Why is Robert Reich calling for tighter monetary policy?

Robert Reich (A Story for May Day: The Fed, Apple, and Trickle-Down Economics):

The Fed’s policy of keeping interest rates near zero is another form of trickle-down economics.

For evidence, look no further than Apple’s decision to borrow a whopping $17 billion and turn it over to its investors in the form of dividends and stock buy-backs.


It would be one thing if Apple and other giant companies were borrowing in order to expand operations and create new jobs. But that’s not what’s going on. Apple, remember, is still sitting on $145 billion.


It’s a sump pump with the Fed on one end buying up bonds to keep interest rates low, and shareholders on the other end raking in the returns. 

Get it? Easy money from the Fed can’t get the economy out of first gear when the rest of government is in reverse. 

The reason that Apple is borrowing is that they can pay ~2-3% interest on the bonds they issue or they could pay a ~35% corporate income tax on the money they bring in from overseas. Apple is so absurdly profitable and has such an ungodly huge cash pile that it can afford to go with the first option.

Apple has become a company where the best option for its shareholders is to rack up billions in debt. 

Reich implies that Apple is somehow in the wrong for doing this for its shareholders rather than to “expand operations and create new jobs.” I fault his logic:

1. It’s not like Tim Cook and Co. are doing this because “greed is good.” In case you haven’t notice, Apple’s stockholders have taken a beating since September of 2012. Falling from over $700/share to below $400/share makes the average investor (and most “analysts” or as I like to call them, idiots) worry about the competency of the leadership of a company. Even as CEO, you can be fired. Apple’s executives have a fiduciary duty to bring value to shareholders, and this is a very mathematically sound and entirely legal way to do it.

2. Apple is a consumer electronics company that makes what are considered the best devices year-in and year-out. I get that Reich is trying to use this to talk up creating jobs, but there are only so many people qualified to work at Apple. With unemployment for software engineers at 2.2%, how many people does Reich think are out there that have the experience needed to work on the hardware and software from which Apple derives its reputation for quality? If anything, this seems like it would only cause a bidding war in an industry that already has amazing salaries and benefits at top companies – which would concentrate wealth upwards, which is exactly what Reich is arguing against.

Besides the whole Apple nonsense in the article, the underlying issue that Reich fails to address is the corporate income tax in this country. Companies like Apple would rather borrow than pay the 35% rate. Reich implies that the Fed holding down interest rates is what makes this feasible, but again, I find faults in his logic:

1. Apple borrows so damn cheaply because it’s basically the best borrower and lender could ask for – it’s predictably profitable and has $145 billion in cash. I’d trust my money with Apple over the US government any day. Tighter monetary policy wouldn’t do much to change that. If anything, it would cause lenders to move from “risky” things like small businesses that create jobs to “safe” bets like Apple. Still kind of arguing against yourself there, Bob.

2. Econ 101 (well, Econ 1 at Berkeley) tells us that tighter monetary policy (raising interest rates) means slowing down the economy. Are the “mere” billions in tax revenues this would bring in from companies with cash held abroad be worth the havoc this would unleash on the economy? The corporate income tax is 35% – interest rates would have to be pretty high for borrowing to look less appealing than that. Higher interest rates hurt everyone that Reich claims to be fighting for – from those struggling to afford homes of their own to small businesses trying to hire and expand. 

I think the real issue that Robert is trying to hide behind the trickle-down straw-man is that the corporate income tax is pretty high. Personally, I’d like it to be lowered to the point where it brings in actual revenue and the smart move for companies isn’t to throw away money by taking on debt.