Why Don’t Companies Have Rainy Day Funds?

N ick Hannauer and David Goldstein have an interesting eoisone of Pitchfork Economics with the innocuous title AMA: COVID-19 and the Economy.

Nick Hanauer Meme

They have quite a discussion on stock buybacks as opposed to why companies don’t use their profits to set up a rainy day fund.

The pitchfork economists left out one very important factor in the discussion. If a company were to save for a rainy day, a corporate raider like Mitt Romney would take over the company and pocket the rainy day fund. That is exactly how Romney got rich. If we don’t change the rules to protect companies who want to do the right thing, then we will have our current situation. There are no companies left who are able to do the right thing and avoid getting raided.

Is anybody asking why it is that a government would create the laws for corporations to form? The laws protect the founders of the corporation (and the shareholders) from many legal liabilities. In exchange, you would think there must be something for the country to gain by protecting corporations. What should a country get for its efforts to give special shielding to corporations? We ought to ponder that question, and put these expectations into the laws that set the rules for people forming corporations. That way, the courts are not free to come up with their own justifications for corporations. Corporations are not people who have the special privilege of using their money to bribe the government.

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