Author Topic: So, what seems to be the problem? It's the profits, stupid!  (Read 3240 times)

lightbulb

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So, what seems to be the problem? It's the profits, stupid!
« on: February 23, 2018, 03:45:30 PM »
Just finished reading this manifesto Imagine Non-Profit Society: Utopia or Necessity

In a nutshell: it's a bird's-eye view of the present profit based society, its problems, and draft blueprint for possibly better non-profit society in the future.  Provided by an "outsider" (non-economist), quite provoking with some compelling arguments.

I am all for it - hey, it's FIRE for everyone! But not sure humankind will be getting there. Ever. Despite the fact that kicks in the butt from various sides are only getting more painful, not least from them damn robots.   

So I was left with that disturbing reminder that perpetual economic growth is impossible, one of the rare (serious) concers I have with index investing that I somehow managed to turn a blind eye on. Sure, the growth in productivity has its merits, but if anything, 100+ years of steady index growth indicates that considerable compounding effects will become an issue exposing the limts of eternal growth within a finite system.

I recommend the reading, but do approach it open minded.

obstinate

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #1 on: February 23, 2018, 05:14:38 PM »
Terrible ideas. There'd be much less reason for me to work hard if I could not invest my savings. Investment implies profit, because otherwise there is no reason to risk your money.

Someday society will be like this, but only once we create tireless robots whose only desire is to serve us. As long as we need people to do anything other than exactly what they desire, free from any compulsion, there needs to be the possibility of profit.
« Last Edit: February 23, 2018, 05:16:34 PM by obstinate »

MaaS

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #2 on: February 23, 2018, 05:50:51 PM »
Just finished reading this manifesto Imagine Non-Profit Society: Utopia or Necessity

In a nutshell: it's a bird's-eye view of the present profit based society, its problems, and draft blueprint for possibly better non-profit society in the future.  Provided by an "outsider" (non-economist), quite provoking with some compelling arguments.

I am all for it - hey, it's FIRE for everyone! But not sure humankind will be getting there. Ever. Despite the fact that kicks in the butt from various sides are only getting more painful, not least from them damn robots.   

So I was left with that disturbing reminder that perpetual economic growth is impossible, one of the rare (serious) concers I have with index investing that I somehow managed to turn a blind eye on. Sure, the growth in productivity has its merits, but if anything, 100+ years of steady index growth indicates that considerable compounding effects will become an issue exposing the limts of eternal growth within a finite system.

I recommend the reading, but do approach it open minded.

Disclaimer: Didn't read it.

This "genre" of argument basically comes down to whether government distributed resources can work.  Both on a personal and business level.

The latter is actually why I believe such systems are always destined to fail.

Innovation, even in a technically advanced utopia scenario, requires resources. People, equipment, software, etc.  How are resources distributed? The individual and VC investment model is driven by profit seeking.  Without profit potential, it seems investment would have to be handled by some sort of government.

Does anybody honestly feel confident that any government can successfully pick the ideas that will change the world? And even if they get the idea right, pick the right company?  I don't. I think the day profits aren't viewed as a positive is the day we start moving backwards on a macro scale.  That's not to say inequality can't be reduced while maintaining the profit model, though.

evensjw

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #3 on: February 23, 2018, 06:23:41 PM »
I don't really have a problem with the profit-driven model, it just seems that in the current economy we have not worked out how to ensure that certain costs are accurately passed on, resulting in profits being higher than they should be.  The obvious one is that costs of impacting the environment or global climate are not passed on to companies that cause the impact.  Another more debatable one is that labor costs do not seem to be set fairly.  Or another way to look at that would be to say that some people are not making enough of a profit on their investment of labor, so we need more profit, not less.

markbike528CBX

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #4 on: February 23, 2018, 06:36:51 PM »
Terrible ideas. There'd be much less reason for me to work hard if I could not invest my savings. Investment implies profit, because otherwise there is no reason to risk your money.

Someday society will be like this, but only once we create tireless robots whose only desire is to serve us. As long as we need people to do anything other than exactly what they desire, free from any compulsion, there needs to be the possibility of profit.

I so wanted "possibility of profit" to be a punk band name.  Couldn't find it, but did find a 2017 song by Mudhoney, my favorite band.  Oh well, it was meant to be.

On topic, I agree with obstinate, well said.

