I do believe in Capitalism and Free Markets when they operate within a system that is designed optimize outputs that match with our values. We can't all ever agree on values and ideals so things are always in fluxx (sp. as a nod to the great card game).
I believe this is the 2 min example of how America has been working to be as great as we are today.
1.Employees are paid by companies to produce "stuff".
2.Companies sell the "stuff" for a profit to everyone.
3.Companies use their profit to buy other things from other companies.
* all of the above promotes a healthy stock market
If employees get a lot of money they will invest in markets for retirement.
If companies make a lot of profit their stock goes up.
When companies use their profits to buy things it helps the economy by giving other companies profits and other employees more jobs and higher wages.
When all this works, you get a virtuous cycle that keeps improving our quality of life and motivates companies and people to improve our standard of living.
I think Step 3 has recently been broken (or at least less efficient). And they are taking advantage of the entire system we have created, halting or slowing our virtuous cycle.
S&P 500 companies are making record profits. Not only record profits but those profits are growing at great rates. But these companies are all sitting on all of this money rather than reinvesting it into the economy. Last I heard I think all of the cash sitting in the S&P 500 is close to several trillion. Maybe I am off a bit but it is on the order of magnitude of our national debt.
If you listen to CNBC a lot you will hear the following phrase:
"the consumer is driving this economy"
"business spending is still very slow"
We (Step 1) have been trying our best to to keep the cycle going.
Consumer productivity is up.
Consumer spending is way up even to the point of personal debt being way up.
But companies are not doing their part. The point of giving companies tax breaks is so they can make good profits. They should use those "extra" profits to hire more people, pay their current employees more and spend money to help the economy.
This is not happening to the same degree as normal. As a result we feel the pain. If you company is growing profits at 10% shouldn't your salary increase 10% per year (or at least total compensation including benefits).
I am fine w/ profits if it keeps the economy and virtuous cycle going.
The need for profits without improving the economy results in:
1.Making ALL insurance more expensive.
You can see my comments on Dale's blog about Health Insurace. But also the Katrina issues with home owners insurance not wanting to pay people the amount they had insured because it hurts their profits. Aritlces then discussed the practices at All State (which I dumped) in that area as offering people very low payouts vs what they were entitled. If they faught the settlements then make it very expensive (i.e. lawyer fees) for them to come get their money.
2.Making college more expensive.
With limits on Financial Aid and Govenment loans it is bad when the "best" option for more money is Astrive.com who's 9%+ rate is touted as "cheaper than a credit card".
3.Giving you 3,000 calories per meal at Chilli's.
They get more profits for that $10 meal than the $9, 2,800 calorie meal they gave you last year. The extra costs of health affects of eating too much and eating bad is an external singularity because it is not paid for by the food comapnies it is paid for by everyone.
This is why even while a capitalist and economist I support local and private companies.
The current system makes giving money to companies (step 3) less efficient in keeping the economy going. It makes it more efficient to give it to individual owner or private comapnies.
I loved going to Madison's market in Glendale. It is a neat little grocer w/ Stewarts cream soda and great sandwiches (it was the last place I ate as a single man). It is now closed because people preferred to go to Kroger or Subway for groceries and subs. Even though those chains are less efficient at giving the money back to Glendale than even just the rent of Madison's.
4 comments:
Couple of thoughts...
If a company is not spending their profits, they're doing SOMETHING with it. It's not like they're being taken out of the economy. If the money is put into a checking account, then what it does is increase the available cash to lend out as loans, which drops the interest rate and therefore makes money cheaper for small businesses and/or others. If they're used to buy investments, then it increases the value of these investments. So I'm not sure how economists think about this, but isn't this the case?
As for the college issue, I totally agree tuition is way too high for the value it gives us. I look at it as how the world overvalues what college gives you (reference Steve Job's Stanford speech). The perception doesn't fit reality here, which is why college is overpriced. This industry is ripe for a disruptive innovation.
The Kroger/Wal Mart effect... I think what needs to happen is we need to be willing to pay for the things we want. That way your shop will stay open; we need to get away from our sock it away and save mentality, and learn to spend on things that are valuable to us.
and you don't have an MBA?!?!
Yeah tuition has become a joke, because some people believe businesses value the University name as much as the degree, then those top universities raise tuition and the ones behind have room to do the same.
However I totally agree with Dale that eventually the additional cost won't be worth it and either people won't pay for those schools or (and I hope this happens) someone is going to come in and destroy the college system as we know it. I know that Trump U and other such programs haven't caught on, but there is something in that space waiting to make a killing.
There are already some Highschools doing this, I think the Gates foundation founded some schools in Texas to test this model out. Imagine a school where you LEARN appropriate and applicable things instead of teaching to a standardized test!
Fair point Dale but I don't think the interest rate benefit is as fast or efficient as direct spending.
If every company spent $10B evenly every company should get about $10B back but hopefully some of that would trickle down to more employees and higher wages.
Post a Comment