Err…seems to me if the business fails all employees are out a job and income.
You can say they can go find another job but then so can the owner.
The owner may be the captain and owner of the ship but if it sinks everyone aboard goes with it.
The owner is also out his investment, might lose his home, might have a personal guarantee on the equipment, and might find himself filing bankruptcy.
The employees just have to find another job.
Except that for small businesses any capital goods leased, or any lines of credit, will often require some form of a personal guarantee (say the family home).
Okay, going back to the OP.
OP purports to define risk, but in fact just gives illustrations. Still, from these illustrations, a definition can probably be developed:
“A risks B in order to do C when B is a set of goods A is giving up in order to do C, and when doing C might not result in A’s recieving goods of equal or greater value than B.”
Alright, then. There’s risk, as the OP intends it.
So then the next question is… so what? What’s the Great Debate here?
BTW, Rand Rover, the idea isn’t to protect “the dishwasher” from the consequences of his own actions. The idea is to design a system which allows the consequences that fall on him to be consequences of his own actions and not of others’, to the greatest extent possible.
Besides, there is no such thing as “the consequences” of a person’s economic actions independent of the economic system he exists in. We–the system he exists in–have the power (and the responsibility) to decide what those consequences will be.
I think here you get into the difference between Ma & Pop Kettle starting a corner store and Goldman Sachs opening a new office.
BIG difference.
I think the OP is conflating Ma & Pop Kettle with the risk Goldman Sachs incurs (as was noted by the bizarre assertion that someone with $1 million betting $1,000 has the same risk as someone who has $1,000 betting $1,000).
[sub]I did not look up the numbers previously used for this example but the idea is the same whatever numbers were used.[/sub]
An employee losing his/her job have to declare bankruptcy; lose his/her home and all that.
Note the US unemployment rate and the results from that (particularly that the rate is being low balled…so many people have been out of work for so long they are dropping them from the statistic).
Clearly the notion that getting fired merely means finding a new job, no biggie, relies on the assumption there are new jobs to be had.
Should be:
“An employee losing his/her job may have to declare bankruptcy; lose his/her home and all that.”
Sorry about that.
With regards to the mistaken notion about “losing his job:”
At the start, the owner has $10,000 and opens a restaurant. The dishwasher has nothing, zilch, he is the poorest, saddest person in the world. Wait, make it a widow with lots of children, loans, a mortgage under water, hell a house under water too.
The owner (who is evil and super rich btw) puts his $10,000 at risk as an investment opportunity, opens the restaurant, and hires the sad woman.
After a year, the restaurant fails to turn a profit. The owner is forced to liquidate everything to pay his creditors and closes shop. The sad woman is out of a job.
Now, let’s summarize what’s left:
Owner is now $10,000 poorer as a result. He risked his money and lost. Sure he still has billions, but he’s got $10,000 less.
The sad woman on the other hand gained a full year of employment and is now $20,000* richer. It is true that she is currently out of work, but for the past year she was gainfully employed, money should otherwise would not have had.
Now, do you see what she risked nothing? It is true that when the business fails she loses her job, but it is also true that without the business in the first place she’d still be out of a job.
She gets paid regardless of the success or failure of the restaurant (although it is possible she’ll have to fight for her last pay check, that’s a risk she incurs, and if she’s smart she’ll demand cash at the end of each shift).
Note, that after a year, she gained but the owner lost.
You can’t say that she “risked losing her job” because she didn’t have a job in the first place. She didn’t put her job on the line. The job was created, she was employed, and she was paid for her time. She wins no matter what.
*I put an asterics there because she may or may not have decided to be financially concious. But that’s entirely or her. Living pay check to pay check is irrelevent.
ETA:
Yes, but it’s the owner that not only doesn’t have a job, but also doesn’t have a boat. Is that not obvious?
Yes it is obvious.
But seems these days the owner of the boat sails off in his lifeboat while everyone else sinks and once ashore the owner collects the insurance on the boat and is none the worse for wear.
If you think that is made up tell me how Wall Street banks and investment firms did when their boat sunk. Show me how they suffered from making bad bets and incurred the downside of the risk their investments entailed.
If there is risk then these guys and gals faced a downside as well as an upside. Where was their downside (not in theory but in reality)?
How did Joe Investor make out in comparison?
I know, that’s why I started this thread.
Absolutely not.
Rightly so?
This is my biggest beef with the current misconception about investments and risk.
A significant number or restaurants start as:
Chef with skill but no capital and
Investor with capital but now skill
So beforehand they come to an agreement about profit sharing. Without that agreement, the chef has NO RIGHTFUL CLAIM to the profits. That right there is the point of this debate. No one that didn’t make an investment (of capital, time, or skill) has a claim to the profits. That isn’t to say the owner has to be a dick about it. If he thinks his dishwasher was instrumental in the process he is free to reward him as he sees fit.
