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> However, that 4.73 billion dollar profit can give every one of their 210k employees each an extra 20k per year There are two problems with this argument. Fi

by rsj_hn 5y ago

> However, that 4.73 billion dollar profit can give every one of their 210k employees each an extra 20k per year There are two problems with this argument. First, we do not believe in the labor theory of value. Time has a value. Risk has value, land has value, and there is also value in nature, so if you were to distribute all the profits solely to labor, you would have only labor and no capital. That means no equipment, no burgers, no fries, no land, no buildings, no cash registers, no working capital, etc. Just a bunch of people standing around, not even being able to work because tools are required to work and the moment someone suggest paying for the tools necessary to do work, someone like you pops up and starts complaining that there must be no payments for capital, all payments must be only for labor, and so no tools are ever purchased. No land is purchased. No money is borrowed to pay for any expenses, etc. The second problem is opportunity cost. McDonald's market cap is 180 Billion dollars, and it earns about 5 Billion per year for a yield of ~2.7%. But this is a risky return. Alternately one can invest in 30 year treasuries that are guaranteed and earn 1.86%. So that corresponds to a risk premium of 1% and a real rate of ~1.8%. In real terms, the risk-free rate is actually negative and the McDonald's earnings yield is approximately zero. Thus the earnings accruing to McDonalds are basically just enough to make up for the loss of the value of the investment due to inflation, so you'd get your original money back, with a healthy dose of risk. That is charity. You should be on your knees thanking investors for supplying the 200K workers of McDonalds with 180 Billion dollars of capital that allows them to have jobs while the investors are getting basically nothing back in exchange for taking on that risk. Of course these yields are temporary. Investors may not be getting anything back now, but long term, these types of yields are unsustainable and they will go up. Investors do need to get something back for their investment otherwise the investment wont be made. And getting back just the original amount invested is generally insufficient to motivate investment and is characteristic of a dysfunctional economy that is unpleasant for workers. When yields are so low as to just match inflation, that's when you see things like housing bubbles as investors turn around to buy up real assets like land because there is no point in investing in risky ventures, and that is when more people who don't understand the world start moaning about how unfair all the expensive housing is, while with the other side of their mouth they advocate for zero interest rates because payments to capital are "bad". We would like to live in a world where ventures are funded, where investment in productive capital is funded. We like the idea of SpaceX and Tesla and mRNA vaccines and M1 chips. We like investment. But that means that the investment must be more profitable that merely buying land and holding it to get back your money in inflation adjusted terms. And the greater the reward for investment, the more investment that will occur.

vl 5y ago
This is excellent explanation. People, who consistently advocate for market regulation or removal, do not understand that our standard of living, historically highest ever, is literally on this level because of market forces, and removing them will end up badly. Everyone tends to forget Soviet Union or North Korea.
maybelsyrup 5y ago
> You should be on your knees thanking investors You seem to be doing a pretty good job of this already
- jiriknesl 5y ago
  He does and you should too.
imtringued 5y ago
You can invest an infinite quantity of money into capital without making a single cent in profit or loss. Lack of profit does not mean a lack of investment. >That means no equipment, no burgers, no fries, no land, no buildings, no cash registers, no working capital, etc. As I mentioned above. You're wrong. >That is charity. You should be on your knees thanking investors for supplying the 200K workers of McDonalds with 180 Billion dollars of capital that allows them to have jobs while the investors are getting basically nothing back in exchange for taking on that risk. You can call it charity but when wealth inequality rises to the point where nothing provides sufficient yields then calling that spending charity misses the tree for the forest. There is nothing to spend the money on, except charity. When you personally only demand 30 hours of work but provide 40 hours of work, there will be someone providing 10 hours less than they demand. The excess hours worked can only be spent on "pointless" activities which inevitably end up in the hands of the person working 10 hours less. When people don't share work, they share incomes. I don't need to thank them for anything. The investors should be on their knees thanking their workers that they are providing this investment opportunity even if yields are negative. It literally makes no sense to thank someone for sitting on their money. If investors are willing to take on that risk, then it's clearly because that investment is more profitable than other investments from their perspective. Think about it this way. Someone having a billion potatoes rotting in storage wants to maintain their wealth. The only way that person can maintain their wealth is by giving the potatoes to people who want to work for you in exchange for potatoes. The fact that you get to maintain your wealth is something others provided to you. If it wasn't for them you would be sitting on rotting potatoes and end up with nothing in the end. You'd accept negative yields on investments if they are higher than the negative yield of having too many potatoes. >And getting back just the original amount invested is generally insufficient to motivate investment and is characteristic of a dysfunctional economy that is unpleasant for workers. The fact that the investor is accepting zero or negative yields clearly implies that he has no use for that money except to maintain his wealth. So rather than a lack of investment the problem is a lack of consumption or alternatively people producing more than they consume. >When yields are so low as to just match inflation, that's when you see things like housing bubbles as investors turn around to buy up real assets like land because there is no point in investing in risky ventures, Raising interest rates doesn't magically create investment opportunities. You always have the same investment opportunities at any interest rate. The interest rate merely restricts how much investment can be done at once. Housing bubbles are not a result of low interest rates. They are a property of land itself. Monopolies allow perfect price discrimination and charge you "everything you earn" which is higher than "everything you spend". The fact that non-monopoly industries can't compete with monopoly power isn't surprising and why so many people suggest land value taxes. >while with the other side of their mouth they advocate for zero interest rates because payments to capital are "bad". We would like to live in a world where ventures are funded, where investment in productive capital is funded. Is this some kind of joke? The availability of low interest rates makes it easier to fund productive investment. >And the greater the reward for investment, the more investment that will occur. Yeah how are you going to get that? Are you going to start a war, bomb cities, kill people so that there is an artificial shortage and therefore yields are high again? Are you going to introduce tariffs so that cheap Chinese goods don't enter your nation? Are you going to force people to have children? Will you let young immigrants flood into your country? The truth is that for the last hundred years most economies were propped up by population growth and now that this has come to an end growing the economy exponentially isn't possible because it requires people's consumption to grow exponentially.

