Capitalism: Early benefits, Late problems?

[The_Animus]

I've been thinking about capitalism a bit lately. It seems to me that initially it would have benefits. There would be competition, which would lead to better quality products, lower prices, and improved service. In order to get more customers a company would try to find ways to give better products at a lower price than their competitors and their competitors would do the same.

But what happens after this system has been in place for a long period of time and competition is no longer between small rival companies but a select few business giants? Does it not reach a point where it is better for businesses to maintain the appearance of competition to the public, but meet behind closed doors to set prices? Does it not reach a point where improving durability/quality of a product is not in the best interest of the major competing companies?

It seems to me that at some point improving durability of a product would be bad for a businesses profits. If the product lasts 10+ years that means that people who buy that product will not have to buy another one for a very long time. I know that for some products there is no need to increase durability to this point because of the type of product. For example a computer. Most people will want to buy a new computer or at the very least upgrade essential parts before 10 years time, but I'm not talking about that type of product.

I know that companies have been found to be illegally meeting behind closed doors to set prices, though I don't know about other things such as durability. And when they are caught they are usually fined a small amount and nothing is really done to the company.

To sum it all up I think that in the late game trying to out compete your rivals would earn less profits than meeting behind closed doors and setting prices and durability/quality.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?

I don't pretend to be an expert on the subject of economics. This is just something I was thinking about and so I'd appreciate the thoughts and opinions of those on this forum with greater economic knowledge.

[rjh01]

The real problem with capitalism is that it is the second worst system in the world. The worst? Every other system.

[Pope130]

I agree with rjh01 on this. It is a system that works badly. It should be replaced by a system that works better. Problem is we haven't found one yet.

For now I favor sticking with capitalism, controlled and monitored by appropriate laws and agencies. Sloppy, but it works.

Robert

[Rob Lister]

I've been thinking about capitalism a bit lately. It seems to me that initially it would have benefits. There would be competition, which would lead to better quality products, lower prices, and improved service. In order to get more customers a company would try to find ways to give better products at a lower price than their competitors and their competitors would do the same.

But what happens after this system has been in place for a long period of time and competition is no longer between small rival companies but a select few business giants? Does it not reach a point where it is better for businesses to maintain the appearance of competition to the public, but meet behind closed doors to set prices? Does it not reach a point where improving durability/quality of a product is not in the best interest of the major competing companies?

It seems to me that at some point improving durability of a product would be bad for a businesses profits. If the product lasts 10+ years that means that people who buy that product will not have to buy another one for a very long time. I know that for some products there is no need to increase durability to this point because of the type of product. For example a computer. Most people will want to buy a new computer or at the very least upgrade essential parts before 10 years time, but I'm not talking about that type of product.

I know that companies have been found to be illegally meeting behind closed doors to set prices, though I don't know about other things such as durability. And when they are caught they are usually fined a small amount and nothing is really done to the company.

To sum it all up I think that in the late game trying to out compete your rivals would earn less profits than meeting behind closed doors and setting prices and durability/quality.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?

I don't pretend to be an expert on the subject of economics. This is just something I was thinking about and so I'd appreciate the thoughts and opinions of those on this forum with greater economic knowledge.

Seems to me all your arguments against capitalism are really arguments for it.

[Tony]

Frankly, I think its the opposite. Historically, capitalism seems to have early problems and late benefits.

[3point14]

I agree with rjh01 on this. It is a system that works badly. It should be replaced by a system that works better. Problem is we haven't found one yet.

For now I favor sticking with capitalism, controlled and monitored by appropriate laws and agencies. Sloppy, but it works.

Robert

But just say that a better system presented itself, is there any way in the world that we could switch to it without major problems (riot, war, civil commotion, as the insurance policies have it).

I would propose that if a better system presented itself, then those with a vested interest in the status quo, who would have it in their power to try to implement such a system, wouldn't.

I would further propose, human nature being what it is, that those with a vested interest in the current system would actively discourage anything that might lead to the development or implementation of any superior system.

As ever, I could be wrong.

[Rob Lister]

But just say that a better system presented itself, is there any way in the world that we could switch to it without major problems (riot, war, civil commotion, as the insurance policies have it).

I would propose that if a better system presented itself, then those with a vested interest in the status quo, who would have it in their power to try to implement such a system, wouldn't.

I would further propose, human nature being what it is, that those with a vested interest in the current system would actively discourage anything that might lead to the development or implementation of any superior system.

As ever, I could be wrong.

Propose all you want but without an example, your proposal is moot.

I suspect if a better system "came along" then the switch would be natural and not forced.

eta: In the u.s. along with most other first-world countries, capitalism is greatly diluted by socialism; not necessarily a bad thing. Without capitalism, you lack revenue, without socialism, you lack support. In the end there is an ever-shifting balance.

[Tony]

double post

[Tony]

Propose all you want but without an example, your proposal is moot.

I suspect if a better system "came along" then the switch would be natural and not forced.


LOL

Tell that to citizens of North Korea and Cuba. A better system has been around for decades, and yet, those with vested interests are using their power to hinder the adoption of this better system.

[JoeEllison]

That, and the American system is hardly capitalism at all, thanks to the levels of parasites attached to it, in large part due to the stock market, and the predatory nature of those at the very top.

[Rob Lister]

LOL

Tell that to citizens of North Korea and Cuba. A better system has been around for decades, and yet, those with vested interests are using their power to hinder the adoption of this better system.

I'm impressed by the mind that can both make that statement and believe it at the same time, especially as an argument to my statement.

I like to think that the results speak for themselves.

[The_Animus]

The real problem with capitalism is that it is the second worst system in the world. The worst? Every other system.Granted. But that has nothing to do with my post. I'm not debating whether there is currently a better system. I'm just proposing flaws in the current one.

Seems to me all your arguments against capitalism are really arguments for it.Then either you misread what I wrote or I was not clear enough. It has benefits initially. But there is a limit to which competition results in lower prices and higher quality products. There becomes a point where it is more profitable for major competing companies to meet behind doors to fix prices and quality than to continue to try to out compete each other. This kind of meeting would have major benefits to the businesses, but not the consumers. It would allow businesses to set and keep higher prices than if they continued to actually compete. It allows them to have lower quality products. It results in less urgency toward research and development of newer, lower cost, higher quality products.

As a result the customer is losing out on these things so that the businesses can make more profits.

At least it seems like that would be how it works, and businesses have been caught doing just that. Not just for things like gas, but even food and meat prices.

I suspect if a better system "came along" then the switch would be natural and not forced.I suspect exactly the opposite based on the many examples history can give us. Look at the struggle to implement electric or hybrid cars. That didn't come naturally and easily. It was fought by the car companies because they wanted to keep the current much more profitable cars.

Slavery, Women's rights, becoming a Democracy, The earth is round and revolves around the sun, evolution. Even when things have great scientific backing and are proven again and again to be right or better than the current system there are people who fight change.

Why would a new and better economic form be different?

But in any case this isn't about whether there is a better system. It's about where the current form is heading. If this system stays in place I think the problem will only get worse. A greater range of product types will be dominated by a select few business giants. These companies will reach the point where full blown competition isn't the best option, and they will instead cooperate behind closed doors.

Also when companies reach this point, like walmart for department stores, or tyson for the meat industry, there is no room for a newcomer to have a chance at competing with these businesses.

