PeakTrader.com

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PeakTrader:

Typically, profit is the result of efficiencies. It’s the reward of efficiencies. Producing more output, and higher quality output, with fewer inputs raises living standards.

That, in itself, benefits the masses.

Then, what to do with profits? How should profits be distributed? Should there be a profit sharing plan?

For example, a friend started a firm about 15 years ago and has well over 100 employees now. He distributes most of his profits to his employees, giving them big bonuses around Christmas based on seniority, and has several employee appreciation days a year with food from caterers, cash, gift cards, and raffles of goods.

Moreover, he pays the highest possible wages for his workers, who all earn $30,000 to $60,000 a year, and buys equipment to make the work easier for them. He pays himself $150,000 a year. He could pay himself much more, if he wanted to, but limits his pay.

That’s always been his business philosophy, to pay his workers as much as possible and make their jobs easier. Attracting and retaining better workers was likely a major factor why he was able to take market share from his competitors.

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The only way to move from one economic revolution into the next is through efficiencies, because of limited resources.

A thousand years ago, most people worked in Agriculture. However, today, less than 3% of the U.S. workforce produces more than enough food to feed the entire country.

A similiar trend is taking place in manufacturing. Article and Chart:

U.S. Manufacturing: Output vs. Jobs Since 1975
Jan 24, 2011

Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975

Chart of U.S. manufacturing real output:

http://research.stlouisfed.org/fred2/series/OUTMS

These trends allowed the U.S. to move into the Information and Biotech Revolutions. Facilitating efficiencies in the Agricultural and Industrial Revolutions allowed the U.S. to move more quickly into the Information and Biotech Revolutions, where the U.S. now not only leads the world, it leads the rest of the world combined (in both revenue and profit).

There has been only four major economic revolutions. Perhaps, the fifth will be nanotechnology. Many more will follow, as we produce more with less. The question is how fast do we want to move into new economic revolutions?

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Noni says: “by definition “profit” is a waste (to the consumer) — it is that portion of what they pay that doesn’t go directly to making a product or hiring a service.”

Profit makes U.S. firms more efficient, allows investment, or rewards savers (e.g. in 401(k)s and IRAs).

The U.S. would’ve been unable to invest heavily in the Information and Biotech Revolutions without profit. And, creating efficiencies in those economic revolutions generated more profit to invest in emerging industries.

Consumers benefit tremendously from efficiencies in older industries and creation of new industries, although market power, in new industries, keeps prices high, initially. However, the U.S. benefits in international trade from that market power.

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Noni, yes, federal spending is most inefficient, and there are opportunity costs.

Efficient is allocating limited resources to produce more with less time, effort, and money, which allows profit and more investment.

Of course, when there’s uncertainty, firms will be risk averse.

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Reason says:

Peak Trader - “Typically, profit is the result of efficiencies. It’s the reward of efficiencies. Producing more output, and higher quality output, with fewer inputs raises living standards.

That, in itself, benefits the masses.”

Not unless prices fall, which reduces profits, it doesn’t. Benefit to the masses comes from uncaptured efficiency (i.e. consumer surplus) not from profit.

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Reason, you’re completely ignoring costs.

Lower costs can raise both profits and consumer surplus.

And, efficiency allows income to rise.

The pie isn’t fixed. It’s not a zero-sum game.

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