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CA renter.
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July 22, 2012 at 10:01 AM #748717July 22, 2012 at 11:56 AM #748722
dumbrenter
Participant[quote=CA renter] Developing something new and actually creating something is very different from “investing.” Very different.
I have no problem with those who **create.** My complaint is with those who simply buy up existing assets, hoarding the very things that are necessary for survival (food, housing, etc.) in order to force others who NEED those things to pay them higher prices or rent.
By all means, people should go out there and create, innovate, and improve upon things. That’s valuable to society, no doubt. But “investors” who don’t create, don’t expand productive capacity, etc.? That’s zero-sum, and requires other to suffer in order for the “winners” to gain.[/quote]
Those people who create need people with capital to help them with bills or else the creator’s family would desert them. Or there would be nothing to create in the first place.
It is those investors who take that ‘risk’; betting on the chances that the creators become successful. They expect a reward proportionate to that ‘risk’.
While it is debatable on the risk-reward equation, to say that these ‘investors’ do not create value is very immature especially with so many examples that you could just see even without taking your eyes off your computer screen.You seem to forget that for every successful investor, there are a hundred others who lost their shirts taking those risks (incl. yours truly). Those had to go back to their day jobs or something to provide for themselves. Typically these are not the ones who complain; they know they took the risk and lost out when the outcome did not pan out as expected. It is those who have never taken the risk that seem to complain the most about ‘investors’. And those who seem to complain the most seem to come from ‘public sector’ background.
July 22, 2012 at 12:01 PM #748723Participant[quote=CA renter][quote=dumbrenter]when 90% of the population thinks nothing of exchanging their hard earned paycheck for a gadget of questionable value AND with the knowledge that they are paying for a 40+% profit margin, is it any wonder that the top 1% will soon have most of the wealth?[/quote]
Exactly. Not only the customers, but the employees who barely make enough to get by so that upper-level management and shareholders can get a bigger cut of the value the *workers* create. Those who make the most are the ones who control who the winners are — the ones who control where capital flows. “Hard work” has very little to do with it.
This is one of the main reasons that wealth is driven up in the absence of an intervening force (like govt); that, and the fact that it’s much easier to make $1MM/year when you already have $100MM vs. having to work for that $1MM…and don’t even get me started on the fact that these incomes are taxed at different rates.[/quote]
You misunderstood me. My point was that nobody is forcing the 90% to go out and buy an Ipad or I-whatever. These people have a choice not to buy those gadgets, not to participate in the markets Or at least get Apple to drop that insanely high profit margin for an appliance. Instead, these 90% dumb people choose the temporary gratification of getting this overpriced gadget and then complain in leisure about the 1% they just bought it from.
July 22, 2012 at 5:34 PM #748742
CoronitaParticipant[quote=dumbrenter][quote=CA renter][quote=dumbrenter]when 90% of the population thinks nothing of exchanging their hard earned paycheck for a gadget of questionable value AND with the knowledge that they are paying for a 40+% profit margin, is it any wonder that the top 1% will soon have most of the wealth?[/quote]
Exactly. Not only the customers, but the employees who barely make enough to get by so that upper-level management and shareholders can get a bigger cut of the value the *workers* create. Those who make the most are the ones who control who the winners are — the ones who control where capital flows. “Hard work” has very little to do with it.
This is one of the main reasons that wealth is driven up in the absence of an intervening force (like govt); that, and the fact that it’s much easier to make $1MM/year when you already have $100MM vs. having to work for that $1MM…and don’t even get me started on the fact that these incomes are taxed at different rates.[/quote]
You misunderstood me. My point was that nobody is forcing the 90% to go out and buy an Ipad or I-whatever. These people have a choice not to buy those gadgets, not to participate in the markets Or at least get Apple to drop that insanely high profit margin for an appliance. Instead, these 90% dumb people choose the temporary gratification of getting this overpriced gadget and then complain in leisure about the 1% they just bought it from.[/quote]
+1
my point is that in this country out of the 90% that choose gratification, probably a good portion of them do so on borrowed time (IE credit). And when time runs out, and they are up shit’s creek, they cry foul and (1) ask for debt forgivenesss and/or (2) ask for wealth redistribution…
Just look no further than the auto industry…We’re starting to slightly recover, and new BMW’s are flying off dealer lots…You think people are really paying for them in full??
