Exegesis - Cap/Com-ist

[Flubber]

Originally posted by Kidicious


Capitalists are compensated for their labor, and a risk premium. Arrian and I have agreed that they are paid a premium above that. He calls it incentive. Do you think that we must pay this 'incentive' for capitalism to work?

hmmm I would never break it down in that fashion. Its ALL a risk premium. You look at a "riskless" investment such as US government bonds and work from their. The required rate of return works from there. Even then a good looking rate of return may not be enough if the downside risk is too high.

Consider a project that costs $1B that has a 60% chance of earning a 25% rate of return and a 40% chance of earning no return at all ( negative 100%). Obviously the risk-weighted return on this investment is less than zero and the project will not proceed. Its ALL about the risk.


Do you need a risk premium? YES. But we don't make some conscious decision to pay it to "the capitalists". They are not guaranteed to get it all . . . that's why it is called risk.

[Kidlicious]

Originally posted by Flubber


hmmm I would never break it down in that fashion. Its ALL a risk premium. You look at a "riskless" investment such as US government bonds and work from their. The required rate of return works from there. Even then a good looking rate of return may not be enough if the downside risk is too high.

Consider a project that costs $1B that has a 60% chance of earning a 25% rate of return and a 40% chance of earning no return at all ( negative 100%). Obviously the risk-weighted return on this investment is less than zero and the project will not proceed. Its ALL about the risk.


Do you need a risk premium? YES. But we don't make some conscious decision to pay it to "the capitalists". They are not guaranteed to get it all . . . that's why it is called risk.

Do you agree that the cost of the risk premium should equal the benefits?

[Arrian]

Risk premium, incentive... components of profit. It's just another way of explaning profit.

-Arrian

[Flubber]

Originally posted by Kidicious


In capitalism the worker has a disinsentive to work, because he has to pay for the incentive for the capitalist. In communism there is no disinsentive to work.

Bull. The worker collects his wage even if the capitalist loses millions. You seem to think that "the capitalists" have some system of guaranteed profits.


Also capitalism as a DISINCENTIVE to work. Where have you been? capitalism is FULL of stories of people working hard and getting promoted, earning bonuses and getting rich.


You CANNOT SERIOUSLY be saying that workers in a large communist nation-state have more incentive to work hard.

[Kidlicious]

Originally posted by Arrian
Risk premium/incentive = profit.

-Arrian

That is not what you said earlier. You said


Risk premium + incentive = profit

[Kidlicious]

Originally posted by Flubber
Also capitalism as a DISINCENTIVE to work. Where have you been? capitalism is FULL of stories of people working hard and getting promoted, earning bonuses and getting rich.

All the while they have to pay an incentive to get other people to be capitalists. When they could be the capitalists. That's not exactly an incentive to work.

[Kontiki]

Originally posted by Kidicious


In capitalism the worker has a disinsentive to work, because he has to pay for the incentive for the capitalist. In communism there is no disinsentive to work.

You keep coming out with these platitudes, but no real information. I'm really trying to have a serious discussion here, not just bash you around. I asked you before, how does communism keep you free from exploitation? How is there no disinsentive to work? What do you work for?

Seriously, for the sake of this discussion, I'm willing to take everything you say about capitalism at face value - it's a horrid, evil system that exploits the common worker. So now tell me how communism solves these problems - not merely "well, it's not capitalism", but real meat. Specifically, where does the motivation to work come from? Detailed description of the lack of worker exploitation. I'm not Vel, I promise I won't bring up the USSR or any other historical communist bastardization.

[Kidlicious]

Let me ask that another way Flubber. Do you think the benefit of the risk premium should be equal to the cost of the risk, or more?

[Kidlicious]

Originally posted by Kontiki


You keep coming out with these platitudes, but no real information. I'm really trying to have a serious discussion here, not just bash you around. I asked you before, how does communism keep you free from exploitation? How is there no disinsentive to work? What do you work for?

Seriously, for the sake of this discussion, I'm willing to take everything you say about capitalism at face value - it's a horrid, evil system that exploits the common worker. So now tell me how communism solves these problems - not merely "well, it's not capitalism", but real meat. Specifically, where does the motivation to work come from? Detailed description of the lack of worker exploitation. I'm not Vel, I promise I won't bring up the USSR or any other historical communist bastardization.

You are paid to work. Honestly, that's the answer.

[Kontiki]

Originally posted by Kidicious


You are paid to work. Honestly, that's the answer.

But that's not an answer - it's "because I say so". You've expressly claimed that you want an equalization of salaries, so why would anyone work harder than the laziest member of their company/plant/commune/whatever?

And what if I don't want to work at all?

[Arrian]

Originally posted by Kidicious


That is not what you said earlier. You said


Risk premium + incentive = profit

Oh, sorry - I was combining them. I didn't mean to say that risk divided by incentive = profit Oops. I was writing it the way I'd SAY it, not the way it would be calculated.

-Arrian

[Flubber]

Originally posted by Kidicious


Do you agree that the cost of the risk premium should equal the benefits?

Its a short question but it raises a number of points


1. What is the "cost of the risk premium" ? If we go to drill an exploration well, it might cost $ 30 million. It has a 50% chance of failure and we earn nothing. It has a 25% chance of recouping well costs and up to a return of 25%. It also has a 25% chance of a return beyond 25% including a 10% chance of a return of 100% and a 1% chance of a 500% rate of return. So I ask you, what is the cost of the "risk premium". The cost of gas will be unaffected by our well and the risk premium could go from less to nothing up to $ 150 million. This is the type of information a "capitalist" has when they make their decision

2. "Equal"-- How does one equate an expenditure with benefits when some are monetary and others and non-monetary

3. The benefits. What are they?? The exploration company obviously thinks the financial cost is worth the risk and see possible production sufficient to justify the expense. But benefits can be a much broader concept. Bring additional natural gas to market will mean some additional pollution due to development and processing but may allow more industries to be much cleaner by not using oil and coal so there is a net pollution benefit. Also there are some additional jobs created in a number of places. Can you put a dollar figure on this, I can't.


Here again I am butting your theoretical model up against a real world example. Kid, how would you even begin to answer this question.

My answer is that the company deserves whatever profit they get since they took a massive risk.

[Kidlicious]

Originally posted by Kontiki
But that's not an answer - it's "because I say so". You've expressly claimed that you want an equalization of salaries, so why would anyone work harder than the laziest member of their company/plant/commune/whatever?

People should be paid piece work. I realize that's not always possible, but it is a lot of the time.

And what if I don't want to work at all?

You will have to work.

[GePap]

Originally posted by Kidicious


Political? In a way that has nothing to do with exploitation?

Explotation is only an issue in the political sense. Shouldn't then the solution be political then, instead of economic?

[Flubber]

Originally posted by Kidicious


All the while they have to pay an incentive to get other people to be capitalists. When they could be the capitalists. That's not exactly an incentive to work.

errr bull-- no one requires a worker to pay anything to the capitalist. The worker sees 20 bucks an hour as being a better wage than other people doing the same work.They work hard to keep the job and don't care if the company made a 20% profit (in which case you see the worker as paying the capitalist) or a 20% loss--- How does it fit when a capitalist loses money-- Is the worker exploiting the capitalist by taking too much in wages??