Archives for posts with tag: Profit

In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.” Milton Friedman, 1970

Between 1776 and 1970 the world had leaped forward. Technologically, economically and socially. Not only that we’ve managed to learn so much about the world and to produce immense wealth but we’ve somehow managed to ‘spread around’ the results. The proportion of people who had improved their fortunes had grown constantly during the entire period.

The majority of Americans share in economic growth through the wages they receive for their labor, rather than through investment income. Unfortunately, many of these workers have fared poorly in recent decades. Since the early 1970s, the hourly inflation-adjusted wages received by the typical worker have barely risen, growing only 0.2% per year. In other words, though the economy has been growing, the primary way most people benefit from that growth has almost completely stalled.” Jay Shambaugh, Ryan Nunn, HBR

Isaac Newton hadn’t invented gravitation. He only ‘noticed’ it. Put it in words.
Adam Smith hadn’t invented the free market. He had noticed how it used to work and opened our eyes about it.
For what ever reasons, enough of us had chosen to close those eyes back. And have reached the conclusion that ‘greed is good’.

Milton Friedman was both horribly wrong and exactly right.

He was right in the sense that he had gouged correctly what the ‘general public’ wanted/was ready to accept. “in accordance with their desires, which generally will be to make as much money as possible

He was horribly wrong in the sense that he had perpetuated Marx’s error. Karl’s, not Groucho’s.

Money isn’t everything. Life beats it to the post.
Profit is, indeed, essential. Only it is nothing but an indicator. About how efficient a corporation is.
Meanwhile the role of a corporation is to accomplish – as Friedman himself had dully noted, the will of the shareholders.

The problem arises from the fact that ‘near mindedness’ blinds.
If/when both shareholders and management have nothing but ‘money’ in their scopes the market actually looses its freedom.

Economic agents no longer converge towards the market to solve each-others problems – like Smith had noticed, but to ‘make money’.

Not the same thing. Not by a long shot.

What do we have an economy for?

To make ends meet? To make it easier for our needs to be met?

What do we have a banking/financial system for? To mobilize capital for the economy? To make it possible for our needs to be met easier? More efficiently?

Or just for profit to be made?

“It really is possible to do two good things at once: address the abuse of the working poor by payday-loan and check-cashing outfits while expanding the range of services provided by the USPS. Media outlets have called Warren’s proposal “radical.” That’s ludicrous. She’s simply using her position and prominence to highlight the findings of a new study by the Postal Service’s Office of the Inspector General, which notes that roughly 68 million Americans are underserved by the private banking system. “With post offices and postal workers already on the ground,” says Warren, “USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods.”

This is not a new idea. From 1911 to 1967, the Postal Service maintained its own banking system, allowing citizens to open small savings accounts at local post offices—actually a better approach than “partnering” with banks. The system was so successful that after World War II, it had a balance of $3 billion, roughly $30 billion in today’s dollars. Congress did away with postal banking in the 1960s, but post offices in other countries—including Japan, Germany, China and South Korea—provide banking services. Japan Post Bank is consistently ranked as one of the world’s largest financial institutions based on assets.”

Or, to put it the other way around,
‘what profit is?’

The well deserved ‘consequence’ – considered as such by the vast majority of the stakeholders, of a well-done job?
Or a self serving benchmark to be reached at all costs? Which costs are to be ‘shouldered’ by anybody else but the profiteer himself… till reality slaps us, all of us, over our faces…

Maybe it’s to early… I’ll take my chances though.

Germany has weathered this crises a lot better than most of her neighbors.

There are no toll- booths on the German highways. Not that I know of, anyway.

And what has this to do with anything?!?

Well, does your heart bill you for its services?
Your lungs? Your gut? Brain?
The immune system?
Even if each of them works at a cost… for the whole organism!

The health care system is the social equivalent of the immune system.

