The years since the recession have given firms even more of an incentive to dispense cash rather than invest in growth: The Fed’s policy of keeping interest rates low has made credit cheap, and with weak consumer demand, high-yield investment opportunities have been scarce. So instead, companies have been borrowing in order to buy back stock, which boosts their share price and keeps investors happy — but doesn’t give anything back to the world of job listings and salary freezes, where most of us still exist.
DePillis (and/or Mason) blames the rise of a "shareholder-above-all philosophy" for the more-cash-to-shareholders trend. The article's headline (which was probably not written by DePillis) is blunt: "Why companies are rewarding shareholders instead of investing in the real economy."
We might call this partial equilibrium reasoning. Shareholders are not modeled explicitly. Firms can use their earnings in one of two ways: hire people, or make payouts to shareholders. Since shareholders are not modeled, the latter means throwing money outside of the economy. We might as well be setting it on fire. Regular folks like you and me will never see that money--all those corporate profits just disappear.
In general equilibrium, those shareholder payouts go somewhere. If the shareholders invest the money in companies (or loan the money to someone else who invests in companies), then this is just a roundabout way of doing what DePillis wants. The money might not be staying inside the firm that earned it, but it will find its way into some other firm. The fact that the reallocation happened suggests that the funds are more productive in the second firm than they would have been in the first firm, unless some sort of policy is distorting things.
Another alternative is that the shareholders spend the money. That boosts aggregate demand, right? Maybe DePillis and the other people who don't like what's happening here don't think more demand is good for regular workers.
But maybe the shareholders don't invest or spend the money. They put the cash under their mattress and it does nothing. That may be the case, but it would be very odd in light of the argument that all this flow of cash is happening because shareholders have become so powerful. Dictatorial shareholders demand that firms give them the cash, so that said shareholders can... do nothing with it.
So I don't understand the story, but the notion that money going to shareholders is money lost from the economy is fairly popular. I would like to see that modeled. In any case, the recommendation at the end is that politicians should have more power over credit allocation, which would not surprise Arnold Kling.