JP Hochbaum
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I don't want to make Detroit happy, that's not my aim. I want to make the citizen happy. I want to make the customer happy. The last thing in the world we want to do is to make Detroit happy.
The government should not help to save Chrysler, of course not. This is a private enterprise system. It's often described as a profit system but that's a misleading label. It's a profit and loss system. And the loss part is even more important than the profit because it's what gets rid of badly managed, poorly operated companies. When Chrysler loses money...it's got to do something. When Amtrak loses money it goes to congress and gets a bigger appropriation.
It's the stockholders of Exxon who ultimately are buying it. If they don't like what Exxon is doing with their money, they have a perfectly good alternative...they can sell the stock. And as the stock went down, if the stockholders didn't like it, they would pay somebody to change the policy which Exxon is following. We have a far greater degree of control over what Exxon does than we have over what a lot of our government corporations do.
In the private sector, the voluntary sector of the economy, we know that something is "well worth the money" if people are willing to spend their own money on it. In government, politicians work to separate the payment of taxes from the receipt of specific services. We're not asked "will you pay $100 right now for farm subsidies and $4000 for Medicaid and $1600 for the wars in Iraq and Afghanistan and $130 for a new presidential helicopter and … ?" If we did get such a question, we might well decide that lots of government programs were not "well worth the money" to the people who would be paying the money. - David Boaz, Well Worth the Money
That's a false dillemma fallacy. No one is saying government > corporations. Just saying the shift from long term strength to short term profiting has made this economy weaker.Seriously? Corporations are the problem? Really?
Here you are critiquing publicly owned corporations because privately owned companies provide more value for customers. Yet, answer me this...who provides more value for customers...corporations or government organizations?
That's a false dillemma fallacy. No one is saying government > corporations. Just saying the shift from long term strength to short term profiting has made this economy weaker.
Seriously? Corporations are the problem? Really?
Here you are critiquing publicly owned corporations because privately owned companies provide more value for customers. Yet, answer me this...who provides more value for customers...corporations or government organizations? Obviously corporations provide infinitely more value for customers...yet where's your critique of government organizations? Do you not realize or comprehend or grasp that nearly half of our nation's resources are allocated by government organizations?
No matter how bad corporations are...they satisfy other people's preferences infinitely more than government organizations. You know why? Because customers and shareholders can always say "no thanks" if they feel that they have not been getting their money's worth. In other words, they have freedom of exit.
Milton Friedman understood this concept more than you ever will. Here's some excerpts from an interview he gave...What Is Greed?
If you were truly interested in customer satisfaction...aka consumer sovereignty...then you would go after the government rather than corporations. But you're incapable of grasping any of the concepts involved.
This is what consumer sovereignty would look like...
So do you truly value consumer sovereignty? Or is this merely yet another attempt to critique economic concepts that are way way way over your head?
Milton said:The government should not help to save Chrysler, of course not. This is a private enterprise system. It's often described as a profit system but that's a misleading label. It's a profit and loss system. And the loss part is even more important than the profit because it's what gets rid of badly managed, poorly operated companies. When Chrysler loses money...it's got to do something. When Amtrak loses money it goes to congress and gets a bigger appropriation.
It's the stockholders of Exxon who ultimately are buying it. If they don't like what Exxon is doing with their money, they have a perfectly good alternative...they can sell the stock. And as the stock went down, if the stockholders didn't like it, they would pay somebody to change the policy which Exxon is following. We have a far greater degree of control over what Exxon does than we have over what a lot of our government corporations do.
If you were truly interested in customer satisfaction...aka consumer sovereignty...then you would go after the government rather than corporations. But you're incapable of grasping any of the concepts involved.
This is what consumer sovereignty would look like...
That's because people are free. When faced with the choice, people apparently prefer short-term gain. The notion that this is someone who recognized this behavior's fault, or that it's corporations fault, or CEOs, etc., is absurd. It's even heralded as old fashioned wisdom. A bird in the hand is worth two in the bush. So much for your routine propaganda attacks the cause du jour.That's a false dillemma fallacy. No one is saying government > corporations. Just saying the shift from long term strength to short term profiting has made this economy weaker.
The entire economy and all our corporations that drive our economic prosperity around the world, are all like Enron? That's absurd.It's an Enron economy
Enron's demise occurred after the revelation that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). This meant that many of Enron's debts and the losses that it suffered were not reported in its financial statements.
