I don’t see anyone in the thread doing that, except for one poster.
Regards,
Shodan
A good analogy would be this:
Suppose I started a thread asking about the relationship between the literary quality of a book, and how profitable it was.
And a couple of people said, “Well, the profitability of a book is it’s literary merit.”
And I said "No, those words (“profitability” and “literary merit”) literally mean different things.
And then you came along and said, “I don’t see anybody confusing the meaning of the words except you.”
You are incorrect both about poker playing and stock trading.
Poker playing is a form of entertainment, and a service. Just as making an opera or showing movie is a form of production, so is putting on a poker game.
Stock markets are very important for production because they match businesses and capital. It is important that productive enterprises get capital and the non productive enterprises do not. This is what causes economic growth. By allowing productive enterprises to raise capital by selling stock, stock markets allow the economy to grow. By selling stocks back and forth, stock brokers keep the market liquid and available for productive enterprises to use.
In your farming analogy, a farmer without land is not going to produce anything. So by allowing the farmer to use his land the landowner is participating in the production of the farmer.
Some of Lehman Brothers’ assets were sold to Barclay’s bank. Because of Lehman Brothers’ bankruptcy those assets could no longer be used productively by them. Barclay’s was able to use those assets productively. Thus the sale was productivity enhancing. I am not sure what you would like to happen to the assets of bankrupt companies.
Here’s the thing- workers are paid by the perceived VALUE they provide the company, not “productivity”, whatever that is.
I mean, there may be a landscaper out there who’s the Michelangelo of the lawnmower. But ultimately, he’s just a guy running a lawnmower and doesn’t bring any more value than any other guy running the lawnmower.
Contrast that with the landscape architect- he’s the guy who makes the landscaping look GOOD. He brings more value to a landscaping company than does the lawnmower jockey, and therefore he’s paid more, even if he may spend 80% of his time screwing around, and the lawnmower guy busts his ass every day for 10 hours in 100 degree heat.
This. is. completely. false.
Most professional sports franchises are not money makers (with the exception of the Dallas Cowboys). They are economically bad investments. Most sports team investments are “vanity” investments. So you can be seen as the owner of the _____. Normally the only way an investor makes money on owning a sports franchise is on the exit. Selling to the next sucker at a much higher price than you paid for it.
Tell me which sports teams that Warren Buffett, the Koch Brothers, the Walton family own? None. Because they are not good investments.
Profit is a measure of the value a person or company creates for society. Transactions between a willing seller and a willing buyer are done at a market price. The amount of profit that the market price generates for the seller, is the amount of value that is created for society, by the buyer. If that value didn’t exist, then the market price for the product or service would be much lower.
Well, generally the poker players aren’t putting on the poker game. The game is organized by the house, which takes a cut, in the form of a rake. The rake is the compensation for putting on the game.
The players participate in the game. To the extent they’re entertaining, they’re entertaining each other. Generally it’s more fun to win than to lose, so the losers are more entertaining than the winners.
Which would mean, if you accept the entertainment argument, that there’s an inverse relationship between how entertaining somebody is, and his compensation from playing poker. (Losers provide more entertainment than winners.)
Stock brokers are sort of like the house, in a poker game. They facilitate the trades, and take a cut for their services.
But to be clear, I wasn’t talking about brokers, but about traders.
Also, to be clear, when people trade stock, the money doesn’t go to the company that issued the stock. It goes to the previous owner. In other words, if you buy XYZ stock, the money doesn’t go to XYZ corporation. It goes to the person owned it before you.
New companies can raise money by issuing stock: for example, through an IPO. But traders can’t start trading it until afterwords; because it doesn’t exist yet.
Existing companies can issue more shares, in addition to the ones they’ve alreay issued. But that’s not very popular with shareholders, because it dilutes the value of their shares, and reduces the stock’s price. GM sold shares, back in 2010, but that’s because it was going broke. And it sold those shares to the government.
Stock buybacks are much more popular, because they reduce the number of shares, and increase share price. But that’s not a matter of a company raising money - it’s an example of a company disbursing it. Microsoft, for example, has bought something like 3 billion shares back from its shareholders, over the past several years.
Anyway, the point is that successful companies don’t usually sell shares. If anything, it’s the other way around.
Which isn’t to say the stock market serves no purpose. It’s just to say it’s not usually how successful companies raise money.
But let me accept that traders do perform ome service: they provide liquidity. (I’m assuming you mean they provide liquidity by buying and selling stocks.) The volume of buying selling has increased exponentially over the years. Is there a concrete benefit to all the additional trading? Is there a point where the market is liquid enough, or do the benefits of trading accrue endlessly?
And, more importantly, what is the relationship “providing liquidity” and compensation?
Do the traders who trade the most make the most money? Or is “buy and hold” a better strategy? (And if it is, does that mean the traders who trade the least - who provide the least liquidity - benefit the most?)
Or is there no connection at all between liquidy production, and the amount a particular trade, or a particular trader, gains or loses?
What you say is true: if the owner refuses to let anybody to farm his land, nothing will get produced. But is allowing production of something the same as producing something?
