Wednesday, May 18, 2011

Video: The Morality of Profit

This video is a great discussion on a basic economic concept: profit.

So often we hear about the "evil" people who "exploit" others by profiting. This video addresses that:

16 comments:

Anonymous said...

This video does an excellent job correcting the misconceptions about this easily misunderstood topic. Profits aren't evil, in fact they are good for society!

Hempy said...

A main feature that was lacking was any discussion of a company distributing it earnings proportionally to employees. Employees are the one’s who create the profit.

The video properly criticized government for rewarding some companies while denying competitors from even competing in the market. That’s called prohibition. Adam Smith criticized prohibition.

Currently, the bogus war on drugs is essentially a war on hemp. Hemp, if it were allowed to compete in the market, would offer competition to 50,000 products, including charcoal to compete with coal, and other fuels to compete with other fossil fuel products. It would also compete with pharmaceuticals, timber and wood manufacturers.

Yet our government won’t allow this kind of competition. Neither does Bluegrass Policy advocate it. It’s obviously too capitalistic.

The question is not whether profits are moral or immoral. The question is, how are those earning distributed, and do they promote the common good? Proportional wages would both be moral and promote the common good.

For a society to thrive, money must circulate. There must be at all times a sufficient quantity of money in circulation to stimulate the common good. That can come from both the private sector and government or a combination of the two.

For example, a single payer government health care plan would not only benefit businesses and promote profits, but it would also provide for the common good. A healthy populace is a benefit to society and business.

Anonymous said...

"A main feature that was lacking was any discussion of a company distributing it earnings proportionally to employees. Employees are the one’s who create the profit. "

That is a great thing to discuss. When employees invest in the company proportionally and share all risk proportionally then they should receive proportional distribution.

However. most employees and unions don't want any part of the investment or risk.

People working in education or jobs paid by tax dollars wouldn't understand at all because they can't relate to investment or risk. The taxpayers provide all the investment and absorb all the risk.

Hempy said...

Employees invest,disproportionally more of their time, labor and effort into a company. They do not get recompensed proportionally for that.

slol1 said...

Hempy - I don't know where you work that gives you the mindset that employees put in more time and sweat equity than top management/owners. You can forget union employees. You can forget hourly employees. You can forget most salaried employees because very few of them have the perspective that let's them deal concurrently with many integrated issues across functional lines.

I would guess you work in a taxpayer paid environment or one that runs on automatic pilot like education. Then your assumptions might be true because no one is held accountable for results.

Hempy said...

Slol1:

Evidently you lack any ability to assign value to anyone's labor other than top management. You want to forget most of the labor force that doesn't fit in to your feudalistic scheme.

Corporate welfare queens obviously rank high in your anti-capitalistic, feudalistic philosophy.

slol1 said...

Hempy - Oh, but I do assign value to labor. It is what a willing worker and a willing employer agree to. Union and hourly workers get compensated for every hour they work. Salaried employees get compensation they negotiated when taking a job. IF a worker feels they are not fairly compensated for their output, then they are free to walk out the door immediately and work for another employer. Redistribution of company profits most likely was not part of the deal unless the employees were owners.

That is what is so great about this country. No one is forced to work for someone else. Everyone has choice and can exercise that choice at their discretion.

If your workers are not getting what they think they deserve, then they are free to quit and go to work for a different employer. You should advise them to do that. I'm sure you know many greener pastures for your workers in this economy.

Those greener pastures will probably be taxpayer funded jobs - government and education. That way the employer doesn't have to produce results, doesn't have to compete, and doesn't have to earn customer satisfaction. What a deal - until no entrepreneurs or businesses that create value, instead of just cost, exist.

Hempy said...

Slol1:


Your assigning value is based on disproportion. A laborer doesn’t have the same proportionate weight as an employer. Hence, unions. Even then it’s still skewed in favor of the employer.

Had proportionality been practiced there never would have arisen an occasion for unions. The problem lies in the disproportionate distribution of money. This is fed by greed—an insatiable appetite to get more at the expense of whomever. Proportionality would function as a check on this kind of immoral practice.

A blanket redistribution of a company’s profits would not be just. Unless it is checked by proportion, those in the greatest position of power take a disproportionate amount for themselves. That’s the underlying cause of the current recession, and what underlies the economic disputes down through the ages. Numerous prophets throughout history condemn disproportionate redistribution of money. Our culture has a bible filled with such pronouncements.

Proportionality in taxation was an idea advanced by Adam Smith and picked up by Alexander Hamilton. The apostle Paul alluded to proportionality in wages when he wrote in Colossians 4:1 “Masters, give your bondservants what is just and fair, knowing that you also have a Master in heaven.”

This was a radical idea, advocating paying slaves a just and proportional (fair) wage.

Government should be the first to practice proportional distribution of wages. But alas! It doesn’t do that either. It even pays comparably educated employees significantly less than their private sector counterparts. However, government generally does do better at benefits than does the private sector.

James said...