Enron used a variety of deceptive, bewildering, and fraudulent accounting practices and tactics to cover their fraud in reporting Enron’s financial information
That's because people are free. When faced with the choice, people apparently prefer short-term gain. The notion that this is someone who recognized this behavior's fault, or that it's corporations fault, or CEOs, etc., is absurd. It's even heralded as old fashioned wisdom. A bird in the hand is worth two in the bush. So much for your routine propaganda attacks the cause du jour.
It's everyday human thinking. Bird in the hand is worth two in the bush. It's been around before big U.S. corporations, and it will likely outlive them. Again, the notion of wanting to earn some scratch when you're younger, vs a long term payoff.. that's our culture (and basic humanity). For me personally, I've almost always taken the long play. And you know what? The long payoff is typically going to be even more lucrative when you're surrounded by people who prefer short-term gain. Take your pick, you're economically free to choose which is best for you...Since this business thinking has come about we have seen a decrease in wages, unions, and more frequent economic crashes. It isn't an attack, it's fact.
That's because people are free. When faced with the choice, people apparently prefer short-term gain. The notion that this is someone who recognized this behavior's fault, or that it's corporations fault, or CEOs, etc., is absurd. It's even heralded as old fashioned wisdom. A bird in the hand is worth two in the bush. So much for your routine propaganda attacks the cause du jour.
The key to this insight was the role Keynes gave to people’s psychological motivations. These are usually ignored by macroeconomists. Keynes called them animal spirits, and he thought they were especially important in determining people’s willingness to take risks. Businessmen’s calculations, he said, were precarious: “Our basis of knowledge for estimating the yield 10 years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing.” Despite this, people somehow make decisions and act. This “can only be taken as a result of animal spirits”. There is “a spontaneous urge to action”.
vspeople do not prefer short term gain.
If corporations prefer long term gain and not short term, that refutes the OP, which is sufficient.JP said:Milton Friedman is responsible in this shift of corporate responsibility from long term stability to short term profits.
Are you suggesting that the corporate board and execs intentionally hire a CEO who will pad his own pockets, diminish the company, then leave? And that they intentionally alternate hiring that type of person, and then hire someone who will NOT do those things, to repair the damage? That makes no sense. When a new CEO is called in to fix a company, it is understood that they will make significant changes. They MUST make significant changes, because if they did not believe changes needed to be made to a company that is not headed where the board/etc. wants it, they would be deemed a problem, not the solution. Yes, it's a huge experiment and risk to fix an already struggling company. This is why any CEO worth that position, ensures that even if the experiment fails, they do not carry that burden entirely. In every case I would assume they CEO would earn MORE if the company turns it around, and they earn LESS if it doesn't. That it's always positive is NOT some big mysterious money grabbing issue. It's common sense. If you work retail do you think you should get zero dollars if sales don't increase under your watch? No, you get any compensation that was agreed on (Typically salary and benefits), so do they.. The CEO that ruined the company but made huge profits in the short term leaves. New guy comes in and has to turn around company so spends money to revers prior CEO's actions...rinse repeat.
Are you suggesting that the corporate board and execs intentionally hire a CEO who will pad his own pockets, diminish the company, then leave? And that they intentionally alternate hiring that type of person, and then hire someone who will NOT do those things, to repair the damage? That makes no sense...
If corporations prefer long term gain and not short term, that refutes the OP, which is sufficient.
Also, with regards to your animal spirits quote (I thought you fled the backwoods) I also do not believe the average businessman or woman, with money to risk, calculates economic choices the same as someone who is not a business person, with little to risk. To expand that small subgroup to be representative of everyone seems silly.
Are you suggesting that the corporate board and execs intentionally hire a CEO who will pad his own pockets, diminish the company, then leave? And that they intentionally alternate hiring that type of person, and then hire someone who will NOT do those things, to repair the damage? That makes no sense. When a new CEO is called in to fix a company, it is understood that they will make significant changes. They MUST make significant changes, because if they did not believe changes needed to be made to a company that is not headed where the board/etc. wants it, they would be deemed a problem, not the solution. Yes, it's a huge experiment and risk to fix an already struggling company. This is why any CEO worth that position, ensures that even if the experiment fails, they do not carry that burden entirely. In every case I would assume they CEO would earn MORE if the company turns it around, and they earn LESS if it doesn't. That it's always positive is NOT some big mysterious money grabbing issue. It's common sense. If you work retail do you think you should get zero dollars if sales don't increase under your watch? No, you get any compensation that was agreed on (Typically salary and benefits), so do they.
