- - Monday, October 21, 2019

It’s not just a race to get the Democratic presidential nomination — it’s a race to see who can propose the most outlandish economic policies and plans. Gone are the years when candidates argued over minor differences in capital gains tax rates, or increasing the national debt by a percent or two. We’re now in a race to find the top of the list of the craziest ideas ever.

And, while not leading in the polls, it seems that Bernie Sanders used his few days off to take the clear lead on the crazy idea list. Forget about Elizabeth Warren’s nonsense of requiring 40 percent of public companies’ directors be employees. And, forget about Andrew Yang paying everyone a guaranteed income of $1,000 a month. Last week, Sen. Sanders released what he’s billed as a “Corporate Accountability Plan.”

Let’s start by just picking the low hanging fruit on this one — and even here there’s a lot to pick. His plan mirrors part of Sen. Warren’s proposal — dare I say “copies” — and proposes requiring public companies have 45 percent of their directors be employee-elected. Yes, he does one-up her here by 5 percent, but … details. 

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But, while Ms. Warren’s plan requires 40 percent of boards be employee elected, it doesn’t really say how those votes get cast or counted. Mr. Sanders, on the other hand, adds a little kicker to elect his 45 percent — even though his math is off a bit. His plan would require companies to give the employees 20 percent of the firm’s stock. Just to be clear, that means the stock the employees get can cast 2.25 votes per share, while folks that actually buy the stock only get one vote per share.

The twists and turns of this crazy idea are like being a passenger in your grandfather’s car long after you should have taken away the keys. Think of it this way — why would anybody purchase stock in a company that immediately would be devalued by 20 percent and could be outvoted on a share basis by more than 2-1? Too late — you didn’t grab the keys!

Mr. Sanders’ stock plan doesn’t just stop with making employees into a kind of Super Delegate when it comes to voting. He also would require companies to pay dividends on the stock that he estimates would be about $5,000 per employee. Before we do the math on this one, what if the company doesn’t have the cash to pay the dividend, or it needs its cash to grow the business? A large percentage of public companies don’t pay dividends even to the shareholders that bought the stock. They don’t have the cash sitting around. 

Now it’s time to do some math. Let’s pick a company. Any will do, but we’ll pick a big successful one and see how this $5,000 per employee dividend might work. How about Walmart? Bernie loves to bash Walmart, so let’s use it as an example of how this might work.

Walmart has about 3 billion shares outstanding. Under the plan we give 20 percent of those to the employees (of which there are 1.4 million in the U.S.) and that works out to 421 shares per person. Now remember, each of those workers is supposed to get $5,000 in dividends, so that is about $119 per share per year. But wait! Every share gets that dividend, so when we go back and pay $119 on all 3 billion shares it works out to about $350 billion in cash per year. That’s 15 times Walmart’s annual free cash flow of $23 billion before dividends. Where’s the cash supposed to come from?

You can play this math game with just about any large corporation and it comes out about the same. As an aside, Walmart currently pays a little over $2 per share in dividends which is considered a fairly decent return by investors. This one isn’t even a close call and debatable. It’s actually not just an impossible idea, it’s crazy. And speaking of crazy, it’s like Jack Nicholson’s character says in “As Good As It Gets”: “We’re all stocked up here.”

• Kevin Cochrane teaches business and economics at Colorado Mesa University, and is a visiting professor of economics at The University of International Relations in Beijing.

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