[Rob Lister]

Yea, well, IBM will never get squashed by any newcomers like...

lol

[The_Animus]

http://www.counterpunch.org/food.html

The world's two largest grain companies are now one. The wave of mergers that has changed the face of the American economy in Clinton time is also engulfing the food industry. On July 9, 1999 Cargill Inc., the nation's largest privately held company, won approval from the Clinton administration to acquire the grain-trading operations of its primary rival, Continental Grain Inc. The approval came over the objections of attorney general offices from farm states, the Farmers Union, consumer and green groups, which charged that the union will create a near monopoly in the grain business. Combined, the two companies will control 94 per cent of the soybean and 53 per cent of the corn market. How can farmers get a fair price under these circumstances? Grain is not the only product where concentration is extreme. In the Midwest four companies control more than 40 per cent of the processing of each of the major farm commodities, lamb, beef, pork and chicken.

And that is a single company. Once you add up the top 3 or 4 companies for each market they own an awful lot. What percent of their market do you think Target and Walmart control?

http://www.smallbiztrends.com/2007/08/google-controls-the-fate-of-small-publishers.html

Google holds the fate of tens of thousands — probably hundreds of thousands — of Internet publishing businesses in its hands.
Being kicked out of Google’s search index for some infraction, real or suspected, can mean the difference between thriving, and struggling to stay alive. The bigger and more dominant Google becomes, the more that Internet publishers are dependent on Google — and the more this is an issue.


Recently Google acquired DoubleClick and now has more ad control than ever.

And these companies will only get bigger. When a company already controls such a huge % of its market it has tons of profit money. This money can then be used to buy out competitors and gain them an even larger portion. While the government has its anti-trust department, this only makes the acquisition go slower, not stop it.

[drkitten]

Yea, well, IBM will never get squashed by any newcomers like...

lol

Yes, but you'll notice how much longer IBM managed to hold back the computer industry than, say, Honeywell, AT&T, or DEC did.

I think the economic term that Animus is looking for is "barrier to entry." In Adam-Smith style idealized capitalism, there are no barriers to entry at all; if I want to start making shoes, I simply start making shoes and sell them. If my shoes even "as good" as the competition, I will be able to successfully compete and make my fair share of the market.

In the real world, that doesn't work as well. A company can create "barriers to entry" that will artificially raise the costs of entering the market, which in turn will artificially decrease competitor's profit margins and make them less competitive. Sometimes these barriers to entry are natural -- if I happen to own the only decent grape-growing land for miles around, no one else will be able to grow grapes (and I have an effective monopoly). Sometimes these are artificial legal barriers -- if I have a patent on a particular technology, no one else can use that technology without my permission. Sometimes they're extra-legal barriers that I have created through cross-licencing or marketing or something like that.

A good example of this kind of "barrier to entry" comes from the Betamax/VHS wars, back in the day. Betamax was actually a superior technology, but the VHS people managed to get more of their players out there, so the "market" never had a chance to evaluate the technical merits. Betamax was facing an artificial "barrier to entry" in that its product was incompatible with the emerging standard. Today, a new product would have a similar problem trying to break into the DVD market. The DVD standards are created by a consortium of the current major players, and a new technology that threatens their hegemony will be rejected by the consortium.

So imagine the plight of a small player. He's got a hypothetical video storage technology that is substantially better than a DVD, but he is unwilling to surrender control to the consortium. But he also can't turn around and sell it without a huge influx of money; he'd basically need to create one company to create the storage devices, another company to create players for those devices, and a third to publish material on it. If the consortium gets snippy (for example, with exclusive licence arrangements), he may have to create a fourth production company to produce material to publish as well.

That's a lot of startup capital.

You can see the problem in the video game industry, too. Le'ts say I want to create the drkittenbox370. Unless I can get people to write games for me, no one will buy my box. But unless people will buy my box, no one will write games for me. The only solution is to be someone like Microsoft, with deep enough pockets that I can just buy both sides of the equation at once (and even Microsoft had to give xboxes away at less than cost initially to establish the necessary critical mass). Where does Adam Smith suggest that I should come up with that kind of capital?

[Pope130]

But just say that a better system presented itself, is there any way in the world that we could switch to it without major problems (riot, war, civil commotion, as the insurance policies have it).

I would propose that if a better system presented itself, then those with a vested interest in the status quo, who would have it in their power to try to implement such a system, wouldn't.

I would further propose, human nature being what it is, that those with a vested interest in the current system would actively discourage anything that might lead to the development or implementation of any superior system.

As ever, I could be wrong.

Well, nobody said change was easy. A new system certainly might impose itself by force (as communism did) or succeed on it's own and spread (my preferred method). If someone has a better economic system they should propose it.

Robert

[Tony]

I'm impressed by the mind that can both make that statement and believe it at the same time, especially as an argument to my statement.

I like to think that the results speak for themselves.

I've been gone for months and you still act like a child when you've shown to be wrong. Its nice to know some things never change.

[Tony]

You can see the problem in the video game industry, too. Le'ts say I want to create the drkittenbox370. Unless I can get people to write games for me, no one will buy my box. But unless people will buy my box, no one will write games for me. The only solution is to be someone like Microsoft, with deep enough pockets that I can just buy both sides of the equation at once (and even Microsoft had to give xboxes away at less than cost initially to establish the necessary critical mass). Where does Adam Smith suggest that I should come up with that kind of capital?

And Microsoft still hasn't made a profit on the xbox after being in the console bis 7 years. It's obvious Rob doesn't know what he's talking about.

[The_Animus]

Thanks drkitten. That was a detailed and articulate explanation of part of the problem I was trying to express. :)

The problem with coming up with any new system is that all systems require honesty and integrity from those who run the businesses. Without that any system can fall apart because of corruption and greed.

[The_Animus]

http://www.techspot.com/news/23612-microsoft-makes-tiny-profit-on-xbox-360-hardware.html

Through reduction in manufacturing costs, Microsoft (http://www.techspot.com/news/23612-microsoft-makes-tiny-profit-on-xbox-360-hardware.html#) has managed to bring the cost of the Xbox 360 to a zero loss (http://www.xbitlabs.com/news/multimedia/display/20061120132150.html), if not a slight profit. With a reduction in manufacturing costs by nearly 40% since the console's release and perhaps streamlining of the process and bulkier orders, a $399 pricetag now nets Microsoft $75.70 – before the unit has been shipped however. While Microsoft themselves haven't announced whether or not they plan a price drop, this will definitely give them leverage in the console wars if they wish to make the console cheaper.

While they can't beat the Wii on price, they have a huge price advantage over Sony (http://www.techspot.com/news/23612-microsoft-makes-tiny-profit-on-xbox-360-hardware.html#), which may be a key factor in determining supply and customer cost.

So it seems they are making a profit since this article was from 2006. Even so it did take even a giant like microsoft much time and money to squeeze into the console market.

[dudalb]

The real problem with capitalism is that it is the second worst system in the world. The worst? Every other system.

So I am not the only one who has rephrased the famous Churchill comment on Democracy for this situation?

[dudalb]

Propose all you want but without an example, your proposal is moot.

I suspect if a better system "came along" then the switch would be natural and not forced.

eta: In the u.s. along with most other first-world countries, capitalism is greatly diluted by socialism; not necessarily a bad thing. Without capitalism, you lack revenue, without socialism, you lack support. In the end there is an ever-shifting balance.


