Imagine you and a bunch of friends got together and started a gold mine. You had a plot of land with a lot of gold in it, and everyone in the group chipped in some money to hire people to build the mine, mine the gold out, etc. In return, all of your friends got a share of the company. Some other people, seeing that the gold mine was going to be super valuable, wanted to buy some shares in the company. People start trading shares. Soon the company starts turning a profit, and as it got better at mining gold and the price of gold shoot up, it made a killing.
But then you noticed that something weird was going on. All of this profit wasn’t going anywhere. It wasn’t being given out to the owners of the company (the shareholders). It wasn’t going to growth. In fact, it was just sitting there. So of course, the shareholders got together and demand that the money be handed out or invested or they’ll fire all the managers.
Or do they? Right now Apple (in the thought experiment, the gold mine) is sitting on $82 billion in liquid assets. To put that in some perspective, that’s $14 billion more than the combined annual GDP of Costa Rica and Ghana. Matt Yglesias and Karl Smith argue that this is why Apple’s P/E ratio has been steadily declining — shareholders are realizing that Apple doesn’t treat them like owners. Really, they’re being treated like gamblers on the future profits of Apple. And that smacks of the total failure of public ownership in the case of Apple, maybe American corporations in general.