July 22, 2012 at 7:17 PM #748746Anonymous
Guest[quote=davelj][quote=no_such_reality][quote=CA renter]By all means, people should go out there and create, innovate, and improve upon things. That’s valuable to society, no doubt. But “investors” who don’t create, don’t expand productive capacity, etc.? That’s zero-sum, and requires other to suffer in order for the “winners” to gain.[/quote]
You really need to go see a few more places where people don’t invest capital.[/quote]
Yeah, that’s actually empirically incorrect. Investing is a “market-sum” game where the participants share in the total market return pie (or “economic return” pie, if you like). Without the capital there’s essentially no market return to share. (Recall that the market return will ultimately be a function of economic growth… which requires that capital.) And the capital doesn’t just magically appear.
NSR is right – places that are unfriendly to capital tend not to grow much, which basically leaves everyone in the crapper.
Now, are the “financiers” (“investors” in your parlance) overpaid for the value they provide? Certainly. But there’s a pretty big gulf between the proposition they add no value versus the notion they are simply overpaid for the value they provide.[/quote]
The claim that investing is “zero sum” is the basic fallacy of the extreme political left.
As davelj states, the zero sum claim has completely been debunked by history. Only a handful of clueless “useful idiots” cling to this notion today.
Another fallacy that follows from this myth is that the idea that investment only occurs in capitalist societies. All societies have capital, all make investments. The difference between capitalist economies and the government-controlled economy that CAR advocates is who makes the investment decisions: private individuals risking their own money vs. government bureaucrats with nothing to lose.
You think the housing bubble involved bad investment decisions? Try the Great Leap Forward. Which is worse, a few million foreclosures, or a few million dead?
And yes, those Apple employees “barely make enough to get by.” That explains why homes in Cupertino are so cheap…
July 23, 2012 at 2:41 AM #748763CA renter
Participant[quote=davelj][quote=no_such_reality][quote=CA renter]
By all means, people should go out there and create, innovate, and improve upon things. That’s valuable to society, no doubt. But “investors” who don’t create, don’t expand productive capacity, etc.? That’s zero-sum, and requires other to suffer in order for the “winners” to gain.[/quote]You really need to go see a few more places where people don’t invest capital.[/quote]
Yeah, that’s actually empirically incorrect. Investing is a “market-sum” game where the participants share in the total market return pie (or “economic return” pie, if you like). Without the capital there’s essentially no market return to share. (Recall that the market return will ultimately be a function of economic growth… which requires that capital.) And the capital doesn’t just magically appear.
NSR is right – places that are unfriendly to capital tend not to grow much, which basically leaves everyone in the crapper.
Now, are the “financiers” (“investors” in your parlance) overpaid for the value they provide? Certainly. But there’s a pretty big gulf between the proposition they add no value versus the notion they are simply overpaid for the value they provide.[/quote]
I didn’t make my point clear in the above post. Yes, investing in those who *create, improve upon existing technology, or expand productive capacity* are making healthy investments that benefit society. But those who simply buy up existing assets (as opposed to investing in productive enterprises) do not contribute to society, and their “investments” are zero-sum. Yes, we need some market makers (a very small, highly-regulated group), but we cannot all give up productive jobs to become asset-price speculaltors. Somebody has to create the assets in the first place, and it’s not capital who does that.
July 23, 2012 at 8:25 AM #748775no_such_reality
ParticipantThen Target, Walmart and the corner supermarket should all cease to exist because in the end, they’re just asset price speculators.
They buy an apple for 5 cents and try selling it for 50 cents. They don’t even do their own shipping any more, the vendors and middle men have all that responsibility.
If you think they generate value by making availability, then you’ve just provided your answer.