Agreed. A pure lassiez faire Capitalist system would self destruct in about five minutes...must like a pure Socialst system would.

[dudalb]

http://www.techspot.com/news/23612-microsoft-makes-tiny-profit-on-xbox-360-hardware.html



So it seems they are making a profit since this article was from 2006. Even so it did take even a giant like microsoft much time and money to squeeze into the console market.

Microsoft got helped a lot by the stupid way Sony priced and handled Play Station 3. What a fiasco that was.

[The_Animus]

That's true. Sony has made many mistakes and they seem too arrogant to care.

Honestly I think the only way political and business systems will improve is with improved ethics of those who hold the positions of power.

Hopefully over time, very slowly, people will make more choices based on what benefits everyone else instead of themselves. Until then, no system will work as well as it could due to corruption and greed.

[PixyMisa]

Hopefully over time, very slowly, people will make more choices based on what benefits everyone else instead of themselves.
North Korea is thataway if you want to see how well that works.

Until then, no system will work as well as it could due to corruption and greed.
"To summarise the summary of the summary: People are a problem."

[Francesca R]

But what happens after this system has been in place for a long period of time and competition is no longer between small rival companies but a select few business giants? Does it not reach a point where it is better for businesses to maintain the appearance of competition to the public, but meet behind closed doors to set prices? Does it not reach a point where improving durability/quality of a product is not in the best interest of the major competing companies?Well in a capitalist economy it is in the best (financial) interest of any company to attempt to thwart competition and raise barriers to entry and so on. But it naturally would be unless their self-interest was to change to something less logical. Capitalism is about keeping the playing field level in the full knowledge that any economic agent would inherently prefer to skew it uphill against all the others.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?Rule of law that successfully enforces against anti-competitive practice. In other words, making capitalist enterprise subordinate to and accountable to the will of society.

Capitalism accountable to no authority merely replicates the law of the jungle.

[3point14]

Propose all you want but without an example, your proposal is moot.

I suspect if a better system "came along" then the switch would be natural and not forced.


I would disagree. In fact, any switch from one system to a 'better' one (comunism to capitalism, perhaps) seems to have come either with great upheaval (the fall of the USSR springs to mind) or not at all due to the will of those in power (North Korea). China seems to be making the switch without too much in the way of civil disobedience, but I honestly don't know too much about that and am not sure too many do.

[Francesca R]

I would disagree. In fact, any switch from one system to a 'better' one (comunism to capitalism, perhaps) seems to have come either with great upheaval (the fall of the USSR springs to mind) or not at all due to the will of those in power (North Korea). China seems to be making the switch without too much in the way of civil disobedience, but I honestly don't know too much about that and am not sure too many do.The existence of a better system does not guarantee that a society moves over to that system, obviously. That's because intensity of desire does not equate with ability to prevail.

To a very simplified approximation, in China, the government wants to embrace their interpretation of capitalism, so it happens. In the USSR the government became insufficiently powerful to prevent a move in this direction. In North Korea, the government is currently powerful enough to do what it wants.

Now if you bring up "western" societies, I suspect that society has the ability to prevail if it desires to change the system. Comparison with the above three is not instructive. Do you take a different view?

[Rob Lister]

I would disagree. In fact, any switch from one system to a 'better' one (comunism to capitalism, perhaps) seems to have come either with great upheaval (the fall of the USSR springs to mind) or not at all due to the will of those in power (North Korea). China seems to be making the switch without too much in the way of civil disobedience, but I honestly don't know too much about that and am not sure too many do.

You disagree but you seem to be arguing my point. People are naturally capitalistic and it takes a good deal of force to prevent them from doing what comes naturally. Remove the force and the change happens.

[Francesca R]

Remove the force and the change happens.I think the point is that removal of the force is non-trivial. If it is compellingly "natural" then why do things so routinely get in the way of it happening?

[3point14]

The existence of a better system does not guarantee that a society moves over to that system, obviously. That's because intensity of desire does not equate with ability to prevail.

To a very simplified approximation, in China, the government wants to embrace their interpretation of capitalism, so it happens. In the USSR the government became insufficiently powerful to prevent a move in this direction. In North Korea, the government is currently powerful enough to do what it wants.

Now if you bring up "western" societies, I suspect that society has the ability to prevail if it desires to change the system. Comparison with the above three is not instructive. Do you take a different view?

I think the ability to prevail if changes to the system were required/desired would depend heavily on the distibution of power throughout society. If power were in the hands of a large cross section of society, then change may be affected far more easily than if the majority of power were held only by a very small 'ruling class'.

I'm not sure how you dismiss the examples given as not instructive? They are the only examples we have of such power shifts in the modern world (well, these and a few others, perhaps) and although they may not provide exact parallels, surely there is some value in them as examples?

[3point14]

You disagree but you seem to be arguing my point. People are naturally capitalistic and it takes a good deal of force to prevent them from doing what comes naturally. Remove the force and the change happens.

You claimed that change to a 'better' system would be natural and without force. I would say that the examples we have of societies moving from one system to a 'better' one, as capitalism is defined, has frequently come with a large amount of social upheaval and not a little forcing.

[Rob Lister]

You claimed that change to a 'better' system would be natural and without force. I would say that the examples we have of societies moving from one system to a 'better' one, as capitalism is defined, has frequently come with a large amount of social upheaval and not a little forcing.

Forcing by whom? Seems to me it is the people snubbing the force that instantiates the change. Of course it is "social upheaval" but that too, under certain circumstances, is natural.

[3point14]

Forcing by whom? Seems to me it is the people snubbing the force that instantiates the change. Of course it is "social upheaval" but that too, under certain circumstances, is natural.

Guess it depends on the situation, was only really using the term 'forcing' as it is the one you chose to use.

[Francesca R]

I think the ability to prevail if changes to the system were required/desired would depend heavily on the distibution of power throughout society. If power were in the hands of a large cross section of society, then change may be affected far more easily than if the majority of power were held only by a very small 'ruling class'.Agreed. In my view western societies are considerably much more towards the first camp than are N Korea, PRC and the USSR before it crumbled, which are/were firmly in the second one.

I'm not sure how you dismiss the examples given as not instructive? They are the only examples we have of such power shifts in the modern world (well, these and a few others, perhaps) and although they may not provide exact parallels, surely there is some value in them as examples?I inferred from you that because "social upheaval" happened in the USSR dismantling, and upheaval would apparently be necessary for North Korea to change . . . then that means that even if there is a superior economic model than capitalism available to, say, the Netherlands, it would not be able to come about without similar social upheaval. Is this because you don't believe that power is significantly (enough) more decentralised in the west to allow change to be affected very easily?

[Rob Lister]

Well, I think we got off on this tangent because of my use of the word "force". I used it in a narrow context of "forcing people to adopt a system they'd rather not". I don't think it's fair to equate it, in that narrow context, with any or all forms of upheaval. When an inferior system collapses, then of course their will be an upheaval.

It wasn't an intentional strawman, but a strawman nonetheless. '

Anyway, this is really not topical to the subject thread.

Let's get back on track.

Walmart!!!!!

If K-Mart only foresaw!

ETA:...

Target!!!!!

If Walmart only foresaw!

[3point14]

Agreed. In my view western societies are considerably much more towards the first camp than are N Korea, PRC and the USSR before it crumbled, which are/were firmly in the second one.


