Exegesis - Cap/Com-ist

[Kontiki]

Originally posted by Kidicious

This is just my philosophy mind you. Yes I believe that people deserve compensation for working hard. I don't really consider that incentive. That's what they are owed.

That's fine if it's just your philosophy. I'm just trying to get a sense of it.

OK, so you work hard, you get paid more. What I'm trying to get at is the motivation for doing this. Why does one need/want more money in your communist society?

You need money to buy things. If you don't have a job you recieve unemployment compensation, but the state finds you a job.

What things? If I get unemployment compensation, won't I have money to buy food? Isn't housing provided by the state? And that's great that the state finds me a job, but what if I don't want it? What if it's a job I don't like? What if I just don't want to work at all? What happens to me then?

[Kidlicious]

Originally posted by Kontiki


That's fine if it's just your philosophy. I'm just trying to get a sense of it.

OK, so you work hard, you get paid more. What I'm trying to get at is the motivation for doing this. Why does one need/want more money in your communist society?

Actually I think time off is a better compensation. You want it for the same reasons that you want it now.

What things? If I get unemployment compensation, won't I have money to buy food? Isn't housing provided by the state? And that's great that the state finds me a job, but what if I don't want it? What if it's a job I don't like? What if I just don't want to work at all? What happens to me then?

You have to work. If you don't work then there should be some penalty. I guess your benefits get cut if you keep causing problems or something. You still get your basic needs met though. I don't believe people should go without their basic needs being met, no matter what.

[Arrian]

What do you say to my contention that Time basically = Money?

I mean, if I can accomplish in 30 hours what it takes Flubber 40 hours to do, but we both earn $1000 per week in pay, then I make $33.33/hour, and he makes $25/hour.

-Arrian

[Kidlicious]

Originally posted by Arrian
What do you say to my contention that Time basically = Money?

I mean, if I can accomplish in 30 hours what it takes Flubber 40 hours to do, but we both earn $1000 per week in pay, then I make $33.33/hour, and he makes $25/hour.

-Arrian

In that sense, yes. He wastes time so he has to work longer.

[Flubber]

Originally posted by Kidicious


I propose that you be compensated with time off.

Excellent-- since I work twice as fast as my neighbor, I use all my free time to build more "stuff" people want and sell it-- So I only earn DOUBLE what my neighbor makes.

[Kontiki]

Originally posted by Kidicious

Actually I think time off is a better compensation. You want it for the same reasons that you want it now.

I want it now because I get paid to take the time off. So, I get paid to do nothing. How is this fair to the other workers who have to pick up my slack while I'm gone, but aren't getting paid any more than me?

You have to work. If you don't work then there should be some penalty. I guess your benefits get cut if you keep causing problems or something. You still get your basic needs met though. I don't believe people should go without their basic needs being met, no matter what.

Dig deeper. Why do I have to work? How is cutting my benefits not a monetary incentive? For that matter, what benefits get cut? Right now, if I don't work, I'll either lose my house or have to find a cheaper place to rent, depending on my current housing situation. I also won't be able to buy a house if that's what I want to do, and I might lose my car. If I don't live in a country with a decent social safety net, I might not be able to eat either. These are all trappings of capitalism. What do I lose of value if I don't work under communism?

[Kidlicious]

Originally posted by Kontiki


I want it now because I get paid to take the time off. So, I get paid to do nothing. How is this fair to the other workers who have to pick up my slack while I'm gone, but aren't getting paid any more than me?

Because you did more work than them.

Dig deeper. Why do I have to work? How is cutting my benefits not a monetary incentive? For that matter, what benefits get cut? Right now, if I don't work, I'll either lose my house or have to find a cheaper place to rent, depending on my current housing situation. I also won't be able to buy a house if that's what I want to do, and I might lose my car. If I don't live in a country with a decent social safety net, I might not be able to eat either. These are all trappings of capitalism. What do I lose of value if I don't work under communism?

I'm not sure what different answer you want. You have to live in public housing (well free housing) and eat food provided for society's less fortunate. What do you want me to say?

[Flubber]

Originally posted by Kidicious


Risk cost is the product of the probability of loss and the potential loss. The premium is compensation for taking a risk.

