Social Security [in the U.S]...

[jkerouac]

You can't 'create wealth'. It's a myth.

Just curious, do you not think the introduction of the personal computer -- or the automobile or airplane or watch -- created wealth? How about inventions that increased agricultural output or reduced disease?

[eddhead]

Those executives created _no_ shareholder value ( nonexistent asset is not shareholder value). What they did was trying to keep their own jobs and appease their huge egos. People is any walk of life can fall victim to pressure and there will be a few bad apples. Furthermore, there are just as many examples of shareholders getting screwed out of great short-term, real, profits for the "long-term outlook" of the company.

Bottom line is there will always be notable failures in anything that naysayers can point at and say "Look! Look!" but I think you would be hard pressed to tell me the corp. governance system has not created a ridiculous amount of wealth. Big picture boys, don't lose sight of the forest for the tree that fell over in it.

I certainly would not want a system where there was no "pressure" to turn a profit. That is how parents raise children, not how investors spend their money.

Of course they did not create wealth, but they justified their actions through the shareholder value mantra and the pressure it created on their operatring companies. The BOD's and the broader market came to expec nothing less than double digit growth and valued the stock with those assumptions in mind

My point is that if you are not careful, the shareholder value mentality can create a climate of short term focus and/or greed at the at the expense of the best long interests of the company. It happens all the time. US companies are notorious for both thier focus on the shareholder and their lack of strategic vision. That those attributes co-exist is not a coincidence. Look at the US automakers who went big on SUV's and trucks when fuel prices were prices were relatively low, only to placed literally be on the brink of insolvency when fuel prices skyrocketed. Try convincing the BOD (or significant shareholders) of Ford Motors 5 years ago to direct some of the capital targeted toward the development of high margin SUV's, V8 muscle cars, and pick-ups to the manufacture of energy efficent or hybrid cars. Yet had they the foresight and vision to diversify their line, the company would not be in the straits it is in today. That is the difference between Toyota and GM.

Want more? Given the focus on shareholder value, where is the incentive for Exxon-Mobile and BP-Amoco to invest considerable capital in building out new refinery plants? Or to REALLY look at alternative energy sources. Is that lack of foresight really in the best long-term interest of the company?

Moreove, in some cases company investers are really doing nothing more than arbitraging stock waiting for the next M&A opportunity. These people use thier influence to get on the boards, encourage divesture decisons that may be strategically unsound in the long term, but maximize short term profits. Because they have no ong term interest in the company, they have no patience for strategically sound but long term initiatives.

e

[eddhead]

Just curious, do you not think the introduction of the personal computer -- or the automobile or airplane or watch -- created wealth? How about inventions that increased agricultural output or reduced disease?

I guess one could argue that those inventions did not realy create wealth.. they just redistributed it. Not sure I agree with the line of thought however... need to think about it.

[Craytonic]

Just curious, do you not think the introduction of the personal computer -- or the automobile or airplane or watch -- created wealth? How about inventions that increased agricultural output or reduced disease?

What he said...

If I take something you think is worthless (say silicone) and make microchip out of it that is suddenly worth something to you, I would say that I "created" wealth. You may call it something different but it is just playing semantics. I don't think calling it wealth redistribution passes the "straight face" test.

Edited November 29, 2006 by Craytonic

[Craytonic]

The way you guys talk about corporations I am surprised any of them last more than ten years.... Plenty have been around much longer.... You think the guys at Google and micro$oft are not thinking "long term strategy"?

No one wants to be the next Ken Lay... problems happen but they are usually market corrections, wake up calls, bad apples - we do live in a less than perfect world.

Edited November 29, 2006 by Craytonic

[eddhead]

What he said...

If I take something you think is worthless (say silicone) and make microchip out of it that is suddenly worth something to you, I would say that I "created" wealth. You may call it something different but it is just playing semantics.

well, you have created value, but not necessarily wealth. The manufactured microchip has added value vs. the raw material silicone, but it does not necessarily have added "wealth" ... The manufacturer of the chip may become wealthy as a result of selling his product, but on a macrolevel has societies' accumulated wealth really increased? Has the accumulated world GNP increased in inflation adjusted terms? Maybe but I am not convinced. What if those chips go into making computers which people purchase instead of calculators. What if sale volume and prices of calculators go down as computers permediate the market. I mean, 20 years ago a decent TI calulator went for $200.00 in 1985 dollars, what do they go for today?

[Pugwash]

You think the guys at Google and micro$oft are not thinking "long term strategy"?

Great examples of where the management are major, major shareholders. That's an entirely different microwave of hot-dogs.

[Pugwash]

Just curious, do you not think the introduction of the personal computer -- or the automobile or airplane or watch -- created wealth? How about inventions that increased agricultural output or reduced disease?