Suppose the government can, if it wants, prevent the production of something. If it permits the thing to be produced, is it “participating” in its production?
More importantly, what is the connection between the owner’s income (in this case rent) and the amount produced? If the owner charges more rent, will more corn get produced? If he charges less rent, will less corn grow on his land?
In a bankruptcy, the assets of the bankrupt company are usually divided among the creditors. In this case, the creditors were the people who invested in Lehman before it went bankrupt. There were a lot of them. They included people, other companies, and municipalities. One of them was Long Beach, CA. It lost $20 million.
$20 million is not a lot to Barclay’s, especially in light of the $5 billion profit it posted after paying off insiders at Lehman’s. It’s not even that much to the insiders at Lehman’s, who were paid hundreds of millions. But it is a lot to Long Beach, which was forced to lay off firefighters, police and schoolteachers.
So to answer your question: the money should have gone to pay off Lehman’s creditors, rather than enrich Barclay’s or Lehman insiders.
A lot of money was made, but it was made by moving money from one pocket to another, not by doing anything productive.
Steve Ballmer recently bought the Clippers for $2 billion, a team Donald Sterling paid $12 million for. So Sterling made approximately $2 billion on the deal. Not chump change, in other words.
You say, “Profit is a measure of the value a person creates for society.”
If that’s true, it follows that Sterling created $2 billion worth of value for society.
Is that what you believe?
Again, I was trying to guess what point you were making by saying “If you have poor patients, you’ll be a poor heart surgeon”.
And it would seem my guess was right; you were just talking about the difference in salaries between different countries. Which is of course an utterly irrelevant point in terms of the OP.
Why is it “utterly irrelevant”?
If compensation and productivity are closely linked, you’d expect the same heart surgeon doing the same surgery would be compensated equally whether his patients were poor or rich.
In fact, surgeons are only well-compensated if their patients are rich.
Which leads to one of two conclusions:
(1) compensation and productivity are not closely linked, or
(2) the lives of the rich people are more valuable than the poor.
Not to beat a subject to death, but you said in your other post that owners of sports teams are “suckers”.
But according to Forbes, the average value of the top 50 teams last year was $1.34 billion, an increase of 8% over the year before.
That’s an increase of around $100 million, each, in capital gains alone.
So did these 50 guys create $5 billion worth of value, were they suckers, or both?
And I understand how these 50 guys are better off (their teams are worth more than they used to be); but how are the rest of us - “society” - better off? Are we also $5 billion richer?
And in many countries that is indeed the case. Certainly in my country, the UK.
In the remainder, where there is a free market for surgeons, the ones who can command the higher fees are the better and/or more experienced surgeons.
All of which runs counter to the point you’re trying to make, so you go for this point of salaries being different between different countries.
But there are many reasons why salaries and the cost of many goods varies across borders, and the premise that we’d expect heart surgeons to earn the same in the US and Malawi if productivity were rewarded is false.
Sports teams don’t generate a lot of cashflow. They are way overvalued. Yet there are enough suckers out there that are willing to overpay for the investment because of vanity. The estimates of increases in value is not a capital gain until they find some other sucker willing to pay the overinflated price. With the exception of the Cowboys, the Yankees, and a couple of other franchises, they are a bad investment.
You’re comparing apples to oranges. Estimated value based upon recent inflated purchase price multiples is not the same as profit generated. If they don’t generate a profit, then they don’t create value.
I don’t play poker but my guess is that it is more fun to play against someone who is good than someone who is bad, so your surmise about the inverse relationship between entertainment and compensation may not be true. I guess you would have to ask a poker player.
Traders provide liquidity. If there were no traders then a stocks would not be a liquid assets and the stock market would not exist. If the stock market did not exist then capital would be misallocated, resulting in enormous costs to the economy. That is basic Coase theorem. Traders who convince others to trade their stocks and probably not as good as those who advise buy and hold but they are better at convincing their clients they are better. That goes back to the expected value versus actual value divergence.
The owner can be said to contribute to production because he owns the land. The government does not contribute to production by getting out of the way because they have no ownership.
There is a almost perfect connection between the rent of the land and the productivity. Land that can produce a large amount of crops should rent for more than land than that produces a small amount of crops. This ensures every piece of land is being used for its maximum productivity. If land rented for the same amount regardless of productivity then when an alternative use came up, there is no way to assure the most productive land stayed farmland. Prices are information, a higher price means more value will be created.
You seem to be implying that Barclay’s Bank bribed the top management of Lehman Brothers to accept a smaller price for Lehman’s American assets than they could have received elsewhere. This is the first I am hearing about that. If it is true they breached their fiduciary duty and Lehman’s shareholders should sue to recover their lost investments. I would be interested in where you received this information.
Sterling moved the Clippers from San Diego to Los Angeles. That is where most of the profit came from. There are more basketball fans in LA so his entertainment product now entertains more people because he moved the team to a bigger market. Also due to advances in media more people are now able to enjoy basketball around the globe. He did not create that but he took a risk when he bought the team and it paid off. Taking risks to create value is a valuable thing to do for the economy.