I think some western societies may be more 'top heavy' than others. Indeed, if power is represented by money, then large chunks of western society do, to my (perhaps limited) understanding have the power concentrated in a very small group at the top.

Of course, if power is represented by votes, then it's spread across the whole of society. I would add to this point that it takes a lot of money to get into the oval office.


I inferred from you that because "social upheaval" happened in the USSR dismantling, and upheaval would apparently be necessary for North Korea to change . . . then that means that even if there is a superior economic model than capitalism available to, say, the Netherlands, it would not be able to come about without similar social upheaval. Is this because you don't believe that power is significantly (enough) more decentralised in the west to allow change to be affected very easily?


I think my answer to this is yes. I will add to this that my knowledge is probably limited in this area, but see my comments re money = power above.

(edit for format)

[3point14]

Well, I think we got off on this tangent because of my use of the word "force". I used it in a narrow context of "forcing people to adopt a system they'd rather not". I don't think it's fair to equate it, in that narrow context, with any or all forms of upheaval. When an inferior system collapses, then of course their will be an upheaval.

It wasn't an intentional strawman, but a strawman nonetheless. '

Anyway, this is really not topical to the subject thread.

Let's get back on track.

Walmart!!!!!

If K-Mart only foresaw!

ETA:...

Target!!!!!

If Walmart only foresaw!

Fair enough.

To be fair, at some point during a 'revolution' of the type being discussed, there will be some 'forcing', be it at the point of a gun, or merely those in power acquiescing gracefully to the will of the people, or alternatively a strong enough ruling classes exercising power to force the people to continue accepting the inferior system, so there almost has to be force involved.


Not sure where this leaves in terms of the discussion though. :)

[Francesca R]

I think some western societies may be more 'top heavy' than others. Indeed, if power is represented by money, then large chunks of western society do, to my (perhaps limited) understanding have the power concentrated in a very small group at the top.It is not the intention of capitalism that money = power. A person or a corporation is intentionally accountable to the same laws regardless of their wealth. Reality departs from this to the extent that money = resources available to circumvent law or take power by force or buy power. There you have a route to corruption and application of Lord Acton's dictum.

I maintain that the inherent "problem" (with capitalism) is that the system works if the playing field is level, yet at the same time it only works if populated by agents who would benefit from skewing it so that they have as much advantage over everyone else as possible.

[3point14]

It is not the intention of capitalism that money = power. A person or a corporation is intentionally accountable to the same laws regardless of their wealth. Reality departs from this to the extent that money = resources available to circumvent law or take power by force or buy power. There you have a route to corruption and application of Lord Acton's dictum.

I maintain that the inherent "problem" (with capitalism) is that the system works if the playing field is level, yet at the same time it only works if populated by agents who would benefit from skewing it so that they have as much advantage over everyone else as possible.

I think we're back to it being the worst system except all the others, aren't we?


Yes, in theory money does not equal power, but in reality I don't think anyone could argue against that in practice it does. How skewed the system has become is where the argument would come in.

I still maintain that if some genius came up with a system that we all here (representing a decent cross section of society and as likely all to pull in the same direction as a heard of cats) agreed was a far superior system, then, if that system involved the 'leaders of business' and the like having to give up some wealth, power and influence then their opposition to any implementation of said system would be a very difficult hurdle to overcome.

[Francesca R]

An interesting question is: which socio-economic system most closely approximates human nature? Is that system is likely to be the most durable, and would it be perceived as "best"?

[Rob Lister]

An interesting question is: which socio-economic system most closely approximates human nature? Is that system is likely to be the most durable, and would it be perceived as "best"?

Ya see, that's the thing. Unless you define metrics (such as best) discussion is fruitless.

Let's start with a definition, an actual metric, and go from there.

And shave your pits.

[drkitten]

An interesting question is: which socio-economic system most closely approximates human nature? Is that system is likely to be the most durable, and would it be perceived as "best"?

An interesting question indeed, but one that I fear will not be easily or relevantly answered.

I disagree rather vehemently with Rob that "[p]eople are naturally capitalistic and it takes a good deal of force to prevent them from doing what comes naturally." The judgement of history fails to support this; if capitalism is so natural, why did we only see it form in the 17th century, and in one society? What "force" was being applied between 5000 BCE and 1600 CE to keep people from following their natural instincts.

My understanding is exactly the opposite. The "natural state" of people is a heritable technocracy. Every useful skill has a person or people responsible for management of that skill (shoes are made by the shoemakers) who in turn are responsible for training others, often their children (you are apprenticed to a shoemaker and learn how to make shoes, then you go one to train others yourself). I would also point out that the "normal' state of people a small enough group that there's no a lot of room for an autocrat except by the consent of the people involved.

This is also how people "naturally" organize themselves when left to their own devices. If a friend needs a house remodelled, he calls upon his social circle and we all descend upon the building site. Once we get there, we will then work on whatever we feel most comfortable working on, and sort ourselves out by skills. I'm a better electrician than a carpenter, and a better carpenter than a plasterer, so I would probably offer to pull wire and hook stuff up instead of mixing plaster (and everyone knows this, so they'd probably accept -- in fact, the novice electricians would probably "naturally" ask me for instruction and direction, reflecting my higher level of skill).

[3point14]

Ya see, that's the thing. Unless you define metrics (such as best) discussion is fruitless.

Let's start with a definition, an actual metric, and go from there.

And shave your pits.

Absolutely. Better for whom and by how much.

Then again we seem to have all agreed that capitalism is the 'best' system (with all the usual caveats) then we're all jusdging it by some internal criteria.

[drkitten]

Absolutely. Better for whom and by how much.

All right, I'll propose one. The "best" economic system maximizes the minimum quality of life for those involved in the system.

I base this metric on several factors. First, "quality of life" as a base to be maximized should be fairly self-evident. Second, basic fairness requires that we maximize the QoL of a large fraction of the population instead of a few elite. Third, both economic theory and psychological studies agree that increases in quality of life result in a rapidly diminishing rate of return; you get more "bang for buck" going from 1000 calories of food a day to 2000 than you do from 2000 to 3000 (or even 2000 to 4000); The difference between zero bathrooms in your house and one is more significant than between one and two.

An alternative metric would be to maximize the median (not mean) quality of life.

Based on either of these metrics, I think the studies suggest that modified socialism as practiced in Scandinavia is better than US-style capitalism, which in turn is substantially better than command economies such as the former Soviet bloc, which in turn is better than third-world tribalism.

[Francesca R]

The "best" economic system maximizes the minimum quality of life for those involved in the system.wouldn't making everyone's quality of life equal be what maximised the minimum?

An alternative metric would be to maximize the median (not mean) quality of life.Well you didn't say mean previously. But I think unfettered capitalism with no safety-net at all would maximise the mean, and probably mimimise the minimum (if you see what I mean . . . let the worst-off starve)

[balrog666]

An interesting question indeed, but one that I fear will not be easily or relevantly answered.

I disagree rather vehemently with Rob that "[p]eople are naturally capitalistic and it takes a good deal of force to prevent them from doing what comes naturally." The judgement of history fails to support this; if capitalism is so natural, why did we only see it form in the 17th century, and in one society? What "force" was being applied between 5000 BCE and 1600 CE to keep people from following their natural instincts.


So merchants only came along in the 17th century?? Private property never existed between 5000 BCE and 1600 CE??

