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I’ve been thinking about this a bit lately because I’m taking an economics class, but the pursuit of maximal profit doesn’t make as much sense to me as it used

I’ve been thinking about this a bit lately because I’m taking an economics class, but the pursuit of maximal profit doesn’t make as much sense to me as it used to. Specifically, what actually happens, in economic terms, to profit? Nothing good, it seems. So maybe the “cargo cult” is the ruthless pursuit of profit, as opposed to regular reinvestment in the firm. Companies are incentivized to optimize productivity rather than grow it, as every dollar saved is a dollar to take out of the economic cycle and put into the investor’s pocket. Didn’t corporate tax rates plummet appropriately at the same rate that computer technology exploded? That seems to me to be important, to the point that I’m not sure we’ve got the right culprit here.

Jensson 3y ago
All of the current tech giants reinvested most profits to grow themselves, so your core argument seems totally off. If anything is wrong today it is that there is too little profit seeking, not too much, lack of profit seeking is what sets the last few decades apart from the majority of the last century. They seek growth instead of profit, and run unprofitable until then and burn investment cash hoping for a big payout, and when that big payout doesn't happen you get the big crash and layoffs...
- redcobra762 3y ago
  But what even happens to profit? It disappears from the cycle. The value created is lost because it’s no longer used to improve the firm that created the value. It’s redistributed to various yacht companies and the like. Additionally the profit incentive is in direct conflict with the productivity goal, as additional profit may not arise as a result of additional productivity, given the cost of pursuit. And while yes, big tech firms may have pursued growth, correctly so, many existing firms did not, and I didn’t think we were limiting our discussion to the tech industry, and we can be sure those tech firms have since shifted gears.
  - Jensson 3y ago
    > But what even happens to profit? It gets invested into companies that doesn't make profit yet. Where did you think investment capital comes from? So profits is the company paying it forward, the company lived off investments at the start and later pay that forward in the form of profits to build new companies via investments. > It’s redistributed to various yacht companies and the like. Only a tiny part of profits goes to luxury consumption, rich people generally don't consume a lot relative to how much they have, otherwise they wouldn't continue to get richer.
    - redcobra762 3y ago
      Profits don’t pay interest, interest payments are expenses, and those payments can be what goes into new firms as funding. An entrepreneur provides a resource, I wouldn’t deny that, but every other resource has a price. Why does entrepreneurial effort get to be uncapped? Shouldn’t it have a price too, a specific value, tied to what it gives a business?
      - Jensson 3y ago
        Investment capital isn't a loan, it is a profit sharing agreement so you don't pay interest, you pay dividends to them when you make profits. Nobody loans money to risky startups, that sort of agreement isn't a good fit for risky ventures since the risk is high and the payout is low. Profit sharing is how they can get money to start making profits.
        redcobra762 3y ago
        But it is a loan; you get funds up front, with an agreement of payment later. In a broad sense that is the very definition of a loan. The problem here is the agreement is uncapped, leading to things like a preference for additional profits over additional productivity.
        Jensson 3y ago
psunavy03 3y ago
> Specifically, what actually happens, in economic terms, to profit? Nothing good, it seems. Uhh . . . first it pays the bills allowing the company to keep running, including your salary. Then the rest goes to shareholders, where it does things like power your 401(k) or if you're really old, your pension fund. Which then allows you to do nice things like retire someday.
- stanleykm 3y ago
  Profit doesnt pay for salary. Salaries are an expense to the company. Profit is whats left over after all of that and is what the company can give back to the shareholders through dividends and stock buybacks. I would guess that in a profitless world there would be something different than a 401k for retirement. Humans can exist without profits.
  - robertlagrant 3y ago
    > Humans can exist without profits. Of course - and they did for a long time. But they couldn't have anything that couldn't be scratched out of the soil.
randmeerkat 3y ago
> So maybe the “cargo cult” is the ruthless pursuit of profit, as opposed to constant reinvestment in the firm. It’s an old story, an individual or group of individuals becomes greedy and consumes enough resources to finally destabilize their society. A new society is born, people are afforded a new opportunity, for whatever reason a person or a small group of people gains an advantage, and then the cycle repeats. I think the question is how to shift incentives to break the cycle, while getting buy in from the stakeholders that are currently running it. There’s been some ideas around potentially how to do this, one suggestion is changing quarterly reporting to annual reporting for public companies, but then this limits visibility into public companies even further and creates a new set of problems. Then there’s the idea of getting rid of public companies, but I’m not sure that would actually result in the outcome people imagine. Finally there’s talks about wealth tax, which could work but really is more of a stick than a carrot, and has been met with a lot of hostility. So we have what we have and hopefully someone figures it out before the cycle restarts.
spacebanana7 3y ago
> Specifically, what actually happens, in economic terms, to profit? In an economic sense, profit occurs when an enterprise produces goods & services more valuable than its input costs. Such economic profit is always desirable- whether it’s made by a private corporation, state owned enterprise or government department. An economically unprofitable enterprise is a burden to its customers, owners or both.
- redcobra762 3y ago
  What about an enterprise in economic balance, making nearly zero profit because it shared surplus revenue with the workers, even after all of the interest payments on the loans given out by the investors (can’t forget the investors, of course)?
  - robertlagrant 3y ago
    That's still profit. It's just the profit is paid as dividends to workers.
    - redcobra762 3y ago
      That would actually be an expense, reducing profits by intentionally increasing labor costs. In economic terms profit would be reduced.
      - robertlagrant 3y ago
        No, not if it's dividends, as I mentioned. Dividends are paid out of profits.
        redcobra762 3y ago
        But it's not dividends, it's increased salary, so it's still not net profit, it's pre-operational profit, which nobody looks at due to the importance of paying for labor.
rsrsrs86 3y ago
Consider profit as what happens when the demand for your product is strong enough to warrant reinvestment.
mattw2121 3y ago
I don't think it's fair to say that "nothing good" comes from profit. Aren't new businesses created from profit? Investors make a profit in one business and then invest in others. That in turn creates jobs and opportunities.
- redcobra762 3y ago
  That’s fair but is that the only possible way for new businesses to arise? Couldn’t the same be accomplished with the income received from the sale of resources? The revenue would still be there, the money would just be more widely distributed amongst the owners of the resources that businesses purchase to make more of their goods and services.
randomdata 3y ago
> the pursuit of maximal profit doesn’t make as much sense to me as it used to. Alternatively, accounting hasn't kept up with the realities of the world. Profit today isn't measurable just in terms of the exchange of tangible items. Actors also seek to profit by way of other intangible things like, most notably, attention; something old-school accounting doesn't account for. Maximal profit makes as much sense as ever, but maximal profit as it shows up on the books using traditional accounting methods may not.
teamonkey 3y ago
Weird that in this growth-obsessed world there has been no actual growth for 50 years, once you take inflation into account. Makes you wonder what significant financial and economic changes happened in the early ‘70s to cause that.

