Let’s say that your company just created a new, popular invention. If you charge the right price and the invention falls into the hands of millions of consumers, your company might just make millions or billions of dollars in profit. Okay, so you now have a profit of billions of dollars — even if you subtract the input costs of production and labor. Don’t worry, your executives have earned way more than their fair share, and so have the investors who gave you a jump-start just a few years ago. You even have to pay the government a small share, but you’re still left with more money than you could possibly spend in thousands of years. What should be done with this money? You are probably thinking that you have a binary choice. You can choose to invest this cash back into your company to generate more capital and, perhaps, purchase more offices and more equipment to improve your invention even further. You can also choose to hand this money back to the laborers on the lower tier of your corporate structure — the ones who live paycheck to paycheck. A 1 percent share of the profit divided among your lower-tier employees might just let them pay rent for a year or send their child to college for another semester.

Unfortunately, since Ronald Reagan’s time in office, another option has been raised from the dead. It is called the stock buyback, which allows corporations to purchase shares of their own stock from the open market, leaving many investors and shareholders with a higher profit margin for their own shares in the company. It needs to end. Buybacks take benefits from workers, companies and consumers and place them in the hands of shareholders. That’s why we must seek to regulate this deregulation.

We are starting to reach unprecedented and simply unethical levels of buybacks. A buyback, in a sentence, is just taking the cash that you have earned and putting it into the stock of your own company to make the stock value grow. Bloomberg reports that “in the first month of 2023, announced buybacks more than tripled to $132 billion from a year ago, reaching the highest total ever to start a year.” So, where did this trend of repurchasing one’s own corporate stock solely to reap a reward that the average worker for your own company won’t ever see begin? Like many pro-finance-sector and anti-worker deregulations, it began with a new U.S. Securities and Exchange Commission (SEC) rule under a Republican president. The new rule was made for the scenario when the shares of a company are cheap and the executives want to bulk up their stock. Of course, looking behind this thin thread of explanation, it’s easy to see how bulking up the stock simply means giving more money to shareholders and executives, who often already own stocks in their company.

What exactly are the technical details of a corporate stock buyback? Well, it’s a case of the free market being a little too free. There is essentially no pressure on the shareholders to sell their stock or purchase more stock once an injection of the company’s extra cash flow has been made, but it is heavily implied that the reasoning behind an injection is to benefit the shareholders in the short-term rather than the company itself in the long-term. This difference in considerations of the short-term versus the long-term is an important aspect of corporate buybacks. While one could focus on the long-term continuance and liquidity of their company by keeping cash on hand or using that cash to acquire capital and grow further, the buyback solution provides a high jump in short-term benefits via inflation in the company’s worth on the open market. Of course, if I created a new energy drink and my friends and I made $50 in sales, and we put the money back into the open market instead of buying more ingredients or hiring more friends to make the drinks, my new energy drink company would fail. As a result, the concept of buybacks not only harms workers at the bottom of the corporate ladder, but it also harms the company as a whole, making it less competitive. Stock buybacks also provide companies with greater flexibility than dividends. A dividend is the share of money that a company needs to pay to its shareholders, and by purchasing more stock and inflating the value of the company in the open market, the company can have more flexibility in paying back their shareholders and more arguments in the game.

What are the most significant negative effects of buybacks? There are microeconomic and macroeconomic ones. First of all, there can be negative impacts on the company itself, as I’ve hinted at. One of these can come from the opportunity costs of the investment. When companies decide to invest their cash into their own stock, they are losing out on potential investments in capital and labor that could come with keeping the cash outside of their stock. Next, it can be used to escape debt in ways that harm the company in the long term. Rather than accumulating profits and clawing your way back to the positive realm in a positive way, companies utilize buybacks to save themselves and damage themselves in the long run. On the macro level, stock buybacks make the average consumer and the average household more vulnerable to a boom-and-bust economy. Basically, if the money is in the market rather than in the hands of the corporation, the common investor and everyone who benefits from a stable economy — which is everyone — are at risk of stock market collapses.

Stock buybacks are another way for corporations to benefit their shareholders while sacrificing stability for the average investor and consumer and ignoring the hardworking employees who make their product. The amount of corporate buyback permitted must be immediately reduced by regulation. So what are the solutions that we have available? Well, it’s actually quite simple. Repeal the 1982 Rule 10b-18 of the SEC, which only acts to protect these companies from stock market manipulation via corporate buybacks. If Rule 10b-18 is repealed, then corporations will no longer have the protection to convert such high shares of their cash flow into buybacks. Rather, they would have a stricter limit determined by the post-Great Depression rules that got overruled by Rule 10b-18, and we would have more real investment in the economy again.

Sean Reichbach is a sophomore double-majoring in economics and philosophy, politics and law.