Why is it not so great when corporations decide to buy back stock with their capital? First we must understand the most important single fact about saving and investment activities is that in our society that are usually done by different people for different reasons.
In our modern economy, net capital formation or INVESTMENT is carried on by business enterprises, especially corporations. When a corporation or a small business has great investment opportunities, its owners will be tempted to plow back much of its earnings into the business. Such things as R&D, new plant and equipment, and adding to full time employment are the usual byproducts. To an important degree, therefore, business saving does get motivated directly by business investment.
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