Re: Another potential flaw in current economic theory... (fwd)

[Jim Choate <ravage@EINSTEIN.ssz.com>]

Hi,

I've a point unrelated to this topic. I recieved two copies of your email.
One was 101 lines and the other was 108 lines, the difference being 7 blank
lines. Pretty curious, no?

Forwarded message:

> Date: Mon, 19 Oct 1998 15:15:13 -0400
> From: tzeruch@ceddec.com
> Subject: Re: Another potential flaw in current economic theory...

> Not labor any more than capital.  I think what you refer to is often
> called "stakeholders" which includes suppliers and customers in addition
> to employees. 

Well suppliers are a business unto themselves so I'm not sure I can extend
my point that far. I certainly wouldn't include customers as this confuses
the entire issue of the point of business (ie making a profit). If we extend
the issue to include customers then we're looking at reducing our profit
margin to zero as we discount our services to the customer over time. There
is also the aspect that with this model we end up selling our service to
ourselves, an inherently loosing proposition since there is no profit to be
made at all in that case.

> However you do not need to play games to justify proper treatment of
> employees.

I didn't mean to imply any sort of mistreatment, though I did raise that
spectre in related postings. Sorry for the confusion. The point I was trying
to make was that business has a third, and untried near as I can tell,
strategy in approaching their business process. Include the employees in the
plan with the specific goal of making them rich enough and invested enough
so they don't have to work and do it in a short time span - say 10 years.
I've read a few pieces (I must admit to viewing them as pie-in-the-sky) which
predict that what will happen with technology is that people will begin to
invest in automated processes and over time as these become ubiquitous people
don't work, they live off their profit from the investment in these automated
factories. One aspect, which I alluded to above, is that at some point the
investors are also their own customers so that the profit they make to buy
the materials is in a closed loop. This seems to me to invite a level of
inflation (in order to preserve at least the ghost of a profit) that would
explode pretty quickly.

> If you consider capital such as a machine, it is usually
> better to keep it well maintained and in good repair instead of letting it
> wear out and rust - the quality of your goods will suffer, profits will go
> down, and shareholders will dump management.

True enough, though the machines don't retire (they do wear out). If we look
at it from a strictly cost analysis perspective I'd agree with you (as I
understand your point) fully. The question I have is what if we abandon the
Friedman view and take on a more humanistic view. In short, business
represent a participant in a social process. As a result they have more
duties than just making profit for their shareholders (or stakeholders).

[text deleted]

> Our current stock market bubble - which is in the process of popping -
> distorted this.

I agree in part, I believe that the reason we're seeing the failure of the
traditional economic systems is that in large scales with extremely fluid
capital (intellectual, physical, monetary, etc.) it becomes very difficult
to keep long term participants when there are so many more lucrative
short-term potentials. I personaly feel the collapse of the CCCP in the early
90's is a good indication of this 'delayed responce' syndrome. I also believe
the current problem with funding the government is another example where the
gains are such that the traditional political and social views don't apply
well enough so that the errors cancel each other out. Instead they pile on
top of each other over time. My guess is that the current political system
will collapse of its own ineptitude and lethargy as well as a wedding to
outmoded ideas sometime in the next 20 years or so. What comes after, I
believe at this point, will be a polycratic technocracy based on distributed
democratic ideals.

>  My concept of Usury (yes, another mideval or earlier
> idea) is loaning in the abstract.  You just want 5% or 10%, and try to
> find a piece of paper (or electronic book entry) that will return it
> regardless of what is behind the paper.  This can include ponzi schemes if
> they aren't recognized as such.

Oops, what's a 'ponzi scheme'? I can't find it in any of my texts....

> If people were really investing in the non-usurous sense, they would be
> concerned with the company as an organic whole, with the suppliers, and
> customers, and employees, and the physical plant and everything else,

I understand the conept of 'organic whole'. I have to disagree at extending
it to include the customers and suppliers for the reasons listed above. In a
very real sense the term you use is more apt than anything I've come up
with so far as a label.

> If I want milk, I will be very concerned with keeping the cow happy and
> healthy, and doing so rationally - pampering the cow too much won't give
> any more milk and maybe make the cow less healthy, but starving it or
> beating it would be worse.

I agree, the interesting question - I hope without stretching the comparison
too far - is what happens when the farmer figures out how to make the milk
using a bacteria (for example) via genetic manipulation? (this is meant as
an example of technical invasion of a traditional market) Does the farmer
continue to feed the cow on principle (it being a fellow living creature and
mankind having destroyed its natural habitats and hence we can't turn it
loose) or simply kill the beast and sell the remains to the golden arches?

> price didn't go up further).  I haven't heard a reason connected with
> something tangible (dividends, book-value, cash flow) for someone to own
> such a stock.  Only that "it the internet".  And I think this decoupling
> is at the center of what you are getting at.  Paper v.s. people, and when
> it comes time to decide, the paper wins.

That is most definitely a major aspect of the problem. People get so dazzled
by the visions of fruit plums dancing before their eyes they don't notice
the snow has melted.

> There is a lot of ignorance, and it is rational in the short term - these
> stocks are going up, so it would otherwise make sense to follow the trend.
> But if the trend is all that is being watched, who is going to care if
> they are using slave-labor? - to mention just one issue.

I'm afraid I don't quite catch your point here. Could you reword it?

> But that is investing in a bubble.

Exactly why I don't want to see an integrated world economy. It's doomed to
fail from the get go.

>  The same thing happened in 1720 with
> the South Seas company in Great Britian and the Mississippi Scheme in
> France.

I'll look into these as I'm not familiar with the particular. Thanks for the
lead.

> And I think we will see the same thing here and across the globe shortly.
> Japan started to see this in the early '90s.

Agreed. What I find really funny (in a macabre sort of sense I admit) is
that the folks who are hording gold and other supposed universal valuables
are in for a big surprise at what comes out of the other end. This is going
to be a economic/political Industrial Revolution the likes of which haven't
been seen since mankind invented the little clay balls for sealing contracts
for selling sheep and such.

    ____________________________________________________________________
 
       To know what is right and not to do it is the worst cowardice.

                                                     Confucius

       The Armadillo Group       ,::////;::-.          James Choate
       Austin, Tx               /:'///// ``::>/|/      ravage@ssz.com
       www.ssz.com            .',  ||||    `/( e\      512-451-7087
                           -====~~mm-'`-```-mm --'-
    --------------------------------------------------------------------