What you entirely missed in the discussion was that no one "decides" what risk premium the capitalist gets paid. They take the risk and if things work out, they make a lot of money. But this is usually balanced by the fact that you are frequently taking similar risks-- some work out and some don't. So even if a company makes what you consider to be an unacceptable risk premium on one project, this is offst by losses on other projects. The chance of success on a pure exploration well is usually about 1 in 10 . . . that means that the one sucess must be big enough to make it worthwhile to drill the 10.

Oh and your risk cost is used as part of a formula we use for "risk-adjusted rate of return" -- We also look at "p1" and "p10" cases to evaluate downside. You won't agree to take risk that involves a 1% chance of killing the company for instance, even if the upside is massive.

[Kidlicious]

Originally posted by Flubber
What you entirely missed in the discussion was that no one "decides" what risk premium the capitalist gets paid.

We sure do. We decide when we make the rules; when we set corporate tax rates for example. Always when there are problems with the economy we decide to give incentive to business. This comes in many forms.

Let me ask the question this way. Can capitalism work if risk premium is not greater than risk cost? Then we can go forward.

[Kidlicious]

For people trying to follow along Flubber assumes that profit is all a premium for risk. I'm arguing that it is risk premium and incentive.

[Flubber]

DP

[Flubber]

Originally posted by Flubber


I agree that incentives to business are used to promote economic growth . . . as are lower interest rates and lower personal income taxes. Also grants and subsidies are sometimes given to certain start up businesses. Your point?

QUOTE] Originally posted by Kidicious

Let me ask the question this way. Can capitalism work if risk premium is not greater than risk cost? Then we can go forward.

The question as posed still makes no sense

You said that " Risk cost is the product of the probability of loss and the potential loss."

If a project had a negligible chance of a loss, you would say it had no risk cost even if it had a 60% chance of breaking exactly even . .. . Even if it had a 40% chance of earning 10% , we already have a situation where the rate of return will exceed "risk cost' as you have defined it, yet we have a project in which no one would invest. Why? The risk weighted rate of return is only 4%.

On this example obviously you need to exceed risk cost as risk cost is ZERO. Any profit would exceed risk cost.

-------------------------------------------------------

Oh and capitalsim works fine whether or not risk premium exceeds risk cost for any given project. Quite simply the projects where the risk-adjusted expected rate of return are adequate, get funded and go ahead. If a project does not meet the criteria , it is shelved, but capitalism survives and the project may go ahead at a later time if

1. another party picks it up and has different return requirements or
2. key risk elements are eliminated (ie another well proves the existence of reserves) or
3. key assumptions are altered such as price or transportation costs
etc etc

But capitalism continues. If no projects make sense right now, none get done [/QUOTE]

[Flubber]

Originally posted by Kidicious
For people trying to follow along Flubber assumes that profit is all a premium for risk. I'm arguing that it is risk premium and incentive.

Nope for people following along . . I reject the idea that profit is pre-determined and guaranteed. I reject your "incentive" idea because it makes it sounds like someone consciously decided to GRANT a certain level of profit to some capitalist. Thats why I reject your premise.


What I AM saying is that when a capitalist makes a decision to invest, the rate of return must be sufficient to warrant the risk. If it is not, THAT PARTICULAR investment will not occurr. It does not mean that someone else using different assumptions or having a different risk profile will not make the investment.


Now profit is not merely a premium for risk. The risk premium issue arises with the investment decision. Profit comes or does not come much later . At a given level of risk, the later profits could be 0%, 20%, 40 %, heck negative 10%. If the capitalist actually gets a loss, where did his premium for risk go ?? Thats right he didn't get one -- he lost money because the investment was risky . . . The premium idea is only relevant to the time of the investment decison as it is the potential for the higher profit that led to the risky investment in the first place

[Flubber]

Just to be clear-- A risk premium IS an incentive to make a risky investment. That's why I have difficulty seeing you split it into two separate pieces. By definition a risk premium IS an incentive.

[Kidlicious]

Originally posted by Flubber
What incentive?? Are you talking rent?? if you don't want to rent my tractor then don't. Its easy . . . Nobody forcing you . .. Just don't complain when everyone that does is making more money than you.

So if we don't pay the incentive then no projects take place. You don't seriously think that capitalism can continue if we don't pay the incentive do you?

What exactly is wrong about not paying the incentive, letting capitalism fail, and building a new system where the is no incentive necessary?