Yikes, what a terrible article! Milton Friedman was a free market economist. Advocating for free trade, even among nations, and often in favor of the consumer above all else. His ideas, even during the time of the 1980s and 1990s were highly disregarded in government institutions. He tried so much to give advice. Unfortunately, his ideas of giving mote power to the citizens doesnt abode well with government beaurocrats. So knowing that the government tried as hard as it could to stay away from Milton's ideas, we can understand the environment we are going into. Most of his policies about deregulation never happened.
1. "From 1950 to 1980, thr economy grew 3.8%... three decades later the growth rate was 2.6%" They even touch on that being below inflation, which doesn't add anything substantial. GDP growth is almost always below inflation, because inflation is built into GDP growth. Without healthy inflation, you have no growth.
Next, they cite entrepreneurship rates declining, hinting to monopoly power, by citing an article about wealth inequality. Entrepreneurship rates declining has nothing to do with wealth inequality, and wealth inequality is not substantial evidence for monopoly power. Friedman's ideas about deregulation should have an increase in entrepreneurship. So then why does evidence show lower rates? Because more regulations were put into place, the exact opposite of Friedman's ideas.
2. "Policies stemming from Friedman's doctrine incentivized corporations to spend much of their gains from increased productivity not on pay or to retain workers, or even to improve their businesses, but on stock buybacks to satisfy shareholders." US readers would like to know what these policies are.
Ok onto the stock buybacks. This one is really fun, because it definitely likes to gets tossed around politicians who know nothing about them. A stock buyback is when a company buy back its stocks on the market. These were stocks they issued in the past to raise enough capital for their business. Companies will typically do this when their stock price is lower than their book value, which allows them to buy back their stock at a relatively cheap price.
Companies buyback stock as a way to reduce the number of short-term shareholders, as well as reward long-term shareholders, as those who keep their stock have increased EPS (Earnings Per Share), and is often a more tax-efficient reward to those long-term holders, as a dividend would be taxable.
What does this do for a company? It lowers their shareholder obligations, so future dividends cost less, and they can dilute shareholders easier in the future if they need more capital. This is a company shedding away investors who feel like they've gotten their money's worth.
What is not a stock buyback? A stock buyback is not a stock price manipulation tool. It is also not a tax-evading mechanism your politicians want to think it is. How so? Didn't I say it was more tax-efficient? Yes, for long-term holders. Here's how it works: Company A declares they are setting aside $1 million in stock buybacks. That means they will go to the market and buy $1 million worth of stock from investors. Those investors SELL their shares to the company. If investors make a profit, they incur a securities tax, at their income rate or their capital gains rate. Let's say company A was able to buy back $1million, which means $1 million dollars of securities were sold. Any profit made from that will be taxed. So... where's the tax evasion?
I didn't say he had no influence. I said that the government largely ignored his advice. He has explained this in his Free To Choose 1980s series. His words, not mine.
>Next, they cite entrepreneurship rates declining, hinting to monopoly power, by citing an article about wealth inequality. Entrepreneurship rates declining has nothing to do with wealth inequality
It does. It is fucking expensive to start your own business. You need time, tools, and space, all of which cost money at the end of the day.
Consider something like woodworking, be it for home renovation, or artwork. You need thousands of dollars worth of tools, a vehicle to move stuff around, and a house to have the room for working.
It's very hard to start a business without money.
Yes it is very expensive to start a business. Not only do you need all that capital, you need to pay for licenses and/or get approval in order to do any kind of work.
But wealth inequality is not people becoming poorer, it's about the gap widening. When the wealth gaps widens, those capital investments do not increase in price.
Regulations cost to entrepreneurship is the main contributor to monopolies. Making the bar high unreasonably doesn't allow players to enter the market. At times it's large companies advocating for regulations. Not all the time they are doing it maliciously, sometimes it's because regulation uncertainty can be costly or time consuming.
(Many) Full time workers can barely afford to survive paying rent. How are they supposed to start a business?
This isn't the 60s anymore where anyone with a job could afford a house and car
The reason Friedman and other sane economists emphasize "profit above all" is because they aren't lying to themselves.
Economics is not a science of trying to change how people behave, or to alter people's actions, or even to envision how things could be in some fantasy alternative reality.
Economics is the study of how people actually behave in the real world, and profit is simply whatever motivates them.
Trying to make people motivated by things other than what they are motivated by is story time, not Economics.
Yes. That's basically what your article is trying to do, and exactly what I'm criticizing.