Jensson 3y ago

All of the current tech giants reinvested most profits to grow themselves, so your core argument seems totally off. If anything is wrong today it is that there is too little profit seeking, not too much, lack of profit seeking is what sets the last few decades apart from the majority of the last century. They seek growth instead of profit, and run unprofitable until then and burn investment cash hoping for a big payout, and when that big payout doesn't happen you get the big crash and layoffs...

redcobra762 3y ago
But what even happens to profit? It disappears from the cycle. The value created is lost because it’s no longer used to improve the firm that created the value. It’s redistributed to various yacht companies and the like. Additionally the profit incentive is in direct conflict with the productivity goal, as additional profit may not arise as a result of additional productivity, given the cost of pursuit. And while yes, big tech firms may have pursued growth, correctly so, many existing firms did not, and I didn’t think we were limiting our discussion to the tech industry, and we can be sure those tech firms have since shifted gears.
- Jensson 3y ago
  > But what even happens to profit? It gets invested into companies that doesn't make profit yet. Where did you think investment capital comes from? So profits is the company paying it forward, the company lived off investments at the start and later pay that forward in the form of profits to build new companies via investments. > It’s redistributed to various yacht companies and the like. Only a tiny part of profits goes to luxury consumption, rich people generally don't consume a lot relative to how much they have, otherwise they wouldn't continue to get richer.
  - redcobra762 3y ago
    Profits don’t pay interest, interest payments are expenses, and those payments can be what goes into new firms as funding. An entrepreneur provides a resource, I wouldn’t deny that, but every other resource has a price. Why does entrepreneurial effort get to be uncapped? Shouldn’t it have a price too, a specific value, tied to what it gives a business?
    - Jensson 3y ago
      Investment capital isn't a loan, it is a profit sharing agreement so you don't pay interest, you pay dividends to them when you make profits. Nobody loans money to risky startups, that sort of agreement isn't a good fit for risky ventures since the risk is high and the payout is low. Profit sharing is how they can get money to start making profits.
      - redcobra762 3y ago
        But it is a loan; you get funds up front, with an agreement of payment later. In a broad sense that is the very definition of a loan. The problem here is the agreement is uncapped, leading to things like a preference for additional profits over additional productivity.
        Jensson 3y ago

