The Instigator
NeoConCommunist
Pro (for)
Losing
0 Points
The Contender
Ragnar_Rahl
Con (against)
Winning
8 Points

The Federal Government should mandate that stocks must pay dividends

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Voting Style: Open Point System: 7 Point
Started: 10/4/2009 Category: Politics
Updated: 7 years ago Status: Voting Period
Viewed: 1,012 times Debate No: 9600
Debate Rounds (5)
Comments (5)
Votes (2)

 

NeoConCommunist

Pro

I assert the following:

The Securities and Exchange Commission should mandate that all companies must pay a certain minimum dividend to their shareholders proportional to their earnings, either in cash or in corporate bonds.

My reasoning:

Almost every major economic downturn in the United States in recent history has been the result of the boom/bust cycle, which in turn is the product of speculation, which drives prices artificially high. Although speculation can fuel growth, if taken too far and out of context it can cause major problems and result in what we see now in the economy: banks shaken, economic recession, government bailouts digging the US deeper into its national deficit hole. Examples of this from the past include the stock market crash in 1929 which led directly to the world wide depression and an entire decade of economic stagnation, Japan's "lost decade" of nearly zero economic growth which resulted when the Japanese asset bubble gradually deflated, the dot-com bubble in the late 90's and early 00's, and the famous "tulip mania" that gripped 17th century Netherlands. The reason speculation does this is because at first there is a buying frenzy; since everyone is buying the asset, it looks like a very good investment and more and more people want to buy. However, this begins to inflate prices rapidly, making the investment seem even better. But at some point, people start realizing that the price has gone too high, and suddenly everyone wants to sell, and the prices collapse. Then, the people who thought they were making an investment at the very end realize that they just lost a huge amount of money. If banks are these investors, the problem becomes multiplied, as people lose confidence in the bank and try to pull their money out, leading to a bank run and possibly a bailout. So we must try to keep the benefits of speculation (money going to those who need it to develop and the more reasoned investment side) and eliminate or at least temper the boom/bust cycle.

When you buy a stock, the only reason you would do so is speculation. You expect the price to go up and some bigger fool to buy from you. But the price is not connected to the company whose stock you're buying. If you don't get a dividend or a vote on company matters, you just have a piece of paper with a name on it. It is exactly like OneSeason, where you buy shares under an athlete's name with real money. The price is not directly connected to the athlete's performance, and ultimately what you pay for is numbers on a screen. Although these effects are self-reinforcing so that they function most of the time, once a self-reinforcing process is halted, it collapses entirely and very possibly causes a self-reinforcing process in the other direction - in other words, a halting boom produces a bust.

One way to temper this effect in stocks is to directly tie value to the performance of the company - and the easiest way to do that is through dividends that are proportional to the company's performance. In that way (a) if you buy it, you might be buying it for the dividends, so there doesn't necessarily have to be a last fool who loses his entire investment (b) it becomes much easier to tell what you're paying for and (c) it is a rudimentary safety net in that even if you lose a lot of money, you are still getting some back via the intrinsic value of the asset.

Some arguments against my proposal and my responses:

"The stock market provides the service of channeling capital to businesses that need it – those that want to invest buy stock and those that want to spend sell stock. Tampering with it will hinder the flow of investment."

My vision of the stock market will provide exactly the same service, so investment will certainly not be hindered. Also, savings banks provide the exact same service, so even abolishing the stock market wouldn't destroy the channels by which money goes to developing businesses. And if non-dividend stocks are so crucial, companies and investors will simply switch to trading pieces of paper with their names on them in crayon.

"This distribution of profits prevents companies from investing in building themselves to the extent that they might want to, slowing the economy down"

Any company that really needs to reinvest the money in itself can sell corporate bonds along with the dividend-paying stock, and encourage shareholders to accept payment of dividends in the form of bonds.

"If people are willing to pay for them, why shouldn't companies be given the freedom to issue non-dividend stocks? Capitalism will naturally regulate any stocks, whether they pay out or not. If people are willing to accept the risk, let them."