But no one has a claim to the profits other than the investors. I feel like I have to keep repeating this. All other players will be compensated for their involvement—particularly the dishwasher that gets to earn an income he otherwise wouldn’t have.
In year two, the owner is able to then make new arrangements with the various players. If the chef turns out to be that skilled, he can demand more money or he can seek out other career options. But look what happened there: after a year, the chef proved that he is highly skilled and deserves more money. His worth has increased as a result of the investment he made in himself. If the current owner is a dud that lets him walk, the chef has increased his earning potential. Remember in the OP when I said that the skilled profession takes a risk, well, now that risk paid off and the chef is better of for it.
Is that all this is about?
Thread over then.
No one I have seen has claimed the chef has a “right” to any profits.
The chef has a right to whatever he/she was promised when they were hired.
I don’t think anyone has suggested the chef could later take the owner to court and demand more money.
If your whole point is the legal obligation between the chef and the owner there is no debate. The owner is on the hook for what he/she promised the chef when the chef was hired. That’s all and nothing more.
Holy fuck dude, there isn’t a message board big enough in the world for that chip on your shoulder. You obviously have your dogma that I’m not about to sway.
But perhaps, just perhaps, you’ll consider the 8 years running up to the collapse. If you did, you might notice that a damn lot of people on Main St (yes, I said it) made bundles of cash. People were happy to sell their run down 1920’s 1.5 story for $300,000. People were also happy to buy that piece of shit and flip it for $350,000 buy taking out the carpet.
There are always going to be people that game the system. Eventually someone learns out to count cards or load dice. Society took a massive risk in the run up to the financial collapse, because they loved having the Dow at record highs and unemployment at record lows. People loved being able to buy a house with no money down and a ridiculously low interest rate. And loved cashing in their 401K. All those people on Wall St you so love to demonize didn’t act alone. People didn’t have to use those shitty mortgages, then take out home equity loans, and then take out pay day advances. They weren’t forced, they did so freely, but unfortunately without having any understanding of the risk involved.
It keeps getting mentioned in this any a variety of other threads; I linked to one quote earlier on about a cashier investing her time.
Thank you for finally agreeing. All those CEOs you bitched about got what they were legally promised.
I can’t claim to understand Risk, but I know you should never go for Asia. 7 extra units a turn, and you just can’t hold it, can you?
(Has somebody made this joke yet? Are we allowed to joke in GD? I really wanted this thread to be about the board game…)
We have noted in this thread that CEOs get the majority of their income via stock options.
You claimed those CEOs then took a beating on those options because they became worthless.
You did not account for their options having their strike price moved so they made their cash anyway.
You did not explain the cited bonuses, record bonuses at that, which were handed out despite colossal bad performance sufficient to sink the company not to mention the nation (and only saved by tax payers).
I will ask you again:
Where was their risk?
Contracts don’t get written in stone - and often there is no formal contract anyhow. The chef may not have been confident when starting.
Professional agents can write a complex contract covering all the eventualities, but not many people have that luxury. If the chef can demonstrate that he is responsible for a large part of the profits, and if his requests are reasonable, then requesting a share of the wealth he helped to create is very reasonable.
If you think the chef has no moral right to any part of it, why do you think an owner agreeing with your views would sign a contract granting it?
And, a point you did not address, an owner being a dick about this is soon going to wind up without a chef and with a broke restaurant, and manage to throw away a big winner.
Few people on Main Street manage their own portfolios. Their investments are in 401Ks or their money are in pension funds. None of which they control except in a broad sense (if that).
Want cites of old people who had their retirement money wiped out?
How much money did the head of Goldman Sachs lose?
Wait a minute, when I said rightfully claim, I meant a moral right - definitely not a legal right. The owner has every legal right in the world to refuse to give the chef a penny more, and the chef has a legal right to walk. But the chef asking for more money is not extortion.
Perhaps their lack of understanding of risk had something to do with under educated people dreaming of owning a home being told by the supposed experts in a mortgage company that nothing could go wrong with this mortgage. How about those people who weren’t told they could qualify for a better one. How about the mortgage brokers who facilitated no information mortgages and the banks that did also. How about a compensation system that encouraged salesmen to sell this crap.
I have no sympathy at all for house flippers who got caught with their pants down. They deserved it. But around people waited for years, doing the responsible thing and saving for a down payment, to see house prices rocket up faster than they could ever save.
I also heard plenty of radio commercials practically calling you an idiot for not taking money out of your house - and never mentioning that your cash flow for doing so gets worse.
And the cause of it all was the demand for this crap generated by the clever bankers who gamed the rating system to put together AAA instruments loaded with shit. They are the ones with high paid risk departments telling them it was okay. Let’s not blame the victims, shall we?