We, each cultural community around the world, might treat it as an industry. Fine tuned to maximize profit.
Or as a social service. Meant to protect the society from the consequence of disease. And run as efficiently as possible, of course. But sized to be able to cope with reasonably estimated ‘loads’.

There is a fine balance to be held here, of course. A multi-dimensional equilibrium, actually.

It depends on us, as individual members of the brain, to fine tune that equilibrium.

Or else…

“Between 1970 and 2010, the number of administrators in health care grew more than 3000%, while the number of physicians grew about 200%, according to the Bureau of Labor Statistics. During that same 40 years, U.S. health-care spending rose 2300%. Doctors’ fees account for only 8 cents of the health care dollar. Where do you think the other 92 cents are going?”  (Marni Jameson Carey, Focus on Health Coverage Misses the Point,, Oct 24, 2017)

A few years ago I was arguing that profit was overrated.
It seems that Forbes, a magazine which cannot be accused of any socialist tendencies, has reached a somewhat similar conclusion.

Even more interesting is the solution proposed by Forbes to the health care problem.

A return to the free market!

Free from what? Who says the American health care market is not free?
Well, click on the quote above and see what Forbes has to say about this…

But what happened? How did we get here?

Well, the free market described by Adam Smith was an environment where people used to fulfill their needs by selling their wares.
The butcher sold meat and bought everything else he needed, the brewer sold beer and bought everything else he needed, the baker… and so on!
OK, there  was a certain kind of competition which kept the things in check. The butchers competed against other butchers, the brewers…
And because of this competition, all traders – those who wanted to survive, anyway – streamlined their operations and became more and more efficient. Hence profitable.

I mentioned the link between the survival of a commercial enterprise and its ability to generate profit.
Apparently, it doesn’t make much sense to elaborate on this. Bear with me, please.

The whole point of the free market is the division of labor. Besides its freedom, of course.
Each of us does what he knows better and then we trade our respective wares. This way all of us fare better than if each of us would have had to produce everything each of us needs to survive.
In this scenario, competition – between ‘bakers’, for example – is actually a tool which makes it so that the market, as a whole, doesn’t waste resources. When the less efficient bakers are ‘encouraged’ to find something else to do, the entire market is better off. And so on.
In this sense, profit is only one indicator – and a very good one – of how able to survive is a certain commercial venture. But not the only goal of the entrepreneur who started/runs the enterprise. What he wants is to make an as good as possible living by doing what he knows best, in close collaboration with the other participants to the free market.

Adam Smith had written his books some two and a half centuries ago.
And the free market had served us well, for a while.
Just look at what we’ve accomplished in these two and a half centuries.

But, just as Forbes points out, things are no longer going in the right direction.


Simply because the market is no longer free!

Not only because some of the participants have become ‘heavy’ enough to crush all competition. This is only the lesser part of the problem.
The really big one, and so well hidden that it’s almost invisible, is that too many of us have become obsessed with the same thing. Money!


Profit has become THE absolute goal of everything we do. Too many of those who participate in the free market no longer want to collaborate with the others but simply want to get rich. By any (legal) means.

Some say this is a good thing.
They invoke Adam Smith’s words as a justification for their beliefs.

I beg to differ.

The simple existence of our current obsession has profoundly altered the very nature of the market. Which is no longer free.

Because WE are no longer free. When too many of us are obsessively concentrated on the same thing, they will necessarily disregard all other options. And the rest have no other option but to follow.

This is not freedom!

Mesmerized people can not be described, by outside observers, as being free.
Regardless of how they consider themselves.


