creates a fraudulent market for losing corporations to be bought out with taxpayer funds.
In addition, what happens if the employee fails to repay the loan? The bank seizes the collateral. We’ve seen that happen plenty in the housing market. In this case, the bank will be seizing ownership of the corporation.
That’s officially a government owned corporation, folks.
At the end of the day
Bernie is billing this as a plan to "end corporate greed once and for all." That sounds great, but is that what this law will do?
Let's think about who owns a corporation. People. People own corporations. People have an inherent trait. Greed. All people are greedy. I'm sure as you read this you said to yourself "well, I'm not greedy." The problem is, you are. Are you not getting the most you possibly can for the least effort on a daily basis? Sure, you work hard, everyone does on occasion. But you do expect to be paid for that work. You probably even expect a bonus at the end of the year for your extra work. If another person comes along and offers you more money than you are currently making, I bet you'll take that job. What if someone came by and offered you the same money, but you'd have to do 10% of the amount of work you're currently doing? You get the point.
The problem is in the assumption that people who work at a corporation are somehow inherently less-greedy than the people who own the corporation. Is society automatically better off if we trade 10 greedy people running a company, for a million greedy people running a company?
What sort of incentive structure will you create when you now have a million people seeking the returns from profit, rather than just a few? My question is, is it obvious that this move will end greed? The answer is no, in case you are wondering.
What really gets me about this situation is the idea that workers should share in the benefits of a profitable corporation, while ignoring the risks of an unprofitable corporation. If we make a law stating that the works should receive dividends from profit, will you also be okay with making a law that creates a negative dividend from losses? That is, when a company is losing money, can that money be removed from the workers paychecks? Who's greedy now?
Only 38% of the 63,000 publicly traded companies are profitable. Will this lead to a surge in people only wanting to work for those 38% of companies? Will labor immediately gravitate towards only jobs that produce a dividend? What will that do to companies that are trying to rise up in the market?
Those are all valid questions, but I doubt I'll ever get an answer from Bernie.
Go to BernieLies.com for more information on today's most powerful trickster, Bernie Sanders.