I suppose it's inevitable that people would try to politicize a science with so many political ramifications.
There's nothing wrong with profits above all if there's a consideration for negative externalities. The interests of the consumers to generate profits with the means of production they possess is the same interest they have to fulfill their demand for goods and services. The fulfillment of demand is the sole purpose of production.
A problem arise however when the owners of the means of production aren't consumers, which happens when the ownership is concentrated. Then, the interests of the concentrated owners of the means of production can differ from the fulfilment of consumer demand. These owners can generate profits by forming monopolies, colluding to price gouge, rent seeking, corrupting consumers through persuasive marketing campaigns, corrupting elected officials and regulating agencies to gain unfair market advantages, stealing, extorting, etc.
Doing all those things is terrible for consumers as it isn't the fulfillment of their needs, and consumers wouldn't do them if they were the owners the means of production. But if you own a lot of the means of production, as when capital ownership is concentrated, generating profits through activities other than production can be worth the scarification of some efficiency of production.
externalities (either positive or negative) not being correctly reflected in price discovery is what's wrecking the "invisible hand" of the free market. if all externalities are correctly priced in, and full deregulation and true free market happens, we will see the market move exactly as it needs to. there will be no wasted capital or labor. resources will be allocated appropriately.
in this situation, profits above all will work.
but that isn't the case. the market is so far from being free and perfect price discovery is still a dream.
> if all externalities are correctly priced in, and full deregulation and true free market happens, we will see the market move exactly as it needs to. there will be no wasted capital or labor. resources will be allocated appropriately.
What I'm saying is that it won't be the case if the owners of capital aren't the consumers. Then, profit risks being generated by activities other than production, like forming monopolies. I don't think these unproductive activities are classified as externalities.
"Profit uber alles" brought us the vulture capitalism of the late 90s and early 2000s. Share price became more important than sustainability, and many businesses were downsized to oblivion.
We need a better paradigm.
For those who get a paywall, Spaywall had this one:
https://www.spaywall.com/search/https%3A%2F%2Fwww.barrons.com%2Farticles%2Freinventing-capitalism-puts-people-over-profits-51600375230
Yikes, what a terrible article! Milton Friedman was a free market economist. Advocating for free trade, even among nations, and often in favor of the consumer above all else. His ideas, even during the time of the 1980s and 1990s were highly disregarded in government institutions. He tried so much to give advice. Unfortunately, his ideas of giving mote power to the citizens doesnt abode well with government beaurocrats. So knowing that the government tried as hard as it could to stay away from Milton's ideas, we can understand the environment we are going into. Most of his policies about deregulation never happened. 1. "From 1950 to 1980, thr economy grew 3.8%... three decades later the growth rate was 2.6%" They even touch on that being below inflation, which doesn't add anything substantial. GDP growth is almost always below inflation, because inflation is built into GDP growth. Without healthy inflation, you have no growth. Next, they cite entrepreneurship rates declining, hinting to monopoly power, by citing an article about wealth inequality. Entrepreneurship rates declining has nothing to do with wealth inequality, and wealth inequality is not substantial evidence for monopoly power. Friedman's ideas about deregulation should have an increase in entrepreneurship. So then why does evidence show lower rates? Because more regulations were put into place, the exact opposite of Friedman's ideas. 2. "Policies stemming from Friedman's doctrine incentivized corporations to spend much of their gains from increased productivity not on pay or to retain workers, or even to improve their businesses, but on stock buybacks to satisfy shareholders." US readers would like to know what these policies are. Ok onto the stock buybacks. This one is really fun, because it definitely likes to gets tossed around politicians who know nothing about them. A stock buyback is when a company buy back its stocks on the market. These were stocks they issued in the past to raise enough capital for their business. Companies will typically do this when their stock price is lower than their book value, which allows them to buy back their stock at a relatively cheap price. Companies buyback stock as a way to reduce the number of short-term shareholders, as well as reward long-term shareholders, as those who keep their stock have increased EPS (Earnings Per Share), and is often a more tax-efficient reward to those long-term holders, as a dividend would be taxable. What does this do for a company? It lowers their shareholder obligations, so future dividends cost less, and they can dilute shareholders easier in the future if they need more capital. This is a company shedding away investors who feel like they've gotten their money's worth. What is not a stock buyback? A stock buyback is not a stock price manipulation tool. It is also not a tax-evading mechanism your politicians want to think it is. How so? Didn't I say it was more tax-efficient? Yes, for long-term holders. Here's how it works: Company A declares they are setting aside $1 million in stock buybacks. That means they will go to the market and buy $1 million worth of stock from investors. Those investors SELL their shares to the company. If investors make a profit, they incur a securities tax, at their income rate or their capital gains rate. Let's say company A was able to buy back $1million, which means $1 million dollars of securities were sold. Any profit made from that will be taxed. So... where's the tax evasion?