As for a ‘few’ market makers, wow, learn history. The fewer the market makers more illiquid and the higher the spreads and their profit margins.
You can get that education any day from either trading a thinly held stock or dealing with a real estate enclave that doens’t participate in the MLS or buying a car or any other product with only a few distributors.
July 23, 2012 at 11:00 AM #748787Guest[quote=CA renter]I didn’t make my point clear in the above post. Yes, investing in those who *create, improve upon existing technology, or expand productive capacity* are making healthy investments that benefit society. But those who simply buy up existing assets (as opposed to investing in productive enterprises) do not contribute to society, and their “investments” are zero-sum. Yes, we need some market makers (a very small, highly-regulated group), but we cannot all give up productive jobs to become asset-price speculaltors. Somebody has to create the assets in the first place, and it’s not capital who does that.[/quote]
Thanks for making your point more clear.
So tell us, what is the definition of “create,” or “improve upon?”
What is the definition of a “healthy investment?”
Who decides what is an “improvement to society?”
Who decides when someone adds value vs. when someone “does not contribute to society?”
Why do people even do business with those who (supposedly) “do not contribute?”
How do we determine that something is not a “productive” enterprise?
Like NSR said, your local Ralphs doesn’t create anything. The truck driver who brings it to the store doesn’t create anything.
The local car dealership or furniture store doesn’t create anything.
The farmer who sells his land to a developer hasn’t created anything (in fact he choose to stop “creating” food…)
Up-thread you mentioned that the founder of Facebook didn’t create anything of value.
Who decides what has value?
Just you?
July 23, 2012 at 11:30 AM #748793davelj
Participant[quote=harvey]
Who decides what has value?
Just you?[/quote]
Clearly one of the toughest parts of this debate… who decides? And, further, what is the metric used?
For example, in aggregate, most of the mutual fund industry (and you could extend this to most of the entire asset management industry) doesn’t add much in the way of value other than providing liquidity (which certainly has value, although not as much as we collectively pay for it). That amounts to billions of dollars per year in fees where it “appears” that not much value is created. But that’s just dollars and cents… arguably the mere fact that someone is managing folks’ money (even if it’s not optimally managed) makes them “feel” better – it gives them a sense of hope and peace of mind. What is this worth? I really don’t know how much “psychic income” this provides… but it’s certainly worth something.
July 23, 2012 at 12:30 PM #748796GuestEconomists have answered the question long ago: The market determines value.
The value of something is, by definition, what people pay for it.
(Economists actually call this metric “utility” because it does not always precisely translate to monetary value but it’s pretty-much the same thing.)
The point is that any one individual’s assessment of value is subjective and impossible to prove. The only possible objective measure of value is the collective price determined by market forces.
The economic argument against the idea that something has “less” value than the cost is that the cost in a free market is the value.
Although I’m also not a fan of the mutual fund industry, or many CEOs, or many professional athletes, or realtors, we cannot claim that they are over priced. Their prices are set in free markets and the value of these things is exactly what they cost. If people didn’t think the services were “worth it,” they would pay less.
CAR’s arguments in this thread (and in others) are founded upon the fallacy that there is some higher wisdom that can determine “value” better than markets. There no such wisdom, and most every attempt to implement a system where “value” is set by fiat has resulted in disaster.
Although there is good reason for regulation that helps markets work better (e.g. by improving transparency and eliminating textbook market failures), there is never a good reason to believe that government should be the sole judge of economic value.
July 23, 2012 at 6:50 PM #748811Participant[quote=no_such_reality]Then Target, Walmart and the corner supermarket should all cease to exist because in the end, they’re just asset price speculators.
They buy an apple for 5 cents and try selling it for 50 cents. They don’t even do their own shipping any more, the vendors and middle men have all that responsibility.
If you think they generate value by making availability, then you’ve just provided your answer.
As for a ‘few’ market makers, wow, learn history. The fewer the market makers more illiquid and the higher the spreads and their profit margins.
