There’s a very interesting article at Bloomberg that delves into the question of whether profit margins always revert to the mean. Here’s a sample:
A new note from Goldman Sachs Group Inc. analysts led by Sumana Manohar looks at the bull and bear arguments for the profit margins debate.
Manohar argued that profit margins have expanded, thanks to four key trends: strong commodities prices, emerging market cost arbitrage (companies making things more cheaply in emerging markets), demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology. Continuing one of its major analytical themes of recent months, Goldman also noted that the market has rewarded companies that have undertaken mergers and share buybacks, as opposed to companies that have invested internally, further bolstering margins.
I have completely different questions. Why would anyone ever think that the system we have is capitalism or that you could draw conclusions about capitalism from the way our system works?
Basically, we have state capitalism—a system in which outcomes are carefully managed to the benefit of a relative few. Everybody else nibbles around the edges like lamprey.
Why would anyone ever think that the system we have is capitalism or that you could draw conclusions about capitalism from the way our system works?
How is this is like a Marxist arguing that the Soviet Union is a poor example of communism and the dialectic because it skipped the stages that Marx thought necessary before communism should arrived I mean, I see a theoretical point because I read your blog, but I also see theoretical points that prove how the Soviet Union was not really communism in action.
Anyway, it’s way too late to move little bits and pieces of state capitalism/capitalism around. What’s done is done. For all intents and purposes when you talk about markets, trade, and competition, you get our world. What’s interesting is that virtually nobody wants to live in it. The only reason, in fact, to enter it is to secure enough money in order to build walls and protect oneself from it.
Your question seems unnecessarily absolutist. The US is not Sweden is not Italy is not Cuba is not Taiwan etc. What was it Churchill said about democracy?
Some of us argue for less state intervention at the risk of being labeled cold, heartless etc. We get what we deserve. It’s at the heart of Trumpism, whether he could/would deliver. You could have some fun, though. Ask people if Warren Buffet is a capitalist. From where I sit he’s the poster child for state capitalism.
Some of us argue for less state intervention at the risk of being labeled cold, heartless etc.
Letting people die because they don’t have the money is actually in the definition of heartlessness. If you think that’s the proper course, advocate it without complaining about criticism or expecting a medal and praise for your cruelty.
Sadly, I think our system has become more like Italy’s or even China’s than it is like Sweden’s.
There are therapists who can deal with your problem, Modulo.
Is our system really so much different now than it was 30 years ago? If anything, I would think it more crony capitallism than compared with Sweden, not that i know enough about Sweden to know.
Steve
Given the range of topics Dave has posted recently, this is particularly relevant.
http://www.zerohedge.com/news/2016-02-04/explaining-todays-collapse-us-worker-productivity
Of course productivity has collapsed. The U. S. labor strategy, which is to maximize the number of minimum wage jobs, guarantees that.
The alternative would be fewer jobs that pay higher wages. That would require capital investment that has been lacking since the turn of the Aughts. It would also fly in the face of the “maximize immigration” strategy that’s been in place for 40 years.
Even when workers are more productive they don’t get paid more. Why should they keep working hard enough to increase productivity?
Steve
Another day and another link supporting my financialized economy position. Let us jump to the end of the article:
In isolation, it does not seem very nefarious, but it is the end of a chain of events. These events begin in 1972, and as noted:
… incidentally the year after Nixon took the US off gold. …
(This is probably a good place for most people to jump off this train,)
I hate to do this, but it is important:
Which brings us back to the first quote. I realize that many people will dismiss this as hogwash, but I assume that the one posting it must agree with it.
We can see from the argument that investment in the financial industry will produce the most productive returns, and there is no amount of tax cuts that will alter that reality. We know that investors will not hesitate to invest large pools of cheap or free money without any tax cuts.
I do not believe the debt slave part, but I will use it for rhetorical flourish. The problem is as the link yesterday noted. There are not enough borrowers. There are only so many prime borrowers, and then you move to sub-prime. There are only so many sub-prime, and then you move to Alt-A, next the illegal immigrants, and then, increasing the legal immigrants.