No, I do not think they created wealth. These are great innovations that make life easier, but they do not create wealth.

Here's the thing: Money does not exist; bear with me, answers like 'then give me all yours' will be treated with the disdain they deserve. Money is trust, faith and force. I have a tenner in my pocket and you accept that for goodsandorservices (Thank you, Anyanka) believing that when you pass it on to the next person they will accept it at a fixed value. I have faith in the currency and it's backed by force, meaning if someone tries to claim my cash as theirs, it will be defended by force, usually from the government that authorises the issuing the notes. When the faith and trust go, you get a crash, much like Germany before the 2nd world war. Resources the day before the crash were the exact same, and everyone had just a day's more food in the cupboard and a day's food in their bellies. Did the wealth disappear or did people simply stop believing in it?

Wealth is like thermodynamics: You can't create energy or wealth out of nothing: All you can do is take it from somewhere or even somewhen.

[eddhead]

No, I do not think they created wealth. These are great innovations that make life easier, but they do not create wealth.

Here's the thing: Money does not exist; bear with me, answers like 'then give me all yours' will be treated with the disdain they deserve. Money is trust, faith and force. I have a tenner in my pocket and you accept that for goodsandorservices (Thank you, Anyanka) believing that when you pass it on to the next person they will accept it at a fixed value. I have faith in the currency and it's backed by force, meaning if someone tries to claim my cash as theirs, it will be defended by force, usually from the government that authorises the issuing the notes. When the faith and trust go, you get a crash, much like Germany before the 2nd world war. Resources the day before the crash were the exact same, and everyone had just a day's more food in the cupboard and a day's food in their bellies. Did the wealth disappear or did people simply stop believing in it?

Wealth is like thermodynamics: You can't create energy or wealth out of nothing: All you can do is take it from somewhere or even somewhen.

hmm.... very philosphical, but i am not sure I go along with it (yes i am a contrary SOB), although I will admit it is a deep and thoughtfull argument. To my mind weath, like money, is an intangible asset defined by how the articfial value we assign to assests and currency. No commodity has an intrinsic value be it a "tenner" or a watch. Rather the value place on a commodity is based on a range of intangible determinants including trust and desirability.

Using your example of the crash in Germany, or the gret depression, it is true that resources before and after the crash did not change, but the way we valued those resourced did. It is the value we assess to those resources, and not the resources themselves that define wealth. For example, If you owned silver before the silver crash of the 80's you might have been a wealthy man. If you continued to own it after, you were probably not so wealthy. The amount of silver you owned did not change, but the value of the silver itself did and that change in valuation effected your wealth.

This is an example of how wealth components change on a microeconomic basis as a result of changes in commodity value. On a Macroeconomic basis (and i really mean Global) I am more apt to buy into your argument. It may very well be that there is a finite amount of 'wealth' in the world, and that while the value of individual commodities may shift over time, from a global perspective accumlated wealth does not change. To be honest, I am really not sure if what I just said is inconsistent with what I said in the previous paragraph... but I can tell you that this is too deep a thought for me to have at 5:45 ET after 10 hours of work. I need a martini. Adios.

[Pugwash]

On a Macroeconomic basis (and i really mean Global) I am more apt to buy into your argument.

My Thermodynamics argument only completely works on a Macroeconomic scale. If you're getting wealth, it's coming out of someone else's pocket, either today or tomorrow.

[Craytonic]

Great examples of where the management are major, major shareholders. That's an entirely different microwave of hot-dogs.

I knew that when I listed them but no one had differentiated their argument between minority/majority shareholders. HP-Compaq merger is similar, but arguably it was the long-term shareholder (families that started it) that got screwed in the name of long term gains. (although I personally didn't like that merger either).

[Craytonic]

No, I do not think they created wealth. These are great innovations that make life easier, but they do not create wealth.

Here's the thing: Money does not exist; bear with me, answers like 'then give me all yours' will be treated with the disdain they deserve. Money is trust, faith and force. I have a tenner in my pocket and you accept that for goodsandorservices (Thank you, Anyanka) believing that when you pass it on to the next person they will accept it at a fixed value. I have faith in the currency and it's backed by force, meaning if someone tries to claim my cash as theirs, it will be defended by force, usually from the government that authorises the issuing the notes. When the faith and trust go, you get a crash, much like Germany before the 2nd world war. Resources the day before the crash were the exact same, and everyone had just a day's more food in the cupboard and a day's food in their bellies. Did the wealth disappear or did people simply stop believing in it?

Wealth is like thermodynamics: You can't create energy or wealth out of nothing: All you can do is take it from somewhere or even somewhen.