You can get that education any day from either trading a thinly held stock or dealing with a real estate enclave that doens’t participate in the MLS or buying a car or any other product with only a few distributors.[/quote]
It’s been awhile since I’ve worked in the corporate world, but used to work for a group of Target/Walmart/Costco/etc. vendors. We were the middlemen because we would simply contract with the overseas manufacturers (we designed, occasionally sourced raw materials, licensed, did the necessary testing, financed, imported, did some final assembly work on certain products, etc.), and would sell to US and other international retailers. We would often ship to the distribution centers from which these retailers would ship to their individual stores.
These retailers provide the physical infrastructure that enables the buyers to buy and the sellers to sell the products. They physically ship goods around the country, stock physical shelves, maintain physical stores, etc. Because of their scale, they can do all these things and offer the goods at a lower price than if individual buyers were to order goods from the manufacturers, themselves. They provide a very real, physical service, and allow buyers to buy for **less** than what they would have to pay if buying these goods on an individual basis. They are not hoarding goods with the intent to cause shortages of in-demand items.
The asset price speculators who buy up commodities, houses, etc. are not making it easier for buyers to buy these goods; they are intentionally taking goods OFF the market, in the hopes of causing shortages, so that end users/organic buyers will have to pay **more** when they need these goods.
Asset price speculators, while narrowing bid/ask spreads at given points in time (not sure that’s a good thing, over the long run…different arguments can be made), they exacerbate dangerous booms and busts. They anticipate shortages and buy up assets, hoping to accumulate as much as possible in front of price increases caused by reduced supply/increased demand, and hope to make those price increases even more dramatic than they’d be without all the speculation. They do the reverse in anticipation of increasing supply/reduced demand, exacerbating busts.
While market makers provide liquidity, over the long run, the money they make on the spreads is money taken from sellers and buyers. There are also times when, in the face of reduced demand/increased supply, speculative buyers simply disappear. This is behind many of those gut-wrenching days in the markets when everything just stops. There is no guarantee that market makers will act in ways that benefit the market, especially when the market is most in need of these speculative sales/purchases.
July 23, 2012 at 6:53 PM #748812Participant[quote=harvey]Economists have answered the question long ago: The market determines value.
The value of something is, by definition, what people pay for it.
(Economists actually call this metric “utility” because it does not always precisely translate to monetary value but it’s pretty-much the same thing.)
The point is that any one individual’s assessment of value is subjective and impossible to prove. The only possible objective measure of value is the collective price determined by market forces.
The economic argument against the idea that something has “less” value than the cost is that the cost in a free market is the value.
Although I’m also not a fan of the mutual fund industry, or many CEOs, or many professional athletes, or realtors, we cannot claim that they are over priced. Their prices are set in free markets and the value of these things is exactly what they cost. If people didn’t think the services were “worth it,” they would pay less.
CAR’s arguments in this thread (and in others) are founded upon the fallacy that there is some higher wisdom that can determine “value” better than markets. There no such wisdom, and most every attempt to implement a system where “value” is set by fiat has resulted in disaster.
Although there is good reason for regulation that helps markets work better (e.g. by improving transparency and eliminating textbook market failures), there is never a good reason to believe that government should be the sole judge of economic value.[/quote]
Pri,
The world’s current economic crisis (and it’s a hell of a crisis) was caused by your precious “market.” It is because of the erroneous price signals sent by speculators that caused everyone and their mother to pile into certain assets at the very time when prices were topping out. “The market” doesn’t function in a vacuum, and when you introduce speculation into the market, it causes the dangerous booms and busts that are behind the economic crisis (and the resulting “pension crisis”).
July 23, 2012 at 7:45 PM #748814Guest[quote=CA renter]The world’s current economic crisis (and it’s a hell of a crisis) was caused by your precious “market.” [/quote]
Yes, “a hell of a crisis” … oh dear, someone may have to move out of their 3500sq ft. McMansion and live in a 1000sq foot apartment! They’ll lose their granite countertops and stainless steel appliances! The horror!