:crazy:

Oh, and which country would you think that was, by the way? The Netherlands? Spain? Persia? Just wondering ...

[balrog666]

All right, I'll propose one. The "best" economic system maximizes the minimum quality of life for those involved in the system.
[snip]

As devil's advocate, I will have to disagree. The more QoL you provide to useless, unproductive people, the more of them you will get and the more it will cost. Furthermore, without adequately rewarding the most productive members of society, the less money you will have to spread around to the freeloaders, er ah, economic free riders.

[balrog666]

wouldn't making everyone's quality of life equal be what maximised the minimum?


Is that what Communism claimed (equal misery for all)?

[Tony]

An interesting question is: which socio-economic system most closely approximates human nature?

I think we must first define human nature. Anyone want to take a stab at that?

[Tony]

You disagree but you seem to be arguing my point.

Actually he's not. He's providing an example that directly contradicts your claim that "if a better system "came along" then the switch would be natural and not forced". Capitalism, a better system than statist communism, has been around for a long time and there are many countries, including the US, where its adoption hasn't been natural and not forced.

[Francesca R]

Is that what Communism claimed (equal misery for all)?Indeed.

[balrog666]

Indeed.


And I disagree with the above request, so don't shave!

[Rob Lister]

And I disagree with the above request, so don't shave!

oddly, one of the most erotic photos I've ever seen was that of a 20-something Asian girl looking in the mirror while shaving her pits.

but I digress...

Even given Drkitten's definition, I'd have to still go with the system we currently have in place in the U.S; capitalism tempered by a good measure of socialism.

[fuelair]

I've been thinking about capitalism a bit lately. It seems to me that initially it would have benefits. There would be competition, which would lead to better quality products, lower prices, and improved service. In order to get more customers a company would try to find ways to give better products at a lower price than their competitors and their competitors would do the same.

But what happens after this system has been in place for a long period of time and competition is no longer between small rival companies but a select few business giants? Does it not reach a point where it is better for businesses to maintain the appearance of competition to the public, but meet behind closed doors to set prices? Does it not reach a point where improving durability/quality of a product is not in the best interest of the major competing companies?

It seems to me that at some point improving durability of a product would be bad for a businesses profits. If the product lasts 10+ years that means that people who buy that product will not have to buy another one for a very long time. I know that for some products there is no need to increase durability to this point because of the type of product. For example a computer. Most people will want to buy a new computer or at the very least upgrade essential parts before 10 years time, but I'm not talking about that type of product.

I know that companies have been found to be illegally meeting behind closed doors to set prices, though I don't know about other things such as durability. And when they are caught they are usually fined a small amount and nothing is really done to the company.

To sum it all up I think that in the late game trying to out compete your rivals would earn less profits than meeting behind closed doors and setting prices and durability/quality.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?

I don't pretend to be an expert on the subject of economics. This is just something I was thinking about and so I'd appreciate the thoughts and opinions of those on this forum with greater economic knowledge.

Collusion is illegal - but occurs (sometimes it is called coincidental). Logic is behind planned obsolescence (planned is the key there). Logic also applies to things like hot sauces that imply they are hotter than they are - big difference between one you are still using a bottle of a year and a half later and one of same size you use in a month (I heartily recommend Yucateco Habanero red or green for good price, high heat and because of the second, long lasting).

[Francesca R]

Even given Drkitten's definition, I'd have to still go with the system we currently have in place in the U.S; capitalism tempered by a good measure of socialism.Agreed.

And I disagree with the above request, so don't shave!I don't plan to.

oddly, one of the most erotic photos I've ever seen was that of a 20-something Asian girl looking in the mirror while shaving her pits.Oh well, I'm 30-something, not Asian and not shaving, so 0/3 . . . ;)

[PixyMisa]

So merchants only came along in the 17th century?? Private property never existed between 5000 BCE and 1600 CE??
No, but capitalism as we would recognize it today, with limited liability companies, share trading and so on, does indeed date to the beginning of the 17th century, and serious capitalist economic theory to the 18th century.

[Francesca R]

As devil's advocate, I will have to disagree. The more QoL you provide to useless, unproductive people, the more of them you will get and the more it will cost.Rewarding "useless" people will lower their productivity?

Furthermore, without adequately rewarding the most productive members of society, the less money you will have to spread around to the freeloaders, er ah, economic free riders.Rewarding "the most productive" people will raise their productivity?

What do you do with the spectrum that lies between useless and most productive? And should there be any welfare safety net at all?

[WildCat]

There becomes a point where it is more profitable for major competing companies to meet behind doors to fix prices and quality
That's also the point where the Feds step in and start prosecuting.

[WildCat]

Rewarding "useless" people will lower their productivity?
No, it makes productive people think "what's the point?" and become less productive, since they are still being rewarded.

Rewarding "the most productive" people will raise their productivity?
Maybe, maybe it just keeps them just as productive. But it certainly gives incentives for others to become as productive as possible.

[Francesca R]

No, it makes productive people think "what's the point?" and become less productive, since they are still being rewarded.Only if the reward is comparable.

Maybe, maybe it just keeps them just as productive. But it certainly gives incentives for others to become as productive as possible.I accept that logic as far as it goes, but it seems to leave no room for any social security safety-net. If any level of transfer payment, not attached to making a contribution or adding value, is deemed a dis-incentive, then one lets some people starve. Unless you believe that everyone will be motivated into self-supporting work.

[hodgy]

All right, I'll propose one. The "best" economic system maximizes the minimum quality of life for those involved in the system.

I base this metric on several factors. First, "quality of life" as a base to be maximized should be fairly self-evident. Second, basic fairness requires that we maximize the QoL of a large fraction of the population instead of a few elite.

Its a reasonable metric to choose for the sake of argument, so ok...

Third, both economic theory and psychological studies agree that increases in quality of life result in a rapidly diminishing rate of return; you get more "bang for buck" going from 1000 calories of food a day to 2000 than you do from 2000 to 3000 (or even 2000 to 4000); The difference between zero bathrooms in your house and one is more significant than between one and two.

So 10 people with 1 bathroom each = higher total QoL than 5 people with 2 bathrooms each (and 5 with none) - fair point.

Based on either of these metrics, I think the studies suggest that modified socialism as practiced in Scandinavia is better than US-style capitalism, which in turn is substantially better than command economies such as the former Soviet bloc, which in turn is better than third-world tribalism.

I think it is more accurate to describe Sweden's system as modified capitalism. The system operated in Sweden is much closer to that in the US than it is to North Korea. Despite some state ownership of certain industries, Sweden is essentially a capitalist country.

The statement that 'modified socialism ... is better than US-Style capitalism' is loaded with a suggestion that it is best to start with an essentially socialist system and tweak it. Even if we assumed (but see below) that Sweden does have the best model, you cannot say that it got there by modifying socialism. What we actually see in Sweden is a capitalist system that has been influenced by some ideas and policies that have socialist origins.

Whilst we might simplistically say that Sweden performs better against your metric than the US, it does not logically follow that the the respective economic, social and political systems can be judged on that basis. The 2 countries are where they are today as a result of hundreds of years of history - the respective systems are of course the product of this evolution, each under very specific circumstances. That the QoL is better in one than another does not logically imply that one system must be better for QoL universally.

