We’re used to that line by now. Ross Perot—one of the more prominent people who got rich due to government contracts—used it, Carly Fiorina and Meg Whitman are using it (while desperately hoping you don’t pay attention to how they ran Lucent/HP or eBay), and Aaron Sorkin even had Charles Grodin say it in Dave, if only to establish his Sensible Centrist cred.
So how are businesses running their debt-laden firms? Ask the WSJ and ye shall receive:
U.S. corporations have taken full advantage of low interest rates, going on a bond-issuing binge that has left them with tons of cash, which they appear to be holding largely as insurance against a new bout of financial turmoil, rather than spending on new hires. Nonfinancial companies were sitting on about $8.4 trillion in cash as of the end of March, or about 7% of all company assets, the highest level since 1963. Even before its [$1.5 billion at the bargain-basement interest rate of only 1%] bond issue, IBM had $12.3 billion in cash and short-term investments, which accounted for about 12% of all its assets.
The WSJ is, of course, worried about The Savers:
Meanwhile, though, savers are seeing some of the worst nominal returns in decades. As of June, the weighted average interest rate on deposits, money-market funds and other highly liquid investments stood at only 0.29%. Returns on riskier investments aren’t great, either: The average yield on near-junk bonds with maturities close to 30 years stood at about 5.9% this week.
As Brad DeLong said recently, in a slightly different context, “I share [the] belief that these numbers ought to be higher. But I also think that I don’t have very good reasons to claim that I am right that they should be higher.”
Neither does the market.
And it’s not as if those companies were all saving during the Good Times. Indeed, they were arguably more poorly managed than the government. As Floyd Norris noted almost two years ago:
Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S&P500 showed:
Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion
The net flows there is -$220B, give or take a billion. It’s spending roughly $1.10 for every dollar you earn. And, to make matters worse, nearly twice as much was spent to make people go away (buybacks) than to reward loyalty (dividends).
If the government really were to be run like a successful business—the way the S&P500 are run, the way IBM is run—they would be borrowing long-term right now at that 2.82% 10-year or even than 4.00% 30-year rate.
If it’s good enough for IBM, it should be good enough for the U.S. Government. The Mitt Romneys and Ross Perots have been telling us that for years; many we should listen?