6 ms·

I think this is a pretty clear failure of capitalism, since the whole point of having greedy, top-hat-wearing capitalists chasing profits is to have them re-inv

I think this is a pretty clear failure of capitalism, since the whole point of having greedy, top-hat-wearing capitalists chasing profits is to have them re-invest that profit in the hopes of making more. In the meantime, they compete with each other and end up magically allocating resources in a socially useful way. Instead, big companies sit on their profits (like you say), while startups compete for the attention of a small group of investors who behave for all the world like the central planners of old, deciding how to allocate money based on their own tastes, interests, and gut feelings, rather than anything resembling a market test. Goes off to have red flag dry-cleaned

7Figures2Commas 11y ago
Correction for you: I think this is a pretty clear failure of corporatism...
- seiji 11y ago
  capitalism is capital-ism which is predicated on literally: the more capital you have, the more revenue you get in return (which lets you buy more capital, which lets you sell more things and receive more revenue). Except, these days, nobody needs to continue buying capital or purchasing labor with their revenue. You can sit back on your unlimited money makers, receive hundreds of billions of dollars in profit, then just hoard it. In a knowledge/skills economy, you can't grow by throwing money at people (since only a chosen few hundred or few thousand are driving things forward anyway). In fact, once you're at virtual peak productivity, investing more would only make things worse due to increased internal coordination costs (meetings! knowledge sharing!) and internal politicking (no—I want to run the new project and I'll turn everybody else against you until it happens!). If you don't have a use for $100 billion dollars today, why would you turn around and invest it to get $500 billion dollars you also have no use for?
- rodgerd 11y ago
  No true Scotsman.
irln 11y ago
I think this is a failure of anything that has very few actors making decisions. Central planning (not a political statement) does not work well in economies.
rgarrett88 11y ago
I think the failure is in the tax code. Large corporations able are able hire expensive lobbyists and accountants to pay much lower taxes than smaller upstarts. This gives them an advantage and allows them to crush innovative smaller companies before they can scale. Until we fix the tax code to favor small businesses this problem will continue to grow.
- shawnee_ 11y ago
  Tax code isn't really a problem for companies that have little to no profit -- which is most "small upstarts". The great fallacy of most political debate on economics is that taxes hurt small business. Extortionate rents hurt small businesses far more than taxes do. The way the original tax code was written was to give either individuals or the small businesses they work for a break -- up to a certain point [source: https://books.google.com/books?id=ogUNAAAAYAAJ&printsec=frontcover&source=gbs_ge_summary_r&hl=en#v=onepage&q&f=false https://books.google.com/books?id=ogUNAAAAYAAJ&printsec=fron...]. But to necessarily kick in at some critical point where 1 + 1 = 1. This is a theoretical stage where potential for exploitation deserves a slight downward pressure (partnerships operating as a single business unit, corporations of 1+ people subjected to a single tax bill). Tax higher incomes at higher rates ... makes sense: Try and keep disproportionate wealth all to yourself, pay more in taxes (forced payments to social welfare). Generously reward your workers, and hey -- it's theoretically possible to pay everybody decently, reward external shareholders, and to minimize tax paid to the social welfare system. But the problem is REITs, especially private ones. And especially when VCs are the landlords; they're making money even when "they're not" making money. Which is the core of the issue that rgarrett88 got: lobbying - yes. The NAR, especially. But that's another tangent entirely.
snowwrestler 11y ago
I don't understand this. When big companies "sit on their profits," that capital is invested somewhere. It's not like companies have big Scrooge McDuck tanks full of gold coins. The capital might be invested in fairly generic, low-return assets but it's still invested and doing work somehwere. It doesn't mean it's a failure of capitalism. Capital allocation doesn't need to agree with your (or anyone in particular's) preferences at every point in time, for capitalism to work.
- idlewords 11y ago
  As best I can tell, it's invested in US treasuries and corporate bonds [http://www.theguardian.com/business/2015/feb/02/apple-cash-mountain-grows http://www.theguardian.com/business/2015/feb/02/apple-cash-m...]. It's doing much less work than if Apple paid it out as a dividend, or spent it on Bentleys for all its employees, or invested it in creating some new product category. And we don't see a penny of it paid as taxes.
  - aetherson 11y ago
    If it's effectively taken out of circulation, it deflates all other currency.
sbuttgereit 11y ago
A failure of capitalism? I have to question the premise. Capitalism does not have as a goal some social-utilitarian purpose. Capitalism is practiced by individuals for their own self-interest. Sometimes they work together for a shared self-interest (e.g. corporations, investor groups) or they work against each other as needed (competition). But you cannot take self-interest out of the equation and still have capitalism. Every trade (be that stock for cash, or work for cash, etc.) is predicated on each of the parties fulfilling their individual needs and wants to the degree that they can. On it's own terms, capitalism hasn't failed at all. What you can say is that capitalism has failed to mollify those that seek non-capitalistic goals. This is true of some so-called capitalists who experience guilt in pursuing their self-interest as well. If your view is that capitalists are "greedy, top-hat-wearing" types that fail to meet your social welfare goals, then my bet is your characterization masks a larger purpose. Primarily at bringing them down, probably in favor of the central planners of old (or some degree thereof). Perhaps the real question should be: why would companies and individuals with captial choose to sit on it, or choose to spend it on relatively worthless start-ups? Why would a capitalist choose to sit on cash or buy-back shares if there are other, more profitable avenues to invest those funds? I think if you take a critical look at it you might find that there's still a fair amount of central planning behind what we'd like to think is a capitalist economy.
- cwyers 11y ago
  I mean, when Adam Smith says "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest," he's not saying that in support of self-interest, he's saying that in support of OUR DINNER. The point of capitalism as economic system is not that self-interest is inherently good but that self-interest can be yoked to "some social-utilitarian purpose." Of course, Adam Smith's opinion of corporations was "The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own," and he thought they'd all die out unless they were propped up like the East India Company, so it's not like the Wealth of Nations is much of a guide to what we call capitalism nowadays. But still.
Double_Cast 11y ago
Capitalism does not oblige anyone to invest their capital immediately and whenever possible. If the majority of the market chooses to withhold its capital, then withholding capital is likely a rational response to market conditions. > Hutt goes for the heart of Keynes’s prescription for recovery, which was to get idle resources moving, whether that is money, capital, or labor. If something isn’t being employed right now, it is being wasted. > Hutt responded at length that there is nothing uneconomic or necessarily inefficient about an idle resource. It is the decision of the owner to hold back when faced with a long-term plan, a judgment call concerning risk, a high reservation wage, or a demand for larger cash balances. https://mises.org/library/theory-idle-resources-0 https://mises.org/library/theory-idle-resources-0

