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AEconomics by RJM, Part II Evil Profits

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In part I, (www.ebaumsworld.com/user/blog/RJM/view=81083460) I described how money is multidimensional.  So its best to look at economics without looking at its face value, but rather its worth to the person that has it.

Profit is what happens when value goes up.  So how is value made?  The best way to illustrate this is imagining us all in a village.  And yes, you are the village idiot.  Congratulations; now you know, but the rest of us already knew.  Fortunately, youre an idiot that at least knows how to milk a bull.  With a little training, you graduate to the female cows and start making real milk.  You have one cow, and shes a gusher.  You dont need that much milk, but what you do need is porn.  But before porn what you really need is a house.  Sucks to be you because you couldnt even play with Lincoln Logs without getting cited by Building and Safety.  BUT, you Got Milk.

Get it?  Got...  Milk...  Fuck you, it made me chuckle.

Anyway, you have more milk than you need, but the village idiot carpenter is lactose intolerant.  What do?  Well, the village idiot butcher with one hand (dont ask) needs milk, and the village idiot carpenter needs meat.  You may be an idiot, but you can at least figure out if you exchange your milk for meat, and then exchange the meat for a house (it was a lot of milk and a lot of meat, OK?) everyone just got what they wanted.  On top of that, you didnt have to spend much money, but rather just labor to make milk, so you got a good deal on the house.  The meat wasnt worth much to you, but it was to the carpenter.  So you made out good.  So did Left-Hand Larry the butcher, and so did the Lactose Leroy the carpenter.

Now heres something that so many educated people fail to notice:  All three idiots made a profit and took no value from anyone.   BUT!!! HOW CAN THIS BE???

By definition, arent profits the result of taking?  No, its the result of having more than you need and giving it to someone that needs it more than you do.  You can help everyone, and make a profit too.  PROFIT IS NOT EVIL.  Profit is the difference in value of something to you, as it is to someone else.  It is simply worth more to them.

But, employees!  Dont companies get rich off their employees hard work?  Sure they do.  But did they take from them?  No.  They traded.  The employees have nothing but skills and time, and someone offers them a trade for those skills and time and gives them value.  The employer asked them to put those skills and time into something of value to someone else.  Should the employer pay them well?  The answer is they should pay them about the same as what anyone else that would do the job for at equal quality and productivity.  Why not pay them super well?

In a completely free society, when a person goes to work for their employer, they agree on a price of labor.  The laborer wants the most possible wages, and the employer wants the lowest possible wages.  However, the employer might hire an idiot, but he wouldnt hire an incompetent idiot.  He wants someone that will do the job well, and do it for a low price.  So if the laborer acts in his interest, he asks for a decent wage, but tries to work his best.  In other words, hes a sellout.

So now the employer charges $1,500 per hour and pays the employee $1, pocketing the remainder, right?  Wrong.  Obviously he has to pay for equipment, buildings, materials, insurance, taxes, marketing, shipping, fuel, benefits, retirements, hookers, young boys from Thailand, and on and on  Lets assume for a second that the remainder left over is 50% of revenue.  A HUGE FUCKING PROFIT and the employer is plenty rich beyond the wildest dreams, right?  Wrong.  That money could be used to build a new facility, hiring even more employees.  So they get even richer with more employees, right?  Well yes, sorta.  Only one problem.  Some idiot in middle management isnt as much of an idiot as he seems and sees that the boss is making 50% profit off of the entire operation and hes only making peanuts.  And they arent even salted peanuts with benefits.  So what does he do?

He starts an offshoot company, going to the bank and borrowing the very money his boss put in the bank, to fund his own company.  How is that for a nice Fuck You to your old boss, eh?  In order to steal all the customers, he undercuts his old boss and is perfectly happy making 40% instead of 50.  Hs old boss is pissed because 80% of his customers went to the idiot and now he has to lower his margins down to 30%.  Eventually the profits settle around 3-5%, or higher in regulated markets where idiots find it too hard to play.

3-5% profits seem to be the magic numbers.  Above 5% profits and new competition floods the markets like a pissed off chick named Katrina out to ruin Mardi Gras.  Next thing you know, old, rich CEOs are stealing microphones whining about how venture capitalists dont like rich people.

Yes, 3-5% profits of HUGE FUCKING COMPANY, inc. is a lot of money.  But, a drop in sales of 10% is even  bigger.  And not really uncommon.  That means most companies are constantly operating on the brink of bankruptcy.  If they lose 5% sales, rest assured, poor people are going to be fired.

So companies that pay well are the most likely to have to fire off tens of thousands when the shit hits the fan.  Dont believe me?  Ask GM.  Even if you took all the pay from the top earners and gave it to the workers to keep the factories open, no one is buying cars, and youd only save a few jobs for a few months.

And just like the bottom workers, the top brass arent paid by how much their time costs them, but rather how much they contribute to the end product.  The top brass happen to make the decisions that can make the difference between a company losing billions and making billions, so paying them $100m a year is just a market rate.  Pay less and someone else will pick them up for $100m, and youll end up with a boss that will be soly responsible for the bottom workers all getting canned.  So is it worth it to have a head honcho that makes $100m so you can make a measly $20/hr?  I'd say so.  Without him, you'd be without a job.

Again, when profits are made, everyone profits.  When profits arent made, everyone loses.  The best scenario is everyone profiting.  If profits are evil, then so are jobs.

 

RJM Uploaded 09/03/2010
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