Why are the lives of the rich more valuable than the poor? Because they produce more. If you are a poor farmer in Malawi with a heart condition you are producing almost nothing. If you are someone in the US or other western country and have a heart condition you are probably producing alot. Thus a heart surgeon in the west is much more productive than one in Malawi.
This is just in terms of monetary production, not in terms of the intrinsic value of human life. But monetary value is what is being asked about.
Actually I’d be surprised if the best surgeon is also the highest paid.
Not that there’s any way to know. No one, to my knowledge, has come up with an objective way of rating surgeons, based on ability. Probably because it would be difficult or impossible.
You could look at outcomes, for example, but outcomes would be affected by many variables beyond the surgeon’s control: things like the health of the patient before the operation, the difficulty of the procedure, and whether the patient followed through with rehabilitation or other aftercare recommendations. Also, rating outcomes itself would be difficult: if a patient has a 50% increase in mobility after a procedure but is also suffering a significant amount of pain due to complications, is that a good outcome, or a bad one?
Some jobs yield themselves to objective measurement pretty easily. Others don’t.
You can gather lots of objective data about a basketball players, for example, and get a pretty good idea of which ones are better and which ones are worse. A fruit picker’s abilities are easily measured (by the amount and quality of fruit). A salesperson can be measured by the number of sales.
A doctor’s ability is harder to measure. And not only because of the difficulty of measuring outcomes. It could be that some patients care about things other than outcomes: like whether the doctor cares about her patients, or whether she explains things in terms they can understand, so they can make informed choices. A doctor might be a great surgeon, but if a patient would rather not have the surgery, once he understands the risks, it doesn’t matter, if the doctor fails to explain the risks.
More importantly, patients face an information deficit when choosing doctors. There’s no official - or unofficial - ranking of doctors: whether you’re looking for one that cares, one who produces good outcomes, or any other measure.
The best you can do is go by what people say. What people say, though, isn’t necessarily reliable. Especially in the absence of objective measurements. That would be true, even if everybody agreed. Which, of course, they don’t.
All that is to say that, in a free market, the surgeons who charge the highest fees aren’t necessarily the best.
I’m not sure what you’re trying to say about comparing surgeons in different countries. It sounds like you’re saying there’s something illogical about it. But my argument is that there are many reasons why income varies from person to person, and from job to job, and that productivity is only one. Or, to put it differently, that productivity is only one factor, and a relatively minor one.
To put it in concrete terms, if the best doctor in the world lived in Malawi, and the worst one lived in the US, you’d still expect the US doctor to have a higher income. Not because the US doctor was more productive, but because of where he lived.
If you don’t like crossing national borders, suppose a very good doctor lived in Mississippi, and a very bad one lived in New York City. Chances are the NYC doctor makes more money. Not because he’s more productive, but because of where he lives.
You mentioned you live in the UK. According to the Worldbank, the UK spends an average of $3500 per person on healthcare, vs. $9100 in the US. Despite the extra spending (the US spends more on healthcare than any country in the world), the U.S. is not an especially healthy place. For example, people live longer in the UK than the US. I suspect US doctors get paid more than doctors in the UK. Yet the extra pay doesn’t translate into healthier people. Why is that?
Is it possible UK doctors are just as productive as the ones in the US?
Or - if US doctors get paid more, are they all better than the doctors you have over there?
Isn’t a capital gain a form of profit?
Who says it is?
You are confusing some things. What you’re claiming is that an interior designer is valued more than a schoolteacher. That’s not actually true - interior design doesn’t pay all that well - but let’s pretend it is.
Let me ask you this; how much money do you think people spend on interior designers, and how much do they spend on teachers? The answer is teachers, by a mile, not even close. There are about 3.3 million teachers in the United States, and the total salary and benefits paid out to them as a group is north of $200 billion. To give you some idea of perspective, that is more money than has been paid to all the interior designers currently working in the United States for their entire careers, combined. Even if interior designers made $150K a year (they actually make a little bit less then the average teacher) it would still be the case that Americans would be paying about thirty times more for people to educate their children than they would be for people to decorate their homes and offices. If you decided to raise all teacher’s salaries to $150,000 a year you’d bankrupt entire states.
Or to compare welders to baseball players, same thing. There are several thousand professional baseball players in the USA and Canada, about 500-600 of whom make almost all the money. There are at least 400,000 welders in the USA and Canada (incidentally, that represents a significant shortage; industry is badly short of welders) whose combined salary is in excess of $20 billion annually, which is more than all the players in Major League Baseball make in five years. So it appears we value welding more than baseball.
The difference is simply that some skills are rare. While we do not actually value MLB over the welding industry, the nature of the industry is that the skills to play effective major league baseball are unusual and hard to find. The number of living human beings who can play effective major league baseball on a regular, ongoing basis is in the hundreds; the number of people who can fit and weld effectively is in the hundreds of thousands, maybe the millions. So the money we as a society pay to have professional baseball is funneled into fewer hands than the money we pay to have metal things joined through welding.
Excellent analysis, but you don’t even need that. What is the point of comparing a very high paid interior designer with the average teacher? If you compare the average interior designer with the average teacher, I’d be surprised if interior designer wins.