The QoL under the current US system might well be (in pragmatic terms) more or less as high as it can be given the prevailing historical and current circumstances. It also might not, but comparison with Sweden does not really prove that. Likewise for placing tribalism at the bottom of your list - for some groups in some circumstances tribalism is likely to yield the optimum QoL.

[drkitten]

wouldn't making everyone's quality of life equal be what maximised the minimum?

Not necessarily -- in my view, probably not at all. That's certainly an approach, but the systems that seem to be the best at the minimax game do so by creating substantial wealth and then redistributing large fractions of it, instead of forcibly equalizing all of it.

[3point14]

I honestly think that any system should not allow anyone, however unmotivated, to starve to death or die of exposure. The incentive to work and achieve should be that one can obtain (through hard work and dedication) that which the slackers do not (i.e. more bathrooms, faster cars, more beautiful partners) but for the deal to be 'work or starve' seems very, very cold, and I just can't be that callous. Yes, there will be those that abuse the system, but people abuse the system at every level, from the very top to the very bottom. I'd rather forgo my fourth bathroom so someone could eat off my money than have the fourth bathroom and have anybody starve.

[hodgy]

Making everyone's QoL 'equal' would not maximise total QoL in anything but the immediate term. As has been pointed out, it simply destroys productivity and efficiency.

If I get £100 per week for making chairs irrespective of the quantity and quality of my output what incentive do I have to make more and better chairs? What incentive do I have to invent new, more efficient ways to mass produce chairs? Net result - fewer chairs to share between everyone in the system.

[drkitten]

As devil's advocate, I will have to disagree. The more QoL you provide to useless, unproductive people, the more of them you will get and the more it will cost. Furthermore, without adequately rewarding the most productive members of society, the less money you will have to spread around to the freeloaders, er ah, economic free riders.

That is indeed the devil's advocate position, but I find it unsatisfactory for a variety of reasons, the first being that is simply isn't borne out by the empirical findings. In fact, I tend to feel that the "useless, unproductive people" that this argument hinges on to be a form of chimera, rather like the "welfare queens" the US conservatives railed about in the late 80s but that turned out to be rare to near-nonexistence. I've met very few people who were truly useless and unproductive; I find quite a few who are unmotivated, and who do not find the amount of money the US social system provides to entry-level jobs to be sufficient motivation. Give them something that they like doing, however, and the picture changes. Some of the worst students I knew in secondary school were the expert mechanics who spent hours tinkering on their cars....

The other problem, of course, is that an "adequate reward" is much less than modern capitalism seems to think. Again, this is borne out by surveys; William Whyte did an extensive survey of CEO pay in the 50s that was later replicated by researchers I have forgotten. He found that, while the vast majority of CEOs agreed that an adequate reward is necessary to get people to work hard, and with the generalization that without the substantial salaries CEOs are paid, they wouldn't be willing to accept the stress of the job, he also found that the vast majority of the individual CEOs found their personal job rewarding in and of itself, and that as individuals, they would be willing to do their job for substantially less. In other words, CEOs are, by their own admission, overrewarded for the work they are asked to do.

There's also the whole bugaboo about what "productive" is. A person who finds a way to shave 5% off the cost of pencil manufacturing is probably more "productive," in dollar terms, than a dentist -- but having suffered through wisdom tooth removal myself, I cannot imagine how cheap pencils would need to become to make the dentist less productive to my quality of life. One of the major changes in US capitalism recently is the development of HMOs as a form of health care provider -- which even the industry experts acknowledge are more in the business of health care withholding (I first heard that term at a keynote speech by an HMO exec). By withholding health care, they are more productive of "dollars" at the direct expense of QoL, which under my proposed metric would be a substantial setback. (Esp. since the people affected are generally below the median, so it has a much greater impact on the metric than withholding care from the well-off would have.)

[hodgy]

I honestly think that any system should not allow anyone, however unmotivated, to starve to death

This is a strawman isn't it? i don't think anyone here is saying 'work or starve'. I can be a capitalist and still recognise the value of state support for the unemployed, ill and old. Even putting human compassion to one side it is fairly obvious that an economy that has absolutely no such safety nets would likely become politically fragile.

[drkitten]

If I get £100 per week for making chairs irrespective of the quantity and quality of my output what incentive do I have to make more and better chairs? What incentive do I have to invent new, more efficient ways to mass produce chairs?

Unless you're a complete sociopath, your "incentive" is the pleasure of a job well done and the respect of your peers. One of the problems with a lot of the advocates of capitalism is that they tend to leave this particular part out of the equation when arguing how much people should be paid. Social rewards, although not necessarily easily quantifiable in pounds, shillings, and pence (if you're only getting £100 a week, you're obviously pre-decimalisation), are nevertheless real.

Net result - fewer chairs to share between everyone in the system.

That's an empirical question, innit? Will the social rewards be adequate to sustain chair production, or won't they?

But beyond that -- because by and large I agree that incentives are probably reasonable -- is the question of how much incentive is necessary or appropriate. Let's say that you figure out a way to make twice as many chairs of equal quality in the same time. Should you now get £200 a week? Should you get £500? Should you get £150, and the company can lower the price of chairs by 25% so everyone has chairs more cheaply? Or perhaps it would be sufficience for you to get £125 and the government gets another £25 to use to address the urgent table shortage that is the real social problem..... (You will of course have recognized this as the progressive taxation question in a paper-thin disguise.)

[hodgy]

The other problem, of course, is that an "adequate reward" is much less than modern capitalism seems to think. Again, this is borne out by surveys; William Whyte did an extensive survey of CEO pay in the 50s that was later replicated by researchers I have forgotten. He found that, while the vast majority of CEOs agreed that an adequate reward is necessary to get people to work hard, and with the generalization that without the substantial salaries CEOs are paid, they wouldn't be willing to accept the stress of the job, he also found that the vast majority of the individual CEOs found their personal job rewarding in and of itself, and that as individuals, they would be willing to do their job for substantially less. In other words, CEOs are, by their own admission, overrewarded for the work they are asked to do.

They are paid what the market will bear - they would not do the same job for substantially less if they knew that they could get twice as much at the firm next door irrespective of how much they enjoy doing it. I think there are cases of 'overrewarded' CEOs (and in every job / role, not just CEOs) but this is nothing to do with whether individuals enjoy their jobs or not.

There's also the whole bugaboo about what "productive" is. A person who finds a way to shave 5% off the cost of pencil manufacturing is probably more "productive," in dollar terms, than a dentist -- but having suffered through wisdom tooth removal myself, I cannot imagine how cheap pencils would need to become to make the dentist less productive to my quality of life.

You can't just consider one anecdote about your own teeth to be a useful critique of productivity. The economy does not consist of you, a dentist and a clever pencil maker. The economy is the sum of all our labour, skills and efforts. The pencil manufacturer makes money, employs people, paying them wages with which they buy good dental insurance. The dentist is educated and trained in schools partly funded by taxes paid by the pencil company and its employees. The pencils are exported, producing foreign exchange that is used to buy high tech dental equipment from a foreign manufacturer, etc....

[3point14]

This is a strawman isn't it? i don't think anyone here is saying 'work or starve'. I can be a capitalist and still recognise the value of state support for the unemployed, ill and old. Even putting human compassion to one side it is fairly obvious that an economy that has absolutely no such safety nets would likely become politically fragile.

It is, to an extent. I may have been exagerating for effect. I think the basic point still stands.

