3 ms·

In a functioning capitalist market economy, profit margins (which I believe is what is being described here) would generally be low due to competition, and woul

by saurik 4y ago

In a functioning capitalist market economy, profit margins (which I believe is what is being described here) would generally be low due to competition, and would only spike momentarily due to innovation. If a company consistently has high profits, something is fishy, and maybe they have a monopoly (which sadly seems to happen almost accidentally just from branding, as humans are poor market participants and will refuse a perfectly good alternative if it doesn't have a fancy name on it)... if everyone is making high profits and are even increasing their profits, I think (look: I am not an economist; I just have severe insomnia) that is indicating something is wrong with the labor market or the money supply.

refurb 4y ago
No. Some industries are highly capital dependent. You can't look at profit margin alone. And if high profit means "innovation" it seems like "getting rid of high profit" is the wrong decision?
- saurik 4y ago
  The transient, company-specific boost from a company managing to innovate on something its competitors haven't gotten to yet isn't something you should see across the board across major companies: they only reasons you see so many companies managing to maintain high profit margins is because of regulatory rent seeking, anti-competitive lock-in, and the exploitation of the working class. The hallmark of a functioning economy isn't "lots of corporate profits", it is "lots of consumer value".
  - gunapologist99 4y ago
    True, but "lots of consumer value" drives inflation, if that consumer value isn't being satisfied. In other words, the supply is insufficient in the face of overwhelming demand, which is why prices increase in a functioning economy. Inflation is always a result of monetary policy; if the cash in the system (low interest rates, quantitative easing, government stimulus, etc) is increased without a corresponding increase in output, then inflation will naturally occur because demand for goods and services will increase beyond the capacity of supply. (h/t Nobel Prize winner Milton Friedman) But, if economic output is actually decreasing because of those same economic policies (such as hiking interest rates or external factors such as war in Ukraine), then we can easily enter stagflation, which is stagnant growth with rampant inflation. We've had three periods since WWII where inflation hit double digits: the period immediately following the war (1946-1948), 1974-1975 during the oil crisis, and 1979-1983 following Carter's disastrous presidency (partly what he inherited, and then he made it much, much worse). In the last period (79-83), Paul Volcker immediately took strong action to control inflation by hiking interest rates through the roof. This caused immediate economic pain, but, in concert with lower taxes and reduced regulation, it succeeded in ushering in a strong bull market that lasted, by some definitions, decades. That's why the central banks are acting strongly to reduce inflation by raising rates, assuming they have the stomach to keep it up even as it might force the economy into a temporary stall: controlling inflation by reducing the money supply through higher rates has historically made for a stronger economy in the near future, and rates can always be reduced to inject stimulus into the economy if needed. Here's another Milton Friedman quote: "Inflation is the one form of taxation that can be imposed without legislation."
phpisthebest 4y ago
>>which sadly seems to happen almost accidentally just from branding, as humans are poor market participants and will refuse a perfectly good alternative if it doesn't have a fancy name on it I don't think this is true at all, look at the rise of "store brands" often time they are of lower quality and people still pick them because they are cheaper As an example of a brand people to seek out, People do not buy Toyota brand because it is "fancy" they buy it because it has worked hard to cultivate a reputation for reliability across all of its market lines, where other brands have known to cut corners in quality to lower prices
- saurik 4y ago
  What I was saying doesn't require everyone to work that way, only for some people to work that way. Many people use genetics, but enough people gravitate towards brands in order to maintain a ton of profits despite alternatives products that might not only be cheaper but sometimes also be better.
  - phpisthebest 4y ago
    But some of that is subjective... For example, I will buy Brand name Advil not because the generic is less effective, but because every generic I have found is EXTREMELY bitter to me and the Brand name is not. This is an inactive ingredient, but it makes the product worth more to me, so I buy it. In your mind I am just buying "for the brand name" when there are "perfectly good" alternatives out there, but to me the alternative are of inferior quality and or missing something I find to be important.
    - saurik 4y ago
      No, I am saying some people do that, and it is one way in which companies can maintain profit margins. Do you really believe brand name products really have no real brand-only advantage? Hell: the Costco store brands are so famous for being good it managed to become something of a brand itself!
- nradov 4y ago
dhruval 4y ago
You are confusing economic profits (which includes things like opportunity costs) with accounting profits (which only includes explicit costs). Under perfect competition the economic profits would approach zero. But you can still have unlimited of accounting profits, even in a perfectly competitive market provided you are delivering enough value to customers with some sort of unique value proposition.

