On October 24, 1929, the American stock market crashed. Fortunes disappeared overnight, and the value of American companies tanked. But the people in charge of those companies had an idea: They started buying shares of their own stock from investors, which meant there were fewer stocks out there for other people to buy. And when there’s less of something, the price goes up.

Corporations had figured out a kind of magic trick. They could jack up their stock price without actually doing anything. This was the beginning of the stock buyback.

It’s a practice that has fundamentally changed the way American corporations operate. Understanding how it works can help us understand why companies with record profits are still paying their employees so little compared to their CEOs.

So, how did stock buybacks take over the American economy? Check out the video above to find out.

Additional reading

William Lazonick; Harvard Business Review: Profits Without Prosperity

Irina Lendel, Melissa Piazza, Matthew Ellerbrock; Cleveland State University: Lordstown GM Plant Closure Economic Impact Study

Emily Stewart; Vox: Walmart is paying $20 billion to shareholders. With that money, it could boost hourly wages to over $15.

Jane G. Gravelle and Donald J. Marples; Congressional Research Service: The Economic Effects of the 2017 Tax Revision: Preliminary Observations

Stephen Mihm; Bloomberg: How Stock Buybacks Ambled Into Stardom

Lawrence Mishel and Julia Wolfe; Economic Policy Institute: CEO compensation has grown 940% since 1978

Irina Ivanova; CBS: GM bought back $10 billion in stock since 2015, double what job cuts will save

You can find this video and all of Vox’s videos on YouTube. And if you’re interested in supporting our video journalism, you can become a member of the Vox Video Lab on YouTube.

You can find this video and all of Vox’s videos on YouTube. And if you’re interested in supporting our video journalism, you can become a member of the Vox Video Lab on YouTube.