VoteCthulu

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #5 on: February 23, 2018, 06:49:57 PM »
So I was left with that disturbing reminder that perpetual economic growth is impossible, one of the rare (serious) concers I have with index investing that I somehow managed to turn a blind eye on. Sure, the growth in productivity has its merits, but if anything, 100+ years of steady index growth indicates that considerable compounding effects will become an issue exposing the limts of eternal growth within a finite system..
"Hamsters can't continue to grow forever, therefore an economy can't continue grow forever" doesn't strike me as a very compelling argument. It seems much like saying "A Hamster can't grow to be the size of the galaxy, therefore it's impossible for mankind to expand throughout the galaxy."

inline five

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #6 on: February 23, 2018, 07:03:51 PM »
One major advantage of our fiat monetary system is it allows the continued growth of the economy as tied to population growth.

You don't need productivity growth to expand profit, just demand growth. Lots of the worlds population continues to grow and acquire new things. Providing internet to these people is probably the best way we can pull them out of 3rd world status and expand our economy at the same time as we sell high level goods and services to them.

Facebook and Google are both hard at work in solving that issue for good reason.

lost_in_the_endless_aisle

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #7 on: February 23, 2018, 09:39:07 PM »
I don't think him being a non-economist is to his credit. There is a reason specialization exists and it's unlikely an outsider understands anything as well as the specialist (Kyrie Irving thinks the earth is flat--is that a healthy outside view?). While some spheres (pun intended) of academia are prone to group-think (economics, at worst, might weakly fall into this category), it's far more likely a non-expert view is rubbish.

Secondly, I don't think it's obvious economic growth necessarily must cease at any point in the future.

If we want to think weird, I did enjoy (in a manner consistent with anti-capitalism, free) Accelerationist Manifesto, which has gems as follows:

Given the enslavement of technoscience to capitalist objectives (especially since the late 1970s) we surely do not yet know what a modern technosocial body can do. Who amongst us fully recognizes what untapped potentials await in the technology which has already been developed? Our wager is that the true transformative potentials of much of our technological and scientific research remain unexploited, filled with presently redundant features (or pre-adaptations) that, following a shift beyond the short-sighted capitalist socius, can become decisive.

Like Slavoj Žižek at his worst (when, paradoxically, he's at his best?) such semi-incoherent ideas at least trigger interesting thoughts. More importantly, the Accelerationst Manifesto was inspiration for Austra's album Future Politics, which is quite good.

BTDretire

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #8 on: February 24, 2018, 11:05:04 AM »
No profit, so why would I work 70 hours a week at my business?
Why produce 10 widgets when I can produce 5 and lounge on the beach.
In fact why work at all.
Oh, I know why, because the government requires you to.
Why would the government do that, because we need production of food,
energy, military items, we need housing, and society wants a lot more.
 But if someone else is producing all we need. I'm going to the beach
with a whole lot of other people.
 Entrepreneurs are special people that provide what society wants.
But most do it for the profit and not because it's good for society.
They count their success in profit.
 Benevolence is nice, but there is not enough to sustain a vibrant economy.
 When you get rid of profit, the government will be deciding what field
you will be studying and working in.

lightbulb

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #9 on: February 24, 2018, 03:33:46 PM »
It seems I ahve overoptimised the length of the original post, therefore first some explanatory text and then some comments.

There are quite some insightful people circling the forum, so in starting the thread I was hoping to get some people read the book and point out the weaknesses/errors in author's arguments (hopefully it is available in libraries). Especially from the camp strongly in favour of profits and against redistribution - hopefully these people can summon the time and will to read something they oppose from the start, I know first hand this can be very hard.

However, it is difficult to discuss the arguments and ideas, when they have not been read in the original form presneted by the author - no pun intended. Moreover, I do not want to become an apologist for the author or his ideas, despite the fact that I do share some of his views. IMHO the original is worth reading beacuse it seeks for root causes of problems in current society and provides a draft plan for *gradual* treatment of these root causes, i.e. it is unorthodox but constructive from the outset.

Nevertheless, some good and interesting points have been already raised in the replies above. There will be some spoilers in my comments below, as much as I do not like it because they are out of context and may well be subject to "loss in translation."

Interestingly, the comments overall seem to confirm author's two key points:
- "capital investments must yield profit" is a dogma which is beyond any doubt in the current system (but a dogma is just a strong, orchestrated belief)
-  collective human consciousness is the only obstacle in the migration path towards non-profit society (but humans in developed world have developed their consciousness to overcome many dogmas, e.g. slavery, women rights, etc.)