First of all, I've just shown that speculation, which is the only thing the stock market currently does, can have a serious negative impact on the economy. Secondly, speculation has to end somewhere, and if there is no real world value the object of speculation, the end of speculation means a huge hit to anyone who invested in the object. However, commodity speculation can end with someone who actually uses the object, meaning it can end without someone at the end losing a tremendous amount of money. Also, this is like arguing that people getting into cars shouldn't have to wear seat belts since they shouldn't be getting in a car with a driver that can crash in the first place.
Ragnar_Rahl

Con

Bonds are not necessarily an optimal answer to a company needing more investment, indeed, they are significantly less efficient than simply reinvesting profits. Obviously this cannot be sustained permanently-- and the federal government no longer bailing out people who invest in companies that expect to do it permanently is sufficient to target consequences to the investors in those companies. "Economy," like country, is a generalization, not a specific entity which can be harmed. Individual companies and individual investors are harmed when the consequences of their stupid decisions come about-- and should be. To force someone "for their own good" is not meaningful (Would it have been for Microsoft's good if it had been required to pay dividends all through it's operation, such that it would not have grown to the point where it pays as much in dividends as it does now, as it would have relied on bondholders and it's growth would have been slowed by the transaction costs involved in getting additional investor parties with no additional capital?), and would be a miscarriage of justice if it were meaningful.

Your seat belt example only works if you accept the premise of such an assault on liberty as seat belt laws represent. To wear a seat belt is a safety measure for you and you alone, that has costs as well as benefits, that can only be effectively measured if you are the one wearing the seat belt, and not if you are a bureaucrat thousands of miles away who has no knowledge what the costs even are. The same with dividends-- Eventually companies without them will collapse, but any meaningful government requirement involves a specific time period that is bound to be inaccurate-- and the risk of company collapse belongs to no one save those who choose to associate with the companies.
Debate Round No. 1
NeoConCommunist

Pro

First of all, by issuing these bonds and encouraging investors to take them instead of cash, the companies in question ARE simply reinvesting the profits, to be paid out at a later date. And smart investors will generally prefer the profits be reinvested because that would improve later profits and therefore their dividends. This makes (a) the company more beholden to the investors' interests and if the bonds are issued to be paid at specific dates, (b) the investors will be much more likely to invest in stable companies likely to survive and prosper up to the day the bond matures. [I need clarification on what exactly your second sentence states, so I'll move directly to sentence #3]. "Economy", like "country" is a specific entity and CAN be harmed. GDP is an example; if a country's GDP is lower, it's economy is not doing as well, and if a country's GDP growth rate is lower, then it's not developing as well. If you want to argue that the "economy" was not harmed by the 1929 stock market crash, I welcome you to try, but I doubt you could pull that off. And to force someone to do something "for their own good" is neither what I'm trying to do, nor something necessarily bad anyways. This mandate is supposed to prevent or limit the boom/bust cycle, which does make certain individuals and firms very wealthy but as a whole drags the economy downward. And all safety laws are based on forcing someone to do something for their own good. If you want a more accurate analogy for my idea, how about drunk driving? Drunk drivers not only pose a threat to themselves, but also a threat to those around them -- same as a bubble economy and those who cause it pose an economic threat to those in it. Many people who didn't get involved in the housing speculation have seen their net worths go down, not to mention the added drag of shouldering the burden of the bailout and the increase in national debt. Therefore, your assertion that the risk of company collapse belongs to the company and its associates is true -- but only in theory. In practice, large firms looking to invest their money don't research the companies or securities they invest in themselves -- they rely on ratings given by a handful of companies. And when a company falls and its assets turn toxic, it can drag down a lot of other companies that had otherwise been very prudent, not to mention placing the aforementioned economic burden on society-at-large. And, ultimately, it has been proved time and time again that the biggest falls of modern economies were when they corrected for overenthusiastic speculation.

One final point: A good you purchase only for the purpose of speculation is a good that will eventually collapse. Everyone will see that they have been running on thin air and stock prices will collapse. However, if we give stocks real worth by mandating dividend payments, this collapse can be averted.
Ragnar_Rahl

Con

:t of all, by issuing these bonds and encouraging investors to take them instead of cash, the companies in question ARE simply reinvesting the profits, to be paid out at a later date...

Not simply. Additional transaction costs. If a limited number of investors understand the value involved, potentially prohibitive transaction costs.

"[I need clarification on what exactly your second sentence states"
The absence of federal interference is sufficient in the long run to ensure most companies eventually pay out dividends.