It is a Ponzi scheme, and new borrowers need to be added without losing a large number of existing borrowers. Here is a newsflash for anybody who wants to understand why things happen: It cannot be stopped even by the primary players. Wall Street investors or “bankers” could not cleanup the mess no matter how much their little hearts desired.
It is an inverted pyramid. The top is at the bottom, and the rich are what is normally the top. The money rolls downhill to them, but if you remove them, the whole system collapses. Any scheme to modify the system begins several layers up, and it is usually not very far from the actual top.
All plans involving the government, money, and shuffling will result in the rich becoming richer because all money flows downhill. Furthermore, the money needed for the government to do its good deeds must originate in perceived legitimate sources. Therefore, the government cannot fully replace the financial industry. Instead, they must co-opt various functions under GSE and other quasi-government entities.
The rich did not become richer under President Obama because he intended it that way. They became richer because he tried to make the non-rich better off. The government adds money into the economy, and that money is leveraged in the financial industry. President Bush gave us the housing bubble and bust, and President Obama has given us the stock market bubble and eventual bust.
On the other hand, it could be that investors are the smartest people in the whole wide world, and they have included all this in stock prices. Yeah right. They love losing money when the market collapses.
“Of course productivity has collapsed. The U. S. labor strategy, which is to maximize the number of minimum wage jobs, guarantees that.”
I thought the only point they missed was that service economy workers are historically less productive than manufacturing, and with the shift in GDP components…… Of course, they were quoting from a guy who’s been dead for over a hundred years. Until the IT revolution only capital investment, more prevalent in manufacturing, led to real productivity increases, not working harder. Which is why this :
“Even when workers are more productive they don’t get paid more. Why should they keep working hard enough to increase productivity?”
Is boneheaded.
I thought that the interrelation of labor productivity with capital investment was a truism.
Tasty
Getting off the gold standard (advocated even by Milton Friedman) was an acknowledgement that the stock of money and the reserves and mineable reserves of gold were mismatched, and the desire for sovereignty by governments not wanting to be beholden to the international vagaries of commodity money. Those issues remain today. Friedman therefore argued for a steady increase in the monetary. A rule. His error was in letting Pandoras Box be opened by the politicians and central bankers. The rest is history.
I am not so convinced of the causality of fiat money as the primary driver of the financial industry as I am financial product innovation and general wealth creation. In any event, I’m not sure where attempting to drive that to ground gets us. We don’t want to re-size the monetary base to commodity money.
As for taxes, that some people will invest without regard to taxes is unconvincing. Bill Gates was not interested in taxes. Steve Jobs was not interested in taxes. They were still economic animals, as one sought monopoly and the other planned obsolescence. But the vast majority of investors work off discounted cash flow models. Taxes matter, from pricing to go/no-go decisions. It’s just arithmetic. If you are deciding whether to invest $100 in a piece of capital equipment or a business or whatever, and after assessing risk you want to double your money, your investment must provide a gain of $100, $118, $130 and $168 with a tax environment of 0%, 15%, 23% or 40%, respectively. The jump from 15 to 18 being what Obama did, and 40% for the no cap gains treatment crowd. Those changes in returns are huge. You can’t magically make an investment project flex like that.
As for the Alt-A loans etc, all you are telling me is that you can generate more loans by relaxing credit standards. Thats been true as long as there has been credit. And I of course agree. Instead of calling me stupid etc what you really need to do is make the case that home borrowers should not be responsible for their decisions. While you are at it, are you prepared to restrict sales of beer, cell phones, outsized cars, vacation trips, fancy basketball shoes etc to people who cannot afford them, or blame the vendors of those products? And I’d like to see the politicians who lavished praise on the notion of “affordable home ownership” and then blamed the lenders similarly legislate income tests for buying a cell phone.
The chief culpability for the finance guys lies elsewhere. It was the derivative “bets on the bets,” and then, except for Lehman, not being forced to pay the price.
Dave, I think it is. I’ve never seen anything to the contrary.
Nor experienced anything to the contrary. We even threw away our whips…..