On hard work. The assumption in non-profit society is that everyone's needs are taken care of, i.e. everyone is FIREd, so no need for hard work, unless you want to. Do not mix the current, migration, and utopian states, though.

On reaching utopian state, I am pessimistic. We may reach the point when technology is able to cater for all our needs with no human intervention whatsoever. But the human is still just an animal, a fancy one, but an animal nonetheless. Which means we are driven not by our consciousness but by our lizzard brain, i.e. irrational emotions - how much does a lizzard care about human utopia?

On the role of government. If technology provides for human needs, no need to force humans into anything - an easy one in utopian state. Not sure how things would work out in the migraiton phase, though. Anyway, government's main role would be distribution of resources, as MaaS pointed out. And contrary to MaaSs' belief, there are very respectable scholars debunking the government vs. private sector myth. Enter Marianna Mazzucato.

On externalities. To push it even further than evensjw, externalities fit among greatest cons, regardless of whether it is due to intention or incompetence of economy as a discipline. The original author believes the former due to profit pressures.

On author's competence. I generally agree about specialisation. However, the author is a tenured scholar in natural/technical sciences, i.e. he has command of the scientific method and (probbaly) applied it along with some knowledge from his discipline to another scientific discipline (economy). Moreover, it is hard to hold experts in economy/finance in high regard, given that they can't see farther than their nose let alone into more distant future - that is in fact one of the foundations of both index investing and this forum. So, is it possible for a scholar from another discipline to better understand economy than economists, so much so to win a Nobel prize in economy? You bet. Is it possible for knowledge from another discpline to have value and be used in economy? You bet. And is it possible for superstar economists with Nobel prize in economy, who invented and used the magic formula for eliminating risk from investing in derivatives, to be so clueless in what they are doing to blow several billion and threaten to bring down the financial system? You bet.

On perpetual economic growth, I have yet to hear a convincing (scientific) argument supporting it. Because simple arithmetic says it is impossible in a finite system. Moreover, I have yet to hear a good explanation on what drives it and to what extent. My own simple resoning tells me it is mainly productivity increase and demand growth due to population growth and standard increase. But how many percentage points each of them contributes and do they add up to e.g.  7%/10% real/nominal CAGR for S&P.  This one lurks at the back of my head, even though I bought into indexing. I guess I am just hoping the breakdown does not happen on my watch.   
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maizefolk

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Re: So, what seems to be the problem? It's the profits, stupid!
« Reply #10 on: February 24, 2018, 07:00:09 PM »
There are quite some insightful people circling the forum, so in starting the thread I was hoping to get some people read the book and point out the weaknesses/errors in author's arguments (hopefully it is available in libraries).

*eyebrow raise* I'm not quite sure what this statement implies about the rest of us.

Quote
On perpetual economic growth, I have yet to hear a convincing (scientific) argument supporting it. Because simple arithmetic says it is impossible in a finite system. Moreover, I have yet to hear a good explanation on what drives it and to what extent. My own simple resoning tells me it is mainly productivity increase and demand growth due to population growth and standard increase. But how many percentage points each of them contributes and do they add up to e.g.  7%/10% real/nominal CAGR for S&P. 

There may well be a ceiling to economic growth -- there is certainly a ceiling to population growth -- but that doesn't mean returns on capital will be zero.

Let's start with the 10% CAGR. As you point out 3% of that is just inflation, so we can put it aside since it doesn't matter for FIRE planning (7% remaining). Another 2-3% comes from economic growth. The US  economy has been expanding at about 3%/year, and per capital GDP has been expanding at about 2%/year over the past 120 years.* The remaining 4-5% is essentially return on capital.

What's interesting is that if you look at estimates of the returns on capital in many eras where economic and population growth was much closer to zero than it is today (from the year 0 to 1500 economic growth was perhaps 0.2%/year), you see that real returns on capital have been pretty consistently 4.5-5% where ever we can find informative historical records.**

*Further breaking this down, the estimates I've read are that about approximately equal thirds of that economic growth can be explained by population growth (1%), increased participation in the labor force, particularly by women (1%), and increases in per worker productivity (1%), although per worker productivity played a much bigger role for the first 2/3 of the 20th century, and women's accelerating rate of entry into the labor force played a much bigger role in the last 1/3 of the 20th century.

**I'm taking the information in this paragraph from "Capital in the 21st Century" by Piketty.

 

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