‘Optimizare fiscala’ este o caciula foarte mare.
Sub ea poate fi ascuns orice.
Bineinteles ca toti oamenii normali la cap isi planifica afacerile in asa fel incat sa obtina cat mai mult profit.
Diferentele apar din metodele folosite pentru a obtine acest profit. Unele dintre aceste metode sunt atat legale cat si morale, altele legale dar amorale sau chiar atat ilegale cat si imorale.
Practica sugereaza, cat se poate de puternic, ca pietele sunt cu atat mai fragile cu cat accepta mai multa imoralitate.
Ne e mult mai usor sa intelegem cat de periculoasa e acceptarea ilegalitatii – tuturor ne e frica de talhari.
Ne e mult mai greu sa intelegem ca ‘hotii’ care se folosesc de imoralitate in loc de violenta sunt mult mai periculosi decat talharii. Tocmai pentru ca nu ne e frica de ei. Ni se pare ca suntem suficient de smecheri incat sa ne pazim singuri de excroci iar chestia asta ne da un fel de mana libera sa incercam sa-i pacalim noi pe altii.
Nu facem altceva decat sa ne furam singuri caciula. Aia optimizata fiscal.

mad cow.jpg

The current mantra is ‘consumer driven economy’.
I think this is a blatant lie. Currently the economy is not ‘consumer driven’ but ‘driven by marketeers’. The consumers do nothing but set the limits… (or more precisely the limits are set by the consumers’ ability to borrow against their future).
Some nights ago, while listening to Zhang Xin about the Chinese economy becoming more consumer oriented ( I started to see the stages we passed in order to get here:

– Hunter-gatherers for most of our pre-history. Minimal material progress: Chipped stone tools, bow and arrows, fire, some weaving.
– Agriculturalists. Second longest period. Increased productivity freed some people to do something else but toil for food. Most important features of modern life appeared now: lifespan improved dramatically, at least for those not having to work endlessly under the sun, water and waste management in the cities, commerce, manufacture, thinking for the sake of thinking. Still, people tended to mind a natural order: first things first and thrills later.
– Industrialists. The advent of the machine tool. Apparently things were going even better. People started to become less ‘poor’.
– Economists. Mass production, economy of scale. The poor were still improving their lot but the rift between the have’s and the have-not’s was already widening.
– Marketers. Rational, profit seeking agents. The economy is no longer a human activity that provides goods for the consumer to choose from but a ‘killing field’ were everybody tries to get rich and the weakling be damned. People are faking the very food they serve to their fellow humans just because they need additional money to buy more trinkets. Planned obsolescence. Redundancies. Corporations try to control everything, including drinking water.

Surely we must be doing something wrong.
I’m all in for science, reason and everything else. The problem is what are we going to do with all these!?!–stiglitz

“Fortunately, what motivates most significant advances in knowledge is not profit, but the pursuit of knowledge itself. This has been true of all of the transformative discoveries and innovations – DNA, transistors, lasers, the Internet, and so on.”

This observation is in synch with a concept introduced by Csikzentmihalyi: “flow – the state in which people are so involved in an activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it.” (

Unfortunately modern world is dominated by another concept: “monetization”. “To monetize is to convert an asset into or establish something as money or legal tender. The term monetize has different meanings depending on the context.”

In real life reaching the state of ‘flow’ is not enough, one also has to eat. Maslow’s pyramid is eloquent enough. If somebody wants to discern between two flow producing activities ‘profit’ comes in quite handy. Being profitable means not only a real demand for whatever is supplied but also that that activity is run by a diligent operator. In this sense profit is a very good efficiency indicator.

Contemporary economic and social life seems to be dominated by another logic. Profit has become a goal, not an indicator. Instead of trying to achieve the state of ‘flow’, people try to get rich. Instead of finding happiness by doing something meaningful people try to numb themselves by ‘consuming’. We have transformed ourselves from ‘free spirits’ into ‘consumers’.

It seems that we have forgotten what Max Weber tried to teach us. “As Calvinism developed, a deep psychological need for clues about whether one was actually saved arose, and Calvinists looked to their success in worldly activity for those clues. Thus, they came to value profit and material success as signs of God’s favor.” In this vision ‘profit’ is indeed an indicator and we should also remember about “Asceticism and the Spirit of Capitalism.”

And yes, this is indeed an agency problem.

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