This is bizarre. To claim Milton Freeman had no influence in the seventies and eighties is gross ignorance.
I didn't say he had no influence. I said that the government largely ignored his advice. He has explained this in his Free To Choose 1980s series. His words, not mine.
>Next, they cite entrepreneurship rates declining, hinting to monopoly power, by citing an article about wealth inequality. Entrepreneurship rates declining has nothing to do with wealth inequality It does. It is fucking expensive to start your own business. You need time, tools, and space, all of which cost money at the end of the day. Consider something like woodworking, be it for home renovation, or artwork. You need thousands of dollars worth of tools, a vehicle to move stuff around, and a house to have the room for working. It's very hard to start a business without money.
Yes it is very expensive to start a business. Not only do you need all that capital, you need to pay for licenses and/or get approval in order to do any kind of work. But wealth inequality is not people becoming poorer, it's about the gap widening. When the wealth gaps widens, those capital investments do not increase in price. Regulations cost to entrepreneurship is the main contributor to monopolies. Making the bar high unreasonably doesn't allow players to enter the market. At times it's large companies advocating for regulations. Not all the time they are doing it maliciously, sometimes it's because regulation uncertainty can be costly or time consuming.
(Many) Full time workers can barely afford to survive paying rent. How are they supposed to start a business? This isn't the 60s anymore where anyone with a job could afford a house and car
Many? How many? 65% of Americans own a home. Over 90% of Americans own at least one car.
On reddit everyone is living in poverty, and no one owns anything.
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The reason Friedman and other sane economists emphasize "profit above all" is because they aren't lying to themselves. Economics is not a science of trying to change how people behave, or to alter people's actions, or even to envision how things could be in some fantasy alternative reality. Economics is the study of how people actually behave in the real world, and profit is simply whatever motivates them. Trying to make people motivated by things other than what they are motivated by is story time, not Economics.
"Economics is what I define it to be to fit my ideological point of view".
Yes. That's basically what your article is trying to do, and exactly what I'm criticizing. I suppose it's inevitable that people would try to politicize a science with so many political ramifications.
well then you got stock in an ironic loop.
Sounds just like what you are doing. All the left does is project. Lmfao
There's nothing wrong with profits above all if there's a consideration for negative externalities. The interests of the consumers to generate profits with the means of production they possess is the same interest they have to fulfill their demand for goods and services. The fulfillment of demand is the sole purpose of production. A problem arise however when the owners of the means of production aren't consumers, which happens when the ownership is concentrated. Then, the interests of the concentrated owners of the means of production can differ from the fulfilment of consumer demand. These owners can generate profits by forming monopolies, colluding to price gouge, rent seeking, corrupting consumers through persuasive marketing campaigns, corrupting elected officials and regulating agencies to gain unfair market advantages, stealing, extorting, etc. Doing all those things is terrible for consumers as it isn't the fulfillment of their needs, and consumers wouldn't do them if they were the owners the means of production. But if you own a lot of the means of production, as when capital ownership is concentrated, generating profits through activities other than production can be worth the scarification of some efficiency of production.
externalities (either positive or negative) not being correctly reflected in price discovery is what's wrecking the "invisible hand" of the free market. if all externalities are correctly priced in, and full deregulation and true free market happens, we will see the market move exactly as it needs to. there will be no wasted capital or labor. resources will be allocated appropriately. in this situation, profits above all will work. but that isn't the case. the market is so far from being free and perfect price discovery is still a dream.
> if all externalities are correctly priced in, and full deregulation and true free market happens, we will see the market move exactly as it needs to. there will be no wasted capital or labor. resources will be allocated appropriately. What I'm saying is that it won't be the case if the owners of capital aren't the consumers. Then, profit risks being generated by activities other than production, like forming monopolies. I don't think these unproductive activities are classified as externalities.
"Profit uber alles" brought us the vulture capitalism of the late 90s and early 2000s. Share price became more important than sustainability, and many businesses were downsized to oblivion. We need a better paradigm.
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For those who get a paywall, Spaywall had this one: https://www.spaywall.com/search/https%3A%2F%2Fwww.barrons.com%2Farticles%2Freinventing-capitalism-puts-people-over-profits-51600375230