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I think a useful analogy for engineers is that companies are machines, a black box that takes some amount of resource as inputs, and turn it into some outputs.
by compumike 4y ago
I think a useful analogy for engineers is that companies are machines, a black box that takes some amount of resource as inputs, and turn it into some outputs.
If we collapse the vector of those inputs (such as labor, materials, capital) and outputs (products, services) to a single unit such as "dollars" by which we measure those things, then any sustainable (i.e. profitable) business creates more output than input.
Personally, I like owning companies, because I like owning black boxes that take money in and produce more money out. :)
I do think the long-termist view, which this page promotes, raises several questions:
Do you believe that companies will, on average, continue being profitable in the long term?
Or do you believe that in the long term, profit margins drop to zero?
If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?)
Does a "steady state economy" exist? https://en.wikipedia.org/wiki/Steady-state_economy https://en.wikipedia.org/wiki/Steady-state_economy And if so, are steady-state corporate profits zero? Is there a "tendency of the rate of profit to fall" https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... or is this in some degree compartmentalized with the turnover of industry over time?
I do appreciate the graphs on this page, especially the rolling 5/10/20 year ones. When I get some free time, I may adapt that concept for my side project https://totalrealreturns.com/ https://totalrealreturns.com/ which lets you graph the inflation-adjusted, dividend-reinvested returns of any publicly traded stock, ETF, or mutual fund.
- getToTheChopin 4y agoYou're raising very valid questions. It seems to me that we'd need to have continued breakthroughs in science, technology, medicine, etc. in order to drive sustainable increases in economic growth. Forecasters have predicted the end of innovation at many points, but humans do seem to have a knack of finding something new and valuable.
- kridsdale1 4y agoI don’t think we need to worry about steady state economics as long as we are on Earth. Ultimately the whole economy is a proxy for measuring the flows of transformations of useless material and energy in to useful ones. The sun shines every day. That makes crops, which drive labor. Labor writes software, profits go up. The true input is the hydrogen cloud around the sun.
- danuker 4y agoStill, we need energy to keep entropy at bay. If we reach an equilibrium between input and losses, we might get into a steady state.
- boole1854 4y ago> Or do you believe that in the long term, profit margins drop to zero? > If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?) > ...are steady-state corporate profits zero? I learned the answers to these questions from economist George Reisman. I recommend his book Capitalism, specifically chapters 16 - 17, where he explains the answers and how he arrived at them. The book is available for free in PDF format here: https://capitalism.net/CAPITALISM_Internet.pdf https://capitalism.net/CAPITALISM_Internet.pdf In short, the net amount of profit in the economy every year is the sum of the "net investment" plus "net consumption" during that year. "Net investment" and "net consumption" are both precisely defined in the text. Net investment is related to the changes in money supply and to the difference between the marginal productivity of capital versus the current rate of profit. And net consumption is related to the consumption behaviors of capital owners and the government. There is no general tendency towards a zero rate of aggregate net profit since there is no general tendency towards aggregate net investment + net consumption being zero.