Hempy,

If a worker willingly agrees to work for X number of dollars and they then become dissatisfied, they can take their skills and services elsewhere.

slol1 said...

Hempy - Pay is not usually based on education. Pay is usually based on the value of the job to the organization - you know, what the market will bare. An education might make a person more competitive for the job. But there are many educated people that cannot effectively perform or accomplish goals.

Look at the government employees and education employees for all the examples you need. In the private sector those folks that can't perform would be terminated. And yes, that includes top management! In the government and education sectors those folks are rewarded and protected just for showing up.

In fact, the teachers union loves your theories and locks out industry/military experienced people from teaching because they do not have the right degree buttons and certifications punched. The teachers union won't buy performance based anything and forces all teachers to get the same pay regardless of performance - and to your cheers, the pay is based on showing up year after year and their degree. You can see by looking at the progress US students have made in competitive testing against the industrialize nations how well that philosophy is working.

At some point the discussion needs to get past theory, paper credentials, and progress to value added, output, and measurable results - price/performance.

We compete with the world on cost per output, not paper credentials or what any one group thinks they should be compensated.

Hempy said...

slol1:

The issue is proportionality (fairness) in wages. There are just as many corrupt examples in Wall Street, the banking industry, corporate America as the examples you complained about.

If performance were based on the standards you advocate, many Wall Streeters would be out looking for jobs as would CEOs of many gib corporations.

Avarice and greed is the standard they operate on. Hence, Big Oil CEOs were at Congress defending their welfare checks--not for their competence but to sate their greed.

slol1 said...

Hempy - The major difference in positions is simple. You believe you determine what is fair and I believe the marketplace determines the value and fairness.

Anyone that doesn't perform will end up on the street in the private sector. That doesn't happen in government or education.

You like greed. How about labor union bosses that steal dues from union members because of mandatory payments in states that don't have right to work? How is your proportionality (fairness) working in that case because the union takes the dues but the company pays all wages and benefits. In fact, union members don't share in the total intake but have to provide all of it. Union members have no choice but have to pay. Union members don't get a proportionality vote on how the money is spent but have to pay. The union doesn't even have to earn the money in any way because payment is forced and payroll deducted. The market place doesn't play in the union world except to close down businesses when poor company management agreed to pressured fairness in wages & benefits that the market wouldn't bare.

When a company goes out of business all employees and top management lose their jobs. That's harsh reality that government or education employees don't face because there is no accountability or marketplace to determine winners.

Hempy said...

slol1:

You’re assuming the market place is fair. It isn’t. There’s nothing proportional about the market place. Graft and corruption is rampant what with insider trading and Ponzi schemes.

Neither is the market free. According to Adam Smith, the father of capitalism, prohibition undermines a free market. The “market,” with the help of bribes to Congress, ensures that competitors cannot gain an equal footing even if that means government has to outlaw some activities.

Unions don’t bargain for proportionality. Management would never stand for it.

Businesses fail routinely. That’s due to both bad management and government regulations that are stacked against competitors.

Governments usually don't fail unless they are overthrown. The stability of modern democratic governments is an idea that is catching on. The uprisings in the Arab world is evidence of that.

James said...

@ Hempy

slol1 is right. you seem to be completely out of touch with reality. governments aren't as likely to fail because they have an unlimited source of revenue they can cover their mistakes with. private businesses don't have that luxury.

slol1 said...

You're right - markets are not fair. Foreign countries subsidize and help their companies compete. The US generally puts more environmental barriers up. Subsidies tilt market prices. On and on.

But, the free market, where competition takes place daily does determine winners and losers. People have choice where to spend their money and where they spend determines who survives.

Good guys and bad guys try to manipulate the system to their advantage. Not a perfect or necessarily fair competitive environment.

Utopia only exists in books and people's minds. The rest of us have to deal with reality - warts, unfairness, greed, and all.

Hempy said...

James:

It appears that neither you nor slol1 have ever worked for government, been in the military, taught in a school or worked for a large corporation.

The private sector shows no sign of being any more efficient than government and certainly less inclined to monitori their own activities.Banks are particularly derelect in monitoring their own activities.

Granted, the military is probably one of the most inefficient of government agencies. But government agencies do have a system of internal checks and balances to monitor their own activities. OMB also monitors activities of government agencies.

Watchdog agencies generally perform well. The problem is when politics doesn’t want government watching certain activities.

During the Bush administration, the IRS was severely restricted in auditing the returns of the wealthy, with the emphasis being placed on monitoring the income tax of those making around $20,000. Similarly, failure to adequately monitor the activities of investment houses and insurance agencies at the behest of the Bush administration resulted in the economic crisis that we’re now in.

Yet those private businesses ran to government for a handout and the Bush administration readily fulfilled their request. Likewise, the Big Oil CEOs were before Congress defending their corporate welfare payments. Do either you or slol1 bother to keep up with the news?

As Alexander Hamilton or James Madison wrote in Federalist Paper 51, “you must first enable the government to control the governed; and in the next place oblige it to control itself.”