by saurik 4y ago

refurb 4y ago

No. Some industries are highly capital dependent. You can't look at profit margin alone. And if high profit means "innovation" it seems like "getting rid of high profit" is the wrong decision?

saurik 4y ago
The transient, company-specific boost from a company managing to innovate on something its competitors haven't gotten to yet isn't something you should see across the board across major companies: they only reasons you see so many companies managing to maintain high profit margins is because of regulatory rent seeking, anti-competitive lock-in, and the exploitation of the working class. The hallmark of a functioning economy isn't "lots of corporate profits", it is "lots of consumer value".
- gunapologist99 4y ago
  True, but "lots of consumer value" drives inflation, if that consumer value isn't being satisfied. In other words, the supply is insufficient in the face of overwhelming demand, which is why prices increase in a functioning economy. Inflation is always a result of monetary policy; if the cash in the system (low interest rates, quantitative easing, government stimulus, etc) is increased without a corresponding increase in output, then inflation will naturally occur because demand for goods and services will increase beyond the capacity of supply. (h/t Nobel Prize winner Milton Friedman) But, if economic output is actually decreasing because of those same economic policies (such as hiking interest rates or external factors such as war in Ukraine), then we can easily enter stagflation, which is stagnant growth with rampant inflation. We've had three periods since WWII where inflation hit double digits: the period immediately following the war (1946-1948), 1974-1975 during the oil crisis, and 1979-1983 following Carter's disastrous presidency (partly what he inherited, and then he made it much, much worse). In the last period (79-83), Paul Volcker immediately took strong action to control inflation by hiking interest rates through the roof. This caused immediate economic pain, but, in concert with lower taxes and reduced regulation, it succeeded in ushering in a strong bull market that lasted, by some definitions, decades. That's why the central banks are acting strongly to reduce inflation by raising rates, assuming they have the stomach to keep it up even as it might force the economy into a temporary stall: controlling inflation by reducing the money supply through higher rates has historically made for a stronger economy in the near future, and rates can always be reduced to inject stimulus into the economy if needed. Here's another Milton Friedman quote: "Inflation is the one form of taxation that can be imposed without legislation."

phpisthebest 4y ago

>>which sadly seems to happen almost accidentally just from branding, as humans are poor market participants and will refuse a perfectly good alternative if it doesn't have a fancy name on it I don't think this is true at all, look at the rise of "store brands" often time they are of lower quality and people still pick them because they are cheaper As an example of a brand people to seek out, People do not buy Toyota brand because it is "fancy" they buy it because it has worked hard to cultivate a reputation for reliability across all of its market lines, where other brands have known to cut corners in quality to lower prices

saurik 4y ago
What I was saying doesn't require everyone to work that way, only for some people to work that way. Many people use genetics, but enough people gravitate towards brands in order to maintain a ton of profits despite alternatives products that might not only be cheaper but sometimes also be better.
- phpisthebest 4y ago
  But some of that is subjective... For example, I will buy Brand name Advil not because the generic is less effective, but because every generic I have found is EXTREMELY bitter to me and the Brand name is not. This is an inactive ingredient, but it makes the product worth more to me, so I buy it. In your mind I am just buying "for the brand name" when there are "perfectly good" alternatives out there, but to me the alternative are of inferior quality and or missing something I find to be important.
  - saurik 4y ago
    No, I am saying some people do that, and it is one way in which companies can maintain profit margins. Do you really believe brand name products really have no real brand-only advantage? Hell: the Costco store brands are so famous for being good it managed to become something of a brand itself!
nradov 4y ago

dhruval 4y ago

You are confusing economic profits (which includes things like opportunity costs) with accounting profits (which only includes explicit costs). Under perfect competition the economic profits would approach zero. But you can still have unlimited of accounting profits, even in a perfectly competitive market provided you are delivering enough value to customers with some sort of unique value proposition.