So give us some historical perspective: How many people have died as a result of this “hell of a crisis?” I’m trying to see where it fits in the history books…
You left out a few of the things that markets have brought us:
You are looking at one of them, you live in one of them, you will soon be typing bitter and historically ignorant rants on one of them, you eat a lot of them, they are swimming in your blood and protecting you from the diseases that caused most of the deaths in history. You’ll go places in many of them, you’ll talk to distant friends with them, you’ll stare at many of them for hours and laugh and cry and be entertained, you’ll sleep in one of them, you’ll dress in many of them. You might even learn something from them (keep trying!)
And you often shit in one of them (and despite the fact that you are likely part of the elite caste of government employees, it still stinks like everybody else’s does.)
Oh, what those awful markets have wrought!
How come you didn’t answer the question:
Housing bubble or Great Leap Forward?
July 23, 2012 at 11:11 PM #748823Participant[quote=harvey]Economists have answered the question long ago: The market determines value.
Although there is good reason for regulation that helps markets work better (e.g. by improving transparency and eliminating textbook market failures), there is never a good reason to believe that government should be the sole judge of economic value.[/quote]
I’m a big fan of markets – I used to be a small-l libertarian and I still have a great fondness for markets. But they don’t work ALL the time and it goes beyond just the textbook cases of market failure (e.g., pollution).
One big market failure is executive compensation at public companies. Public companies are fantastic vehicles for looting. Ownership tends to be fragmented and most large institutional shareholders place greater value on the information that management provides them than they do on proper governance. And the trading is such that there are very few “owners” and lots of “renters,” which is perfect for management. Consequently, it’s very unusual – although not unheard of – for investors to stage a coup (there almost has to be gross negligence involved). The boards are typically hand-picked by management and championed to the nominating committee. And of course the board fees are so lucrative relative to the time commitment that most decisions, including compensation, are rubber stamped. It’s really a complete joke. Once in a blue moon someone like Icahn will come along and shake things up but that’s the dramatic exception to the rule. So, I’d say executive compensation within public companies is a pretty big market failure as a result of internal control fraud. The shepherds (mutual funds, hedge funds, etc.) render the ultimate owners (the investors in those funds) impotent… and management runs roughshod over the lot of them. Which is why, in my view, public companies are to be generally avoided if at all possible.
So while I certainly prefer situations in which a pure market determines value… there are a lot of situations in which folks manage to do their damndest to make certain that doesn’t happen. Executive compensation is a good example, which fits in with the theme of this thread.
July 24, 2012 at 12:53 AM #748832Participant[quote=harvey][quote=CA renter]The world’s current economic crisis (and it’s a hell of a crisis) was caused by your precious “market.” [/quote]
Yes, “a hell of a crisis” … oh dear, someone may have to move out of their 3500sq ft. McMansion and live in a 1000sq foot apartment! They’ll lose their granite countertops and stainless steel appliances! The horror!
So give us some historical perspective: How many people have died as a result of this “hell of a crisis?” I’m trying to see where it fits in the history books…
You left out a few of the things that markets have brought us:
You are looking at one of them, you live in one of them, you will soon be typing bitter and historically ignorant rants on one of them, you eat a lot of them, they are swimming in your blood and protecting you from the diseases that caused most of the deaths in history. You’ll go places in many of them, you’ll talk to distant friends with them, you’ll stare at many of them for hours and laugh and cry and be entertained, you’ll sleep in one of them, you’ll dress in many of them. You might even learn something from them (keep trying!)
And you often shit in one of them (and despite the fact that you are likely part of the elite caste of government employees, it still stinks like everybody else’s does.)
Oh, what those awful markets have wrought!
How come you didn’t answer the question:
Housing bubble or Great Leap Forward?[/quote]
Pri,
The “crisis” isn’t just about the FBs losing their McMansions and granite countertops. In case you’ve missed it, there is a huge debt overhang that is threatening most of the developed countries in this world. We’ve already seen lots of riots where many people have been badly injured and killed. This is the result of your “markets,” and it’s only going to get worse as time wears on.
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