7Figures2Commas 11y ago

Correction for you: I think this is a pretty clear failure of corporatism...

seiji 11y ago
capitalism is capital-ism which is predicated on literally: the more capital you have, the more revenue you get in return (which lets you buy more capital, which lets you sell more things and receive more revenue). Except, these days, nobody needs to continue buying capital or purchasing labor with their revenue. You can sit back on your unlimited money makers, receive hundreds of billions of dollars in profit, then just hoard it. In a knowledge/skills economy, you can't grow by throwing money at people (since only a chosen few hundred or few thousand are driving things forward anyway). In fact, once you're at virtual peak productivity, investing more would only make things worse due to increased internal coordination costs (meetings! knowledge sharing!) and internal politicking (no—I want to run the new project and I'll turn everybody else against you until it happens!). If you don't have a use for $100 billion dollars today, why would you turn around and invest it to get $500 billion dollars you also have no use for?
rodgerd 11y ago
No true Scotsman.

irln 11y ago

I think this is a failure of anything that has very few actors making decisions. Central planning (not a political statement) does not work well in economies.

rgarrett88 11y ago

I think the failure is in the tax code. Large corporations able are able hire expensive lobbyists and accountants to pay much lower taxes than smaller upstarts. This gives them an advantage and allows them to crush innovative smaller companies before they can scale. Until we fix the tax code to favor small businesses this problem will continue to grow.

