There is much debate about why corporations’ are storing trillions of dollars instead of putting it into the American economy. Whether it is to potentially alleviate a forthcoming stumble in the economy or a stash for future investment opportunities, this inefficiency is a point of concern.
Why Are Corporations Saving Money Like Your Frugal Uncle?
As of this year, American companies and corporations are hoarding approximately $1.2 trillion combined. Not being invested in any products or services, not being used to innovate, nothing. That’s right. These businesses have over a trillion dollars stockpiled in total.
This puzzle has troubled financial analysts, economists and many other people for years. There seems to be two trains of thought:
1) They’re hoarding up to half their value in cash (like General Motors) in order to protect against future economic turmoil.
2) They’re waiting for that big break in the innovation ecosystem.
Surely it makes sense for a company like General Motors to be hoarding almost half their value in cash, given their bailout. Perhaps, like GM, this hoarding is a way of mitigating a disaster.
But other companies, like Alphabet, parent company of Google Inc., don’t seem to be afraid of that possibility, given their integration with just about everything you do on a day-to-day basis. Regardless of the reasoning, keeping a trillion dollars on the sideline of the economy is having a major impact.
The Deadweight Loss of Hoarding $1.2 Trillion
Of course it’s never a bad idea to save money. However, just because something isn’t a bad idea doesn’t mean it benefits everyone.
Look at the 1990s, for example. Companies weren’t hoarding nearly as much of their value and what happened? College graduate unemployment rates steadily declined, factories were built and graduates got jobs that paid well.
But right at the turn of the millennium (around the time these corporations started hoarding money), that unemployment rate began climbing.
Instead of hoarding cash waiting for the next big innovation or disaster, companies should take after Mahatma Ghandi, “Be the change you wish to see in the world.” Companies could kill three theoretical birds with one stone.
Bird one: College graduates and employment in general. Use that money to build more infrastructure, hire new workers, etc.
Bird two: Innovation. More workers contributing to more commerce and exchange could lead to the biggest period of innovation we’ve ever seen.
Bird three: The state of the economy. If companies invested that money into the previously mentioned things the economy would grow instantly, hands down.
What if they used just half of that aforementioned total? What would pumping $600 billion into the economy do? It certainly couldn’t hurt!
Have Some Confidence, Companies!
Quite frankly, this statistic makes me, and probably many more struggling millennials, very angry. Corporations are supposed to be the driving force behind economic growth, not the ones who inhibit it. Hoarding trillions of dollars based upon a “just in case” mindset is ridiculous.
Corporations and companies need to fuel the economy themselves instead of waiting for it to happen. The surge for the American economy would be beneficial to grads, innovation and, in turn, the economy itself.
Corporations, you want to see innovation you say? Make a new department. Hire more people. Watch it happen right before your eyes. You want to protect against potential future loss? Prevent it now, by creating new jobs and boosting the economy. To ask for these things without playing your own part is downright hypocritical!
Corporations are toeing the line of frugality by sitting on the money they have. It’s like the uncle you see every Thanksgiving who drives across town for gasoline that’s one cent cheaper per gallon; you don’t quite have the heart to tell him he’s not really solving anything. It’s time corporations understand the drawbacks of their hyper-conservative practices regarding the money they have but refuse to spend.