Ralph Nader's lame economics

Ralph Nader, the well-known "consumer" advocate, is also a Cisco shareholder and, not particularly surprisingly, he thinks that he knows how the company should be run better than they do. Nader pushes the nutty notion that one reason Cisco should pay out larger dividends is that it will increase consumer demand.

"They have 5.5 billion shares, so if they give a dollar dividend back for these long-patient shareholders - that would leave them with $38 billion that they are sitting on," [Ralph Nader] added. "This will also produce more consumer demand." . . .

Here is some very basic economics. If Cisco gives out the cash, the stock price will fall by the amount given out. That means that shareholders will have the cash from the dividend, but that the value of their stock will fall by the same amount. Of course, if people want the money, they can sell their shares to get the money if they don't get dividends. If they don't want the money from the dividend, they can reinvest the money in the stock. Given that the tax rate on dividends and capital gains are the same, it doesn't really matter for consumer demand whether one gets the capital gain or a dividend.

Nader doesn't think that Cisco is using the money that it has made from profits properly, and he compares this to arguments that conservatives make over the federal government.

"Shareholders who often call themselves conservatives say to government 'it's not government's money, it's our money'," he said. "It's time for those shareholders to say to corporate bosses 'it's not your money, it's our money as owner/shareholders'." . . .

Yet, one could only wish that it was as easy to disagree with government policies as it is to disagree with a company's policies. Apparently, most shareholders don't agree with Nader's advice to Cisco. If he doesn't like what Cisco is doing, he can sell their stock for a very small fee and then use the money to buy another company's stock. He doesn't need to move to a new house. He doesn't need to move thousands of miles away or learn a new language. Whether he has hundreds or hundreds of thousands of dollars in stocks, the process is not very difficult or costly at all.