shawnee_ 11y ago
Tax code isn't really a problem for companies that have little to no profit -- which is most "small upstarts". The great fallacy of most political debate on economics is that taxes hurt small business. Extortionate rents hurt small businesses far more than taxes do. The way the original tax code was written was to give either individuals or the small businesses they work for a break -- up to a certain point [source: https://books.google.com/books?id=ogUNAAAAYAAJ&printsec=frontcover&source=gbs_ge_summary_r&hl=en#v=onepage&q&f=false https://books.google.com/books?id=ogUNAAAAYAAJ&printsec=fron...]. But to necessarily kick in at some critical point where 1 + 1 = 1. This is a theoretical stage where potential for exploitation deserves a slight downward pressure (partnerships operating as a single business unit, corporations of 1+ people subjected to a single tax bill). Tax higher incomes at higher rates ... makes sense: Try and keep disproportionate wealth all to yourself, pay more in taxes (forced payments to social welfare). Generously reward your workers, and hey -- it's theoretically possible to pay everybody decently, reward external shareholders, and to minimize tax paid to the social welfare system. But the problem is REITs, especially private ones. And especially when VCs are the landlords; they're making money even when "they're not" making money. Which is the core of the issue that rgarrett88 got: lobbying - yes. The NAR, especially. But that's another tangent entirely.

snowwrestler 11y ago

I don't understand this. When big companies "sit on their profits," that capital is invested somewhere. It's not like companies have big Scrooge McDuck tanks full of gold coins. The capital might be invested in fairly generic, low-return assets but it's still invested and doing work somehwere. It doesn't mean it's a failure of capitalism. Capital allocation doesn't need to agree with your (or anyone in particular's) preferences at every point in time, for capitalism to work.

idlewords 11y ago
As best I can tell, it's invested in US treasuries and corporate bonds [http://www.theguardian.com/business/2015/feb/02/apple-cash-mountain-grows http://www.theguardian.com/business/2015/feb/02/apple-cash-m...]. It's doing much less work than if Apple paid it out as a dividend, or spent it on Bentleys for all its employees, or invested it in creating some new product category. And we don't see a penny of it paid as taxes.
- aetherson 11y ago
  If it's effectively taken out of circulation, it deflates all other currency.

sbuttgereit 11y ago

A failure of capitalism? I have to question the premise. Capitalism does not have as a goal some social-utilitarian purpose. Capitalism is practiced by individuals for their own self-interest. Sometimes they work together for a shared self-interest (e.g. corporations, investor groups) or they work against each other as needed (competition). But you cannot take self-interest out of the equation and still have capitalism. Every trade (be that stock for cash, or work for cash, etc.) is predicated on each of the parties fulfilling their individual needs and wants to the degree that they can. On it's own terms, capitalism hasn't failed at all. What you can say is that capitalism has failed to mollify those that seek non-capitalistic goals. This is true of some so-called capitalists who experience guilt in pursuing their self-interest as well. If your view is that capitalists are "greedy, top-hat-wearing" types that fail to meet your social welfare goals, then my bet is your characterization masks a larger purpose. Primarily at bringing them down, probably in favor of the central planners of old (or some degree thereof). Perhaps the real question should be: why would companies and individuals with captial choose to sit on it, or choose to spend it on relatively worthless start-ups? Why would a capitalist choose to sit on cash or buy-back shares if there are other, more profitable avenues to invest those funds? I think if you take a critical look at it you might find that there's still a fair amount of central planning behind what we'd like to think is a capitalist economy.

cwyers 11y ago
I mean, when Adam Smith says "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest," he's not saying that in support of self-interest, he's saying that in support of OUR DINNER. The point of capitalism as economic system is not that self-interest is inherently good but that self-interest can be yoked to "some social-utilitarian purpose." Of course, Adam Smith's opinion of corporations was "The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own," and he thought they'd all die out unless they were propped up like the East India Company, so it's not like the Wealth of Nations is much of a guide to what we call capitalism nowadays. But still.

Double_Cast 11y ago

Capitalism does not oblige anyone to invest their capital immediately and whenever possible. If the majority of the market chooses to withhold its capital, then withholding capital is likely a rational response to market conditions. > Hutt goes for the heart of Keynes’s prescription for recovery, which was to get idle resources moving, whether that is money, capital, or labor. If something isn’t being employed right now, it is being wasted. > Hutt responded at length that there is nothing uneconomic or necessarily inefficient about an idle resource. It is the decision of the owner to hold back when faced with a long-term plan, a judgment call concerning risk, a high reservation wage, or a demand for larger cash balances. https://mises.org/library/theory-idle-resources-0 https://mises.org/library/theory-idle-resources-0