This is an idiological school that came around basically to guilt rich, capitalist countries and say they were "stealing" from the third world; I really don't believe it for a minute but if we get into this one we will be _way_ of topic.

I think it is sufficient to point out that you made an arument about "currency," which is no longer backed by gold and is just something people put value in - it thus changes value. We were talking about wealth, which can also be different things like planes, trains, and automobile. You can print as much monopoly money as you want and it will be worthless. You start curning out some semiconductors from sand and you are doing a very different thing (you are creating something that has value *in and of itself*, cash money just has the value we assign to it.).

bottom line: you aren't talking about wealth.

[Craytonic]

Wealth is like thermodynamics: You can't create energy or wealth out of nothing: All you can do is take it from somewhere or even somewhen.

Ok couldn't resist one more because this is an easy one. You can't create or destroy _energy_. You set off an atomic bomb and you have not created or destroyed energy; it has just changed forms (law of thermodynamics, although I am a tad rusty there).

You set of that atomic bomb in a big city (God forbid), you just destroyed a [censored] load of wealth (I don't think you can say the cars, buildings, art, etc were not wealth with a straight face and they were certainly destroyed).

[Pugwash]

This is an idiological school that came around basically to guilt rich, capitalist countries and say they were "stealing" from the third world; I really don't believe it for a minute but if we get into this one we will be _way_ of topic.

I hate that whole guilt thing too, as it makes out capitalism is evil, which it isn't in my view.

However, you're mistaking my discussion about wealth for a discussion about money.

[Pugwash]

You set of that atomic bomb in a big city (God forbid), you just destroyed a [censored] load of wealth (I don't think you can say the cars, buildings, art, etc were not wealth with a straight face and they were certainly destroyed).

I'll give you that one, apart from the art. Destroy a Picasso and all the other Picassos increase in value.

Sure, you can destroy wealth, but you can't create it. Ok?

[Craytonic]

Sorry, I think when you admit you can destroy it the rest of it falls a part. That would mean, assuming any wealth has been destroyed since man walked the earth, there is less wealth now than when we lived in caves (since none could be created). I don't buy it.

[Craytonic]

I hate that whole guilt thing too, as it makes out capitalism is evil, which it isn't in my view.

However, you're mistaking my discussion about wealth for a discussion about money.

Ok this one isn't going to go any where, you are talking about money not wealth, as I addressed in the part of my post you didn't quote.

Here's the thing: Money does not exist; bear with me, answers like 'then give me all yours' will be treated with the disdain they deserve. Money is trust, faith and force. I have a tenner in my pocket and you accept that for goodsandorservices (Thank you, Anyanka) believing that when you pass it on to the next person they will accept it at a fixed value. I have faith in the currency and it's backed by force, meaning if someone tries to claim my cash as theirs, it will be defended by force, usually from the government that authorises the issuing the notes. When the faith and trust go, you get a crash, much like Germany before the 2nd world war. Resources the day before the crash were the exact same, and everyone had just a day's more food in the cupboard and a day's food in their bellies. Did the wealth disappear or did people simply stop believing in it?

I really think you are talking about money there....?

Edited November 30, 2006 by Craytonic

[jkerouac]

Hundreds of years ago there were only a fraction as many people on earth as there are today. Yet wealth was concentrated in far fewer hands.

Today there are billions more people on earth, yet there is wealth not just for the aristocracy and upper class, but for the masses of the middle class as well. And in many places it could be argued that the lower class have as much or more wealth than the bourgeoisie of previous ages. Plus, I would argue that in the past only a handful of countries participated in wealth. Today, many more countries have large middle classes as well.

I seem to recall from a thread a few months ago that there are quite a few economics degree types on the board. I wish they would chime in to lend their knowledge to this little debate.

[Pugwash]

Sorry, I think when you admit you can destroy it the rest of it falls a part. That would mean, assuming any wealth has been destroyed since man walked the earth, there is less wealth now than when we lived in caves (since none could be created). I don't buy it.

Ok, this is a flaw. I'll have to rethink the way I express it.

[Pugwash]

I seem to recall from a thread a few months ago that there are quite a few economics degree types on the board. I wish they would chime in to lend their knowledge to this little debate.

That'd be because they have to read through a page of poorly-written right-wing propaganda before the debate starts.

[eddhead]

Hundreds of years ago there were only a fraction as many people on earth as there are today. Yet wealth was concentrated in far fewer hands.

Today there are billions more people on earth, yet there is wealth not just for the aristocracy and upper class, but for the masses of the middle class as well. And in many places it could be argued that the lower class have as much or more wealth than the bourgeoisie of previous ages. Plus, I would argue that in the past only a handful of countries participated in wealth. Today, many more countries have large middle classes as well.

