Since the financial crisis, the federal government has implemented a fiscal stimulus plan and the Federal Reserve took to the road of monetary stimulus, actively seeking new routes to revive the U.S. economy.
The private sector, however, has been laggard in adding its muscle to the revival efforts. Private firms have added employees, but very cautiously, and wages are stagnant. Meanwhile, a huge amount of cash sits idle on corporate balance sheets.
“Capital expenditure plans are being retrenched,” notes Dan Heckman, senior fixed income strategist and senior portfolio manager at Minneapolis, Minnesota-based US Bank, with $80 billion in assets under management. “Most major corporations are sitting on tons of cash. They have no appetite for borrowing and credit line utilization is at all-time lows.”
So what would happen if U.S. corporations, who sometimes return cash to shareholders through share buybacks or special dividends, initiated their own economic stimulus plan, giving a $3,000 bonus to every single one of their employees before year end?
“A corporate bonus wouldn’t be all that different in impact than if the federal government were to do it,” says Dean Baker, economist at the Center for Economic Policy and Research. “Presumably the price of the corporation’s stock would fall a little and some people who owned the company’s stock would be a little less wealthy; but the propensity for people to consume out of income would be much greater than for stockholders to consume out of wealth,” he said.