[drkitten]

They are paid what the market will bear - they would not do the same job for substantially less if they knew that they could get twice as much at the firm next door irrespective of how much they enjoy doing it.

But if we established a 95% CEO salary tax, they would continue to do their job.


You can't just consider one anecdote about your own teeth to be a useful critique of productivity. The economy does not consist of you, a dentist and a clever pencil maker. The economy is the sum of all our labour, skills and efforts. The pencil manufacturer makes money, employs people, paying them wages with which they buy good dental insurance. The dentist is educated and trained in schools partly funded by taxes paid by the pencil company and its employees. The pencils are exported, producing foreign exchange that is used to buy high tech dental equipment from a foreign manufacturer, etc....

And the net effect on people's Qualiity of Life is still much more substantially affected by a single dentist than by the entire pencil factory. If the pencil factory disappears, there are substitutes, such as pens, crayons, and chalk. There is no substitute for freedom-from-pain.

[hodgy]

But if we established a 95% CEO salary tax, they would continue to do their job.

Yes - in another country where there is lower CEO salary tax. CEOs work in a global marketplace. You will export your best business brains and experience and deter inward investment.

And the net effect on people's Qualiity of Life is still much more substantially affected by a single dentist than by the entire pencil factory. If the pencil factory disappears, there are substitutes, such as pens, crayons, and chalk. There is no substitute for freedom-from-pain.

No - you are extrapolating a general case from your individual circumstances. The pencil machine operatives lose their jobs (lets make it a cold Christmas Eve for dramatic effect), are you really claiming the relief of your toothache has a greater impact on QoL than that?

Anyway, if you can hypothesize a crayon factory, I can hypothesize another dentist. Its an economy, not a single street we're talking about.

[hodgy]

But if we established a 95% CEO salary tax, they would continue to do their job.

Yes - in another country where there is lower CEO salary tax. CEOs work in a global marketplace. You will export your best business brains and experience and deter inward investment.

And the net effect on people's Qualiity of Life is still much more substantially affected by a single dentist than by the entire pencil factory. If the pencil factory disappears, there are substitutes, such as pens, crayons, and chalk. There is no substitute for freedom-from-pain.

No - you are extrapolating a general case from your individual circumstances. The pencil machine operatives lose their jobs (lets make it a cold Christmas Eve for dramatic effect), are you really claiming the relief of your toothache has a greater impact on QoL than that?

Anyway, if you can hypothesize a crayon factory, I can hypothesize another dentist. Its an economy, not a single street we're talking about.

[3point14]

Yes - in another country where there is lower CEO salary tax. CEOs work in a global marketplace. You will export your best business brains and experience and deter inward investment.


So, how much effect would it have on the ecomomy to have the second tier of high flyers (the slightly lower flyers?) be the captains of industry while the elite ran off in search of more money? Would it really make that huge a difference? (Honest question, I really don't have the knowledge to answer it myself)

In addition, given that it is now a global marketplace, how many places could these CEO's run off to for lower taxes? (again, honest question)

Apart from these questions, I'm going to let DrK carry the argument. :)

[hodgy]

Unless you're a complete sociopath, your "incentive" is the pleasure of a job well done and the respect of your peers.

Many people work in jobs that they hate or that give them little, if any pleasure. Many jobs command little respect.

Anyway that's by the by, the more important point is that in economics we are interested in the marginal person(s). For capitalism to work it does not require that nobody works for sheer pleasure, it just requires that there are marginal people who will respond to higher incentives. In reality the majority of us work in that manner, this is why capitalism is so compelling - it works.

One of the problems with a lot of the advocates of capitalism is that they tend to leave this particular part out of the equation when arguing how much people should be paid.

By and large, capitalism expects pay to be determined by the market, not by some kind of formula based on perceived utility / impact on QoL. There is no 'equation' for things to be left in or out of.

[hodgy]

So, how much effect would it have on the ecomomy to have the second tier of high flyers (the slightly lower flyers?) be the captains of industry while the elite ran off in search of more money? Would it really make that huge a difference? (Honest question, I really don't have the knowledge to answer it myself)

Some of your 'second tier' would be not up to the job and this would impact the corporations concerned and thus your economy as a whole. Some of them would be up to the job, would quickly become experienced in their new roles and would them migrate since they would then be able to command the top-job rates elsewhere.

In addition, given that it is now a global marketplace, how many places could these CEO's run off to for lower taxes? (again, honest question)

I presume in this discussion we are assuming something similar to the real world where there are different countries that are able to set their own rates of taxation.

[Michael Redman]

Here's my Better System: Mind-reading all-knowing robots. They determine what we want/need, and what we can and will do to get it. They'll design useful occupations for us, and see that we are challenged and rewarded appropriately to maximize our happiness.

Until then, a free market capitalistic system, governed by minimal but effective oversight, and complimented by minimal but effective social services, is probably as good as we're going to do.

As far as freeloaders, etc.; people at the bottom who the system does not support (whether because they won't work, or because of lack of opportunity, or whatever else) generally don't sit around and conveniently starve to death. A system that doesn't take care of them in one way is going to pay for them in another.

[3point14]

Some of your 'second tier' would be not up to the job and this would impact the corporations concerned and thus your economy as a whole. Some of them would be up to the job, would quickly become experienced in their new roles and would them migrate since they would then be able to command the top-job rates elsewhere.

<and the answer to a silly question>


Some of the 'first tier' seem to be not up to the job on occasions.

The sescond tier may be more grateful and work harder. Maybe.

[balrog666]

Arbitrary and capricious rules always inspire people to find a way around them.
A 95% tax on CEO pay would result in corporations moving offshore, rewarding CEO's with other benefits (including stock options), multiple payment options, or outright cheating via cooking the books.

We already had one stupid law like this at the million/year level - did it achieve anything noteworthy except the employment of a few more tax accountants?

You seem to forget that CEO's are part of a management team that includes many more executives who also get paid well. Are you going to arbitrarily overtax them too? What about the best engineers, scientists, and researchers working on the next products, screw them too if they get paid more than the janitor? Rather silly idea if you ask me.

[hodgy]

Some of the 'first tier' seem to be not up to the job on occasions.

Of course. There is dishonesty, corruption, incompetence and downright bad luck amongst CEOs as amongst any other section of society. It would be ridiculous to suppose otherwise. this does not mean that as a group they can easily be replaced wholesale.

The sescond tier may be more grateful and work harder. Maybe.

Some would, some wouldn't - so what? Anway its not like CEOs are putting in an 8 hour day running machinery, there is no simple equation that you can run - the CEO does a extra hour each day so the company makes 15% more profit. the CEOs are paid for their leadership, decision making skills, strategic vision and so on. Such is the nature of their roles that I doubt if any of them could meaningfully decide to do a better job by working harder. Most would be very hard workers indeed already.

[Francesca R]

Not necessarily -- in my view, probably not at all. That's certainly an approach, but the systems that seem to be the best at the minimax game do so by creating substantial wealth and then redistributing large fractions of it, instead of forcibly equalizing all of it.OK. I wondered for a moment whether you were advocating central planning and all that.

[Francesca R]

But if we established a 95% CEO salary tax, they would continue to do their job. I find it hard to believe you would be serious about this point. They would flee their jobs unless you made it (globally) impossible for them to avoid 95% tax, and basically centrally-planned their income at a global level.

[drkitten]

OK. I wondered for a moment whether you were advocating central planning and all that.