:"Economy", like "country" is a specific entity and CAN be harmed. GDP is an example;
No, GDP is not an example-- it does not provide a reason for the collectivist notion that an "economy" as such has interests, values, motives, the potential to be harmed. It is simply an aggregation of cash transactions, which represent gains or harms for many individuals, but not generalizably to all.Incidentally, it is a poor measure of even how individuals are doing on average. If I pay you a million dollars to scrub my back, and you pay me a million to scrub yours, the GDP shoot up by 2 million, despite the only actual value being a pair of backrubs. In a free market, of course, this will not occur. But a government that has an incentive to pad its GDP numbers on the other hand, as has the power to encourage such transaction pairs-- you never know what it might convince people to do, and governments like that (governments that regulate economies) are both your advocacy and the fellows who convinced people to engage in widespread adoption of the GDP measure in the first place.

:If you want to argue that the "economy" was not harmed by the 1929 stock market crash, I welcome you to try, but I doubt you could pull that off.
It is you who upholds the positive position on "Economies are evaluative entities, capable of being harmed." To argue a negative against nothing is pointless.

:And to force someone to do something "for their own good" is neither what I'm trying to do, nor something necessarily bad anyways. This mandate is supposed to prevent or limit the boom/bust cycle
That can be achieved by removing credit subsidies. If this mandate has any effect, it's just to drop the boom part closer to permanent bust territory.

:And all safety laws are based on forcing someone to do something for their own good.
And your point? Your reductio takes you nowhere, I am opposed to such laws.

:If you want a more accurate analogy for my idea, how about drunk driving? Drunk drivers not only pose a threat to themselves, but also a threat to those around them
This is a LESS accurate analogy, because companies directly reinvesting profits poses a threat to no one who has not chosen to engage with the company.

:same as a bubble economy and those who cause it pose an economic threat to those in it.
A "bubble economy" does absolutel zilch to those around it. The only people who can be harmed by any company engaging in purely economic action-- are those who choose to engage in trade with it. Those "Around it" is another word for those who choose not to trade with that company nor any companies that do.

:Many people who didn't get involved in the housing speculation have seen their net worths go down
Name one, and his career, and I will show you the involvement he chose :).

:In practice, large firms looking to invest their money don't research the companies or securities they invest in themselves
Then they deserve whatever happens to their money.

:And when a company falls and its assets turn toxic, it can drag down a lot of other companies that had otherwise been very prudent,
Describe this company and it's "prudence."

:One final point: A good you purchase only for the purpose of speculation is a good that will eventually collapse.
There is no good that has no purpose but speculation. A stock being without dividends is by definition either temporary or fraudulently. The former has useful purposes, the latter can be sustained about as easily by the workaround bond measures you've already described, perhaps even easier (Bonds may not be efficient, but they do invite less scrutiny than immediate reinvestment directly from one's profits).
Debate Round No. 2
NeoConCommunist

Pro

NeoConCommunist forfeited this round.
Ragnar_Rahl

Con

Kentucky fried?
Debate Round No. 3
NeoConCommunist

Pro

NeoConCommunist forfeited this round.
Ragnar_Rahl

Con

yep, kentucky fried forfeit.
Debate Round No. 4
NeoConCommunist

Pro

NeoConCommunist forfeited this round.
Ragnar_Rahl

Con

See above.
Debate Round No. 5
5 comments have been posted on this debate. Showing 1 through 5 records.
Posted by wjmelements 7 years ago
wjmelements
Defaulted all categories to Ragnar due to multiple forfeits.
Posted by Rezzealaux 7 years ago
Rezzealaux
Stocks that don't pay dividends would never rise to the top.
Posted by Xer 7 years ago
Xer
No. But most companies still do it. It is simply an incentive to buy in that stock. It's not like anyone is forcing you to buy stocks without dividends, so I see no reason why the gov't should mandate it.
Posted by Volkov 7 years ago
Volkov
But, are they mandated Nags?
Posted by Xer 7 years ago
Xer
Stocks already do pay dividends...
2 votes have been placed for this debate. Showing 1 through 2 records.
Vote Placed by wjmelements 7 years ago
wjmelements
NeoConCommunistRagnar_RahlTied
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Total points awarded:07 
Vote Placed by studentathletechristian8 7 years ago
studentathletechristian8
NeoConCommunistRagnar_RahlTied
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Total points awarded:01