by rsj_hn 5y ago

vl 5y ago

This is excellent explanation. People, who consistently advocate for market regulation or removal, do not understand that our standard of living, historically highest ever, is literally on this level because of market forces, and removing them will end up badly. Everyone tends to forget Soviet Union or North Korea.

maybelsyrup 5y ago

> You should be on your knees thanking investors You seem to be doing a pretty good job of this already

jiriknesl 5y ago
He does and you should too.

imtringued 5y ago

You can invest an infinite quantity of money into capital without making a single cent in profit or loss. Lack of profit does not mean a lack of investment. >That means no equipment, no burgers, no fries, no land, no buildings, no cash registers, no working capital, etc. As I mentioned above. You're wrong. >That is charity. You should be on your knees thanking investors for supplying the 200K workers of McDonalds with 180 Billion dollars of capital that allows them to have jobs while the investors are getting basically nothing back in exchange for taking on that risk. You can call it charity but when wealth inequality rises to the point where nothing provides sufficient yields then calling that spending charity misses the tree for the forest. There is nothing to spend the money on, except charity. When you personally only demand 30 hours of work but provide 40 hours of work, there will be someone providing 10 hours less than they demand. The excess hours worked can only be spent on "pointless" activities which inevitably end up in the hands of the person working 10 hours less. When people don't share work, they share incomes. I don't need to thank them for anything. The investors should be on their knees thanking their workers that they are providing this investment opportunity even if yields are negative. It literally makes no sense to thank someone for sitting on their money. If investors are willing to take on that risk, then it's clearly because that investment is more profitable than other investments from their perspective. Think about it this way. Someone having a billion potatoes rotting in storage wants to maintain their wealth. The only way that person can maintain their wealth is by giving the potatoes to people who want to work for you in exchange for potatoes. The fact that you get to maintain your wealth is something others provided to you. If it wasn't for them you would be sitting on rotting potatoes and end up with nothing in the end. You'd accept negative yields on investments if they are higher than the negative yield of having too many potatoes. >And getting back just the original amount invested is generally insufficient to motivate investment and is characteristic of a dysfunctional economy that is unpleasant for workers. The fact that the investor is accepting zero or negative yields clearly implies that he has no use for that money except to maintain his wealth. So rather than a lack of investment the problem is a lack of consumption or alternatively people producing more than they consume. >When yields are so low as to just match inflation, that's when you see things like housing bubbles as investors turn around to buy up real assets like land because there is no point in investing in risky ventures, Raising interest rates doesn't magically create investment opportunities. You always have the same investment opportunities at any interest rate. The interest rate merely restricts how much investment can be done at once. Housing bubbles are not a result of low interest rates. They are a property of land itself. Monopolies allow perfect price discrimination and charge you "everything you earn" which is higher than "everything you spend". The fact that non-monopoly industries can't compete with monopoly power isn't surprising and why so many people suggest land value taxes. >while with the other side of their mouth they advocate for zero interest rates because payments to capital are "bad". We would like to live in a world where ventures are funded, where investment in productive capital is funded. Is this some kind of joke? The availability of low interest rates makes it easier to fund productive investment. >And the greater the reward for investment, the more investment that will occur. Yeah how are you going to get that? Are you going to start a war, bomb cities, kill people so that there is an artificial shortage and therefore yields are high again? Are you going to introduce tariffs so that cheap Chinese goods don't enter your nation? Are you going to force people to have children? Will you let young immigrants flood into your country? The truth is that for the last hundred years most economies were propped up by population growth and now that this has come to an end growing the economy exponentially isn't possible because it requires people's consumption to grow exponentially.