psunavy03 3y ago

> Specifically, what actually happens, in economic terms, to profit? Nothing good, it seems. Uhh . . . first it pays the bills allowing the company to keep running, including your salary. Then the rest goes to shareholders, where it does things like power your 401(k) or if you're really old, your pension fund. Which then allows you to do nice things like retire someday.

stanleykm 3y ago
Profit doesnt pay for salary. Salaries are an expense to the company. Profit is whats left over after all of that and is what the company can give back to the shareholders through dividends and stock buybacks. I would guess that in a profitless world there would be something different than a 401k for retirement. Humans can exist without profits.
- robertlagrant 3y ago
  > Humans can exist without profits. Of course - and they did for a long time. But they couldn't have anything that couldn't be scratched out of the soil.

randmeerkat 3y ago

> So maybe the “cargo cult” is the ruthless pursuit of profit, as opposed to constant reinvestment in the firm. It’s an old story, an individual or group of individuals becomes greedy and consumes enough resources to finally destabilize their society. A new society is born, people are afforded a new opportunity, for whatever reason a person or a small group of people gains an advantage, and then the cycle repeats. I think the question is how to shift incentives to break the cycle, while getting buy in from the stakeholders that are currently running it. There’s been some ideas around potentially how to do this, one suggestion is changing quarterly reporting to annual reporting for public companies, but then this limits visibility into public companies even further and creates a new set of problems. Then there’s the idea of getting rid of public companies, but I’m not sure that would actually result in the outcome people imagine. Finally there’s talks about wealth tax, which could work but really is more of a stick than a carrot, and has been met with a lot of hostility. So we have what we have and hopefully someone figures it out before the cycle restarts.

spacebanana7 3y ago

> Specifically, what actually happens, in economic terms, to profit? In an economic sense, profit occurs when an enterprise produces goods & services more valuable than its input costs. Such economic profit is always desirable- whether it’s made by a private corporation, state owned enterprise or government department. An economically unprofitable enterprise is a burden to its customers, owners or both.

redcobra762 3y ago
What about an enterprise in economic balance, making nearly zero profit because it shared surplus revenue with the workers, even after all of the interest payments on the loans given out by the investors (can’t forget the investors, of course)?
- robertlagrant 3y ago
  That's still profit. It's just the profit is paid as dividends to workers.
  - redcobra762 3y ago
    That would actually be an expense, reducing profits by intentionally increasing labor costs. In economic terms profit would be reduced.
    - robertlagrant 3y ago
      No, not if it's dividends, as I mentioned. Dividends are paid out of profits.
      - redcobra762 3y ago
        But it's not dividends, it's increased salary, so it's still not net profit, it's pre-operational profit, which nobody looks at due to the importance of paying for labor.

rsrsrs86 3y ago

Consider profit as what happens when the demand for your product is strong enough to warrant reinvestment.

mattw2121 3y ago

I don't think it's fair to say that "nothing good" comes from profit. Aren't new businesses created from profit? Investors make a profit in one business and then invest in others. That in turn creates jobs and opportunities.

redcobra762 3y ago
That’s fair but is that the only possible way for new businesses to arise? Couldn’t the same be accomplished with the income received from the sale of resources? The revenue would still be there, the money would just be more widely distributed amongst the owners of the resources that businesses purchase to make more of their goods and services.

randomdata 3y ago

> the pursuit of maximal profit doesn’t make as much sense to me as it used to. Alternatively, accounting hasn't kept up with the realities of the world. Profit today isn't measurable just in terms of the exchange of tangible items. Actors also seek to profit by way of other intangible things like, most notably, attention; something old-school accounting doesn't account for. Maximal profit makes as much sense as ever, but maximal profit as it shows up on the books using traditional accounting methods may not.

teamonkey 3y ago

Weird that in this growth-obsessed world there has been no actual growth for 50 years, once you take inflation into account. Makes you wonder what significant financial and economic changes happened in the early ‘70s to cause that.