The entire economy and all our corporations that drive our economic prosperity around the world, are all like Enron? That's absurd.
https://en.wikipedia.org/wiki/Enron
Enron was a sham, and it took down to major U.S. corporations entirely (Arthur Andersen, Enron)
Arthur Andersen alone went from 85K employees worldwide, down to 200 who apparently just handle all the law suits against them....
No, the economy is not an Enron economy.
I was referring to Enron's focus on pumping up its share price for short term gain at the expense of long term, sustainable growth, not necessarily its illegal practices.
Milton Friedman is responsible in this shift of corporate responsibility from long term stability to short term profits.
The Social Responsibility of Business is to Increase its Profits, by Milton Friedman
"Readers of this column know that short-term shareholder value, which is still pervasive in large organizations, has a lot of accomplishments to its credit. It has led to “bad profits” that have destroyed customer loyalty. It is responsible for massive offshoring of manufacturing, thereby destroying major segments of the US economy. And it has even undermined US capacity to compete in international markets.
Now the Financial Times reports that the short-term shareholder value theory has a new feather in its cap: it is responsible for killing the economic recovery that should have occurred after the financial meltdown of 2008."
How The 'World's Dumbest Idea' Killed The US Economic Recovery - Forbes
vsWhen the majority of firms are in a defensive mode, a.k.a. preferring short term profitability to protect share price,
Clearly you write above that people generally prefer long-term gain. You then immediately reply with claiming the majority of firms (composed presumably of people, the same business people you quoted in the op-ed) prefer short term profitability. You can certainly clarify that seeming contradiction.kushinator said:People generally prefer long-term gain.
The unfortunate fact is that JP is huffing and puffing in the OP about how it's all Milton's fault. Meanwhile, everyone who knows the underlying reasons (above), knows that this applies to nearly any human system as describe in any number ways, but most clearly in game theory. So it goes right back to what you want to do with that knowledge. You can remove economic freedom from business and force them to cooperate for the greater good (including their profits) during a crisis, or you afford them their freedom, and deal with the fact that the non-cooperation is not ideally efficient from the macro perspective. Where do you err, in removing economic freedom to increase profit, or allowing freedom and we suffer worse economic downturns. Not only that, but you'd also have to ensure cooperation and ensure the outcome, otherwise it still would have been better to betray (short-term).wiki said:The prisoner's dilemma is a canonical example of a game analyzed in game theory that shows why two individuals might not cooperate, even if it appears that it is in their best interests to do so.
Clearly you write above that people generally prefer long-term gain. You then immediately reply with claiming the majority of firms (composed presumably of people, the same business people you quoted in the op-ed) prefer short term profitability. You can certainly clarify that seeming contradiction.
You're just putting your own outside bias on this. Surely you're aware that labor costs are one of the biggest costs for the typical corporation, so you're what...trying to claim that because that's also one of the best ways to reduce cost, it's therefore some greedy culture of short-term nonsense? No, it's one of the top, if not the top, cost. It's THEREFORE one of the top, if not the top, ways to reduce costs. These days that's typically done with offshoring and technology....why do you think stock price increases when a CEO talks about reducing labor and reducing costs for a big company? People know you can milk that customer base a few years before they leave.
You're just putting your own outside bias on this.
Not sure how this refutes what I posted. Of course labor is a large cost. If you're cutting cost then of course you go after your largest cost. I'm not sure how that in any way is counter to the idea that companies with a large market share will typically look to cost cutting in order to continue increasing profits.Surely you're aware that labor costs are one of the biggest costs for the typical corporation, so you're what...trying to claim that because that's also one of the best ways to reduce cost, it's therefore some greedy culture of short-term nonsense? No, it's one of the top, if not the top, cost. It's THEREFORE one of the top, if not the top, ways to reduce costs. These days that's typically done with offshoring and technology.
Not sure where this comes from...I guess your telepathic abilities helped you determine all of this.What this boils down to is you don't like how people who own things, use those things. OK. But do you think your opinion should trump theirs? How fascist. I don't necessarily disagree, I disagree with most people's way of life, what they spend their money on, etc. Doesn't mean I want to take away their choice to spend money though!
It's certainly possible that in some cases, starting and selling 3 companies in a row over 20 years, may result in longer-term gain, then in trying to take that first company through 20 years and reach the same profitability.
Do you consider buying/selling those 3 companies in a 20 year period, only about the short-term profit, when clearly it delivered the greater long-term profit? What perspective are you using to judge that?
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