Some degree of central planning is of course both necessary and appropriate. History bears this out -- for example, the British food rationing system in the Second World War actually managed to substantially increase public heath over the uncontrolled, unrationed system that had been in place before and after. Similarly, the nationalized health services of Europe with their "central planning" deliver a better average life-expectancy than the unplanned competition of the USA.

On the other hand, Soviet-style centralized overplanning demonstrably hasn't worked.

[Francesca R]

So, how much effect would it have on the ecomomy to have the second tier of high flyers (the slightly lower flyers?) be the captains of industry while the elite ran off in search of more money? Would it really make that huge a difference? (Honest question, I really don't have the knowledge to answer it myself)In other words, does a "talent-drain" matter? If the "second tier" is able to compete with the first tier that has left, they too will be competed away, until you end up with inferior non-competitive firms.

In addition, given that it is now a global marketplace, how many places could these CEO's run off to for lower taxes? (again, honest question)Not sure exactly what you are asking. The existence of global competition is exactly what stops any individual country from implementing punitive tax rates.

[drkitten]

I find it hard to believe you would be serious about this point. They would flee their jobs unless you made it (globally) impossible for them to avoid 95% tax.

So make it globally impossible. If you want to sell products in Ruthenia, you have to follow Ruthenian tax laws. Corporations are already used to this kind of regime-based mutliple taxation scheme where it's globally impossible to flee their local tax burden. Several US states do this for individuals as well, depending upon the states where you live and/or work, you may owe taxes to several different states.

Indeed, expatriates are used to it as well. US citizens are responsible for paying (US) taxes on their income earned abroad, subject to a couple of provisos....

[Francesca R]

So make it globally impossible. If you want to sell products in Ruthenia, you have to follow Ruthenian tax laws.Well this is exactly why you can't make it "globally impossible". You can't ask the Ruthenians to tax CEOs at 95% so that these CEOs won't leave your country when you do that.

Corporations are already used to this kind of regime-based mutliple taxation scheme where it's globally impossible to flee their local tax burden. You were talking about CEOs not companies. but the same applies. You can't ask Ruthenia to levy corporation tax at a level you desire to stop it being a more competitive location for business. (If you did, you'd probably see a wave of advertising paid for by the Ruthenian government about how much lower the business tax rates were over there . . .)

Several US states do this for individuals as well, depending upon the states where you live and/or work, you may owe taxes to several different states.

Indeed, expatriates are used to it as well. US citizens are responsible for paying (US) taxes on their income earned abroad, subject to a couple of provisos....Sounds a bit like you're saying that people can't alter their tax liability by shifting domicile or residence. That isn't true at all. Of course, it isn't usually necessary for a US ex-pat to shift domicile because US income tax rates aren't punitively high. If they became so, people would have a large incentive to leave.

[drkitten]

Sounds a bit like you're saying that people can't alter their tax liability by shifting domicile or residence.

That's exactly what I'm saying. Many jurisdictions (and forms of taxation) are not based on domicile or residence. Try flying to NYC and telling the man at the off-licence that you shouldn't have to pay tax on that bottle of whisky because you don't live in NYC.

If you're lucky, he'll think you're joking.

[hodgy]

That's exactly what I'm saying. Many jurisdictions (and forms of taxation) are not based on domicile or residence. Try flying to NYC and telling the man at the off-licence that you shouldn't have to pay tax on that bottle of whisky because you don't live in NYC.

If you're lucky, he'll think you're joking.

It seems to me that you are not arguing the points and objections raised but trying to sidestep them.

Anyway, as a British citizen I can fly to NYC and buy tax free whisky (albeit from controlled sources at the airport). Different rates of taxation of alcohol have a very real economic impact in Europe where it is common for people to cross national boundaries to minimise tax exposure on alcohol purchases. British tax revenue from alcohol is negatively impacted by this.

The point is that without a world government your 95% CEO tax will have bad consequences for the country that implements it. Your story about the man flying to an off-licence in NYC is entirely irrelevant as a refutation of this point.

[Francesca R]

That's exactly what I'm saying. Many jurisdictions (and forms of taxation) are not based on domicile or residence. Try flying to NYC and telling the man at the off-licence that you shouldn't have to pay tax on that bottle of whisky because you don't live in NYC.

If you're lucky, he'll think you're joking.You've not too subtly switched from direct to indirect taxation now. You brought it up in the context of direct (income) tax of a CEO.

I agree that indirect tax can be controlled on where the transaction takes place. But that is not the argument you made, which was incorrect.

[vexed]

To sum it all up I think that in the late game trying to out compete your rivals would earn less profits than meeting behind closed doors and setting prices and durability/quality.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?


One thing that stops collusion is the lack of trust in each other.

Imagine 3 companies have 95% of the market share of a particular product. And the CEOs from these 3 companies decide to meet to price fix. At the end of the meeting they have all decided to raise their prices by 15% over the equilibrium market price, they shake hands and leave. Now the next day comes and the top 3 producers of this product are suppose to have raised prices 15%. What is to keep anyone of the CEOs from not raising their prices, which would give that company almost the whole market share and possibly put the other two companies into bankruptcy? Nothing, which is why collusion isn't a regular practice.

[rjh01]

One thing that stops collusion is the lack of trust in each other.

Imagine 3 companies have 95% of the market share of a particular product. And the CEOs from these 3 companies decide to meet to price fix. At the end of the meeting they have all decided to raise their prices by 15% over the equilibrium market price, they shake hands and leave. Now the next day comes and the top 3 producers of this product are suppose to have raised prices 15%. What is to keep anyone of the CEOs from not raising their prices, which would give that company almost the whole market share and possibly put the other two companies into bankruptcy? Nothing, which is why collusion isn't a regular practise.

In Australia if one of those CEOs goes to <a certain government department I cannot recall now> they can get the other two companies in very hot water. I think there is something similar in the USA.

[Rob Lister]

In Australia if one of those CEOs goes to <a certain government department I cannot recall now> they can get the other two companies in very hot water. I think there is something similar in the USA.

Here too. Price fixing is illegal. But it's still done. Vexed's post withstanding, Pepsi and Coke "price fix" week in and week out. Go to the store (here) and one or the other will be on sale, but never both. I'm not sure how they arrange it, but they do.

Not that I care, I get the 'store brand' product much cheaper than whichever is on sale. Nevermind that the kids hate anything but the name brands....or on second thought, don't nevermind it! More for me because I can't tell the difference.

[rjh01]

Here too. Price fixing is illegal. But it's still done. Vexed's post withstanding, Pepsi and Coke "price fix" week in and week out. Go to the store (here) and one or the other will be on sale, but never both. I'm not sure how they arrange it, but they do.

Not that I care, I get the 'store brand' product much cheaper than whichever is on sale. Nevermind that the kids hate anything but the name brands....or on second thought, don't nevermind it! More for me because I can't tell the difference.

Easy way to satisfy your kids.
1. Buy one name brand drink in a bottle.
2. Let your kids drink it.
3. Rescue bottle from trash.
4. Fill with 'store brand' drink.
5. Put in fridge.:D

Your are now conducting a single blind test to see if your kids can taste the difference between 'name brand' and 'store brand.' :boxedin:


Or if you want to really be cheap
1. As per steps 1 - 3 above
2. Buy plain soda water
3. Add a shocking amount of brown sugar.
4. As per step 4 and 5 above