I seem to recall from a thread a few months ago that there are quite a few economics degree types on the board. I wish they would chime in to lend their knowledge to this little debate.

I am actually one of them, but this is a pretty esoteric question. Wealth is defined by the cumlative value we assign to our things. For the most part these things do not have inherent value, but rather derived value based on a range of determinants including desireability, scarcity, useability etc..

Take a cigarette for example. The component pieces of the cigarette (Paper, cotton, tobacco, glue etc..) each have a 'value' i.e., as commodites onto themselves they are tradeable and can be exchanged for currency goods or services. The value of those commodities is defined in the open market through supply and demand dynamics. Simalarly, the finished product the cigarette also carries value. In fact the value of the cigarette exceeds the accumulated value of each of the component parts...if it did not, the cigarette manufacturer would not turn a profit. So if the value of the final product exceeds the accumulated value of the component pieces (sum is greater than the parts), and no one is getting ripped off, where did that value come from? It was CREATED during the manufacturing process. Karl Marx referred to this as the Value Added principle.

So we have established that value can be created on a microeconmic basis, but does that necessarily mean that wealth can be created on a Global scale? This is as much a philosophical question as it is an economcs one. We use currency as an index to measure weath. At some point in our past, the US dollar was directly tied to the world's supply of gold, and the worlds other major currencies were assigned fixed values against the dollar. As as result, the world's supply of currency was fixed so one could argue the world's accumulated wealth was fixed. We may have had increasing choices with respect to how to spend, save, invest, etc... this wealth, but those choices were in competition with each other. But it is not so simple now. Currencies are not fixed in value, and the gold standard no longer exists. Still, I think a strict monetarist can argue that the world's weath is indeed fixed... we only have so many things we can exchange for other things, or if we add more things the value of the other things decline. ... In theory it seems to make sense, but in practice it seems kind of counter-intuitive to me. I just cannot figure out why. But I am working on it.

[eddhead]

My Thermodynamics argument only completely works on a Macroeconomic scale. If you're getting wealth, it's coming out of someone else's pocket, either today or tomorrow.

i get it. in theory it makes sense, but in practice i have a problem with it... i just cannot figure out why.

[Craytonic]

I am actually one of them, but this is a pretty esoteric question. Wealth is defined by the cumlative value we assign to our things. For the most part these things do not have inherent value, but rather derived value based on a range of determinants including desireability, scarcity, useability etc..

Take a cigarette for example. The component pieces of the cigarette (Paper, cotton, tobacco, glue etc..) each have a 'value' i.e., as commodites onto themselves they are tradeable and can be exchanged for currency goods or services. The value of those commodities is defined in the open market through supply and demand dynamics. Simalarly, the finished product the cigarette also carries value. In fact the value of the cigarette exceeds the accumulated value of each of the component parts...if it did not, the cigarette manufacturer would not turn a profit. So if the value of the final product exceeds the accumulated value of the component pieces (sum is greater than the parts), and no one is getting ripped off, where did that value come from? It was CREATED during the manufacturing process. Karl Marx referred to this as the Value Added principle.

So we have established that value can be created on a microeconmic basis, but does that necessarily mean that wealth can be created on a Global scale? This is as much a philosophical question as it is an economcs one. We use currency as an index to measure weath. At some point in our past, the US dollar was directly tied to the world's supply of gold, and the worlds other major currencies were assigned fixed values against the dollar. As as result, the world's supply of currency was fixed so one could argue the world's accumulated wealth was fixed. We may have had increasing choices with respect to how to spend, save, invest, etc... this wealth, but those choices were in competition with each other. But it is not so simple now. Currencies are not fixed in value, and the gold standard no longer exists. Still, I think a strict monetarist can argue that the world's weath is indeed fixed... we only have so many things we can exchange for other things, or if we add more things the value of the other things decline. ... In theory it seems to make sense, but in practice it seems kind of counter-intuitive to me. I just cannot figure out why. But I am working on it.

Ok I'm impressed, good post. Somehow you two seem to be mixing value, wealth, and money but I don't have the schooling on the terms to explain it Will think on it through the day; this has definitely been a good discussion.

[sniffy]

... and the opposite of Progressive is Conservative.

Yes, I get it, and I don't understand how fear of change and belief in something because "that's the way we always dun it" can be seen as a positive stance.

In that case, Bush and the neocons would have a Progressive Foreign Policy in that they think they wanted to change the middle east by force while the Democrats would be Conservative in that they believe we should stick with they way things always have been done, change through Diplomacy and building coalitions.

It can be argued that change is not always good.

[Craytonic]

Most actual conservatives, myself included, do not consider President Bush a conservative.

Did we vote for him? Yes. We realize we live in a less than perfect world and will take what we consider the lesser of 2 evils.