I really enjoyed this conversation. It certainly seems to be sexy to be against capitalism these days. I love the moral conundrum of who has done more cumulative good for humanity Thomas Edison (for profit) or Mother Theresa?
Not nearly enough is made of the morality of capitalism. Virtually all transactions are made at arms length. Which implies that individuals making the best decision for themselves have concluded that these goods or services are of equal or greater value to them considering the costs.
I had heard Dr. Loury discuss that previously the model for an educator was a simple single factor equation that he would simply maximize wisdom and knowledge imparted. Now that equation has been meaningfully complicated by being maximize wisdom imparted while minimizing for many other variables. His conclusion being that this dilutes those efforts. I fear this exact same issue is happening in capital markets. Stakeholder/Stockholder debate has been the discussion for forever in business ethics. The end conclusion largely had been to maximize shareholder value. Today with the new antipathy for western capitalism and the advent of ESG and "Stakeholder Capitalism" this has done the same thing. What was maximize shareholder value has now turned into maximize shareholder value while minimizing for a million other things that are not relevant to the business. Personally I think one has to examine how you maximize shareholder value. You maximize value by maximizing free-cash flow growth over a very time. This implies that you cannot "exploit" your employees or suppliers etc. That would be great for 1 or maybe even 2 quarters, but nothing beyond. As for as external societal costs that is literally why we have regulators.
Capitalism's critics will always benefit from the fact that the gains are diffused. (Example - 10k auto manufacturers are laid off and replaced by robots). We see those harmed in one concentrated area, but we lose sight of the fact that everyone benefits from a marginally less expensive car for millions. The sum of those losses vs. the societal gain is going to be clearly a gain for society. This is how we get to the point that so many items that were previously for the elites are now available for all. It's this iterative process that results in cell phones, HVAC systems, encyclopedias, computers, 60' televisions, cars etc. are not available to the masses that were previously only available to the wealthy. It's because businesses don't over pay for anything.
In the scenario where the critics of capitalism win the real loser is the people on the margin. They valued the car at $20k, but the price of the car was $21k. If they had laid those workers off they could have valued the car at $20k. Everyone on the margin that would have been able to afford the car between $20-21k don't purchase the cars. Those are the people that lose, but they are nameless and faceless victims with no one taking up their cause.
I really enjoyed this conversation. It certainly seems to be sexy to be against capitalism these days. I love the moral conundrum of who has done more cumulative good for humanity Thomas Edison (for profit) or Mother Theresa?
Not nearly enough is made of the morality of capitalism. Virtually all transactions are made at arms length. Which implies that individuals making the best decision for themselves have concluded that these goods or services are of equal or greater value to them considering the costs.
I had heard Dr. Loury discuss that previously the model for an educator was a simple single factor equation that he would simply maximize wisdom and knowledge imparted. Now that equation has been meaningfully complicated by being maximize wisdom imparted while minimizing for many other variables. His conclusion being that this dilutes those efforts. I fear this exact same issue is happening in capital markets. Stakeholder/Stockholder debate has been the discussion for forever in business ethics. The end conclusion largely had been to maximize shareholder value. Today with the new antipathy for western capitalism and the advent of ESG and "Stakeholder Capitalism" this has done the same thing. What was maximize shareholder value has now turned into maximize shareholder value while minimizing for a million other things that are not relevant to the business. Personally I think one has to examine how you maximize shareholder value. You maximize value by maximizing free-cash flow growth over a very time. This implies that you cannot "exploit" your employees or suppliers etc. That would be great for 1 or maybe even 2 quarters, but nothing beyond. As for as external societal costs that is literally why we have regulators.
Capitalism's critics will always benefit from the fact that the gains are diffused. (Example - 10k auto manufacturers are laid off and replaced by robots). We see those harmed in one concentrated area, but we lose sight of the fact that everyone benefits from a marginally less expensive car for millions. The sum of those losses vs. the societal gain is going to be clearly a gain for society. This is how we get to the point that so many items that were previously for the elites are now available for all. It's this iterative process that results in cell phones, HVAC systems, encyclopedias, computers, 60' televisions, cars etc. are not available to the masses that were previously only available to the wealthy. It's because businesses don't over pay for anything.
In the scenario where the critics of capitalism win the real loser is the people on the margin. They valued the car at $20k, but the price of the car was $21k. If they had laid those workers off they could have valued the car at $20k. Everyone on the margin that would have been able to afford the car between $20-21k don't purchase the cars. Those are the people that lose, but they are nameless and faceless victims with no one taking up their cause.