Horatio Parker
Veteran Member
Never heard of aggregate demand? Maybe you need more time in the peanut gallery.
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Corporate Economics Question
- Thread starter Rhea
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Never heard of aggregate demand? Maybe you need more time in the peanut gallery.
coloradoatheist
Veteran Member
Hopefully dismal will answer, yes aggregate demand exists, but companies operate mostly on the micro level, not the macro level Companies don't think, "Hey we need to wait until people have a spare $1,000 and then we can open" If that was the case no businesses would open or change.
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Correct. Pricing takes a lot of factors into things, though a lot is just hopes and guesses. But the argument is that a business just waits for consumers to have free money is false. If they did, a business would never open up.
Yes, people look at how much they expect their product to sell and what price they can sell it at. They do not confuse this with "aggregate demand".
They do not sit around modeling things like "lets do an upside case where the government takes more of our profit and uses it to make aggregate demand higher."
steve_bank
Diabetic retinopathy and poor eyesight. Typos ...
About 6 years ago I did some contract work for the male patriarch entrepreneur in a Christian family.
They literally made decisions on prayer. The wife got quite upset when I tried to explain planning, schedules, and the importance Theron.
He who makes business plan on hopes and wishes find money hard to get.
SimpleDon
Veteran Member
I have asked this question frequently without receiving an answer.
To my mind you buying the stock of my company doesn't provide me with any money, unless you buy my initial stock offering, the IPO, for initial public offering. Then the money does come to me. Otherwise, you are buying my stock hoping that it will increase in value. But if the stock does go up then you will make money when you sell the stock, but you will get your profits from the person who buys the stock, not from me. In fact, it is something of a nuisance to me if my company's stock does increase in price because you are going to expect me to match the earnings that you expect from how much the stock is valued at, not the amount of money that I received in the IPO. It is like a permanent loan with ever escalating payments, that I can't ever pay off.
A long time ago corporations who needed additional capital to expand would issue new stock or they would sell stock that they held in reserve. These are called SEOs, Secondary equity offerings or Seasoned equity offering, or a SPO, Secondary public offering. SEOs are either dilutive, new stock issued or non-dilutive, stock sold from the company's reserve stock holdings.
However, these sales are rare today, especially with interest rates near zero. Companies are much more likely to borrow the money needed. Companies are much more likely to buy their own stock to raise the price of the shares, since executive bonuses are tied to the share price.
The stock market is a combination of a casino and a legal Ponzi scheme. As stated above, your winnings, the capital appreciation of the stock, is provided by the purchaser of your stock and the amount of money in the stock market is dependent largely on how much money is in the hands of the already wealthy. This is why the stock market went up when Trump and the Republicans took control of the government, the market was reacting to the promises of the Republicans to reduce taxes on the already wealthy, making more money available to put into the stock market. It wasn't that the market thought that the corporations would use the money from the tax cut to invest in their business and increase the number of jobs, it was because the market thought that the corporations would increase the dividends and increase the amount of money in the market.
The market doesn't understand that no more money is put into the hands of the already wealthy when the government reduces taxes on the wealthy because the government has to finance the deficit caused by the tax cuts by selling government bonds. The government increases the amount of money in the hands of the wealthy by the tax cuts and then bonds that decreases the amount of money available for investment. The government gives with one hand and takes with the other. The wealthy become wealthier, but the wealth created is in the form of a government bond.
SimpleDon
Veteran Member
And start ups don't normally supply to demand. Banks also don't loan money to failed companies. It is irrelevant to the discussion.
Established companies with low debt loads and an unfilled demand for their products have no problem selling bonds or borrowing money from banks.
Correct, and we now have an imbalance, we have too much money going to profits and to the rich, much more than we need and can use for corporate investment and too little demand. And we increase demand by increasing wages and decreasing profits. The tax cuts are going the wrong way. Even if they could increase the amount of capital available for investment, which they can't because the government has to finance the debt caused by the tax cuts, which reduces the money available for investment, i.e. the capital.
The economy can't recover from the 2008 crash, the capital lost in the crash is gone forever. The growth that should have occurred during those years is gone forever. All of it sacrificed on the altar of the idiocy of deregulation. An idiocy that we still have with us, enshrined in the ideology of our minority governing party.
Besides, there is no long term, just a string of short terms strung together.
Answer this, if corporations hid their profits from tax rates of 35% successfully and illegally why wouldn't they continue to hide their profits in tax havens from tax rates of 20%? Why would they return the illegally withheld taxes and pay a 20% tax on them? Patriotism?
What you are missing is that without that secondary market there would be much less market for the IPO shares.
I see that a lot, but "prayer" is a code word for "I haven't decided yet."
An off topic story about prayer and business decisions: There was a dealer in my store who specialized in vintage clothing. She was a very intelligent and hardworking young woman. Pricing vintage clothing is very difficult. Each piece is unique, especially for sized pieces. The buyer not only has to want the dress, it has to be her size, as well. My dealer priced her clothes with prayer. She made the tag and prayed until a voice spoke number and that was the price.
This voice was fairly reliable until late one night, she burst into her brother's bed room and tried to drag him out of bed and into the hall, while screaming, "Get out of the house!" He looked around and saw there was no furniture. The front door was open and the yard was scattered with furniture and household goods. She thought the house was on fire and had spent the entire night dragging stuff out into the front yard. It wasn't until she got to her brother's room that she realized he was in the house.
It took two weeks in a psychiatric hospital to get her on the right meds, and since then, she's been fine. I don't know how she sets her prices now.
SimpleDon
Veteran Member
Yes, of course firms operate on the microeconomic level. You are not making an insightful point here, you are belaboring the definition of microeconomy.
While firms may take not the macroeconomy into account in their pricing they should take it into account when they decide whether or not to invest, including whether to open. It is a little ridiculous to say that they are not affected by the macroeconomy and that they have no interest if their customers have the money (or the willingness to go into debt) to buy the firm's products.
Effective demand is more than desire to buy, consumers must have the money necessary to buy the products. And for the vast majority of consumers this money comes from their wages. This is not even Econ 101, it is simple common sense.
This idea that the price tells companies what they need to know to decide whether to invest or not is one of the most discredited ideas of the largely fantasy based Austrian/Libertarian economics. Such that Austrian/Libertarian economists don't bother to defend it anymore, even though it is one of the core elements in their philosophy. That is, supply and demand set the price, not the producer, and then price alone provides the signal for a firm whether to invest or for another firm to enter the market, how the fantasy economics says that the free market will regulate to prevent monopolies.
Since you accept that supply and demand operating together don't set the price, that is, the producer sets the price, it is curious where you fit in your apparent belief in this idea.
Just as an aid, this how it happens in the real economy. The producer sets the price that keeps his factories running (or today more likely to keep his supply chain filled to enable him to keep his deep discounts from the supply channel) to generate the profits he needs to justify his investment and the investment of his stockholders. He invests more when his sales exceed his capacity to supply product. This would occur across the whole economy if wages went up beyond inflation and consumers had more money to buy more products.
SimpleDon
Veteran Member
I see why you are normally reluctant to do more than just asking pointless questions, you really don't understand this very well. No one, except you, is confusing price setting with aggregate demand.
Demand is more than the desire to buy things, people have to have the money required to buy things. If they don't have the money required to buy products and services one of two things happen, and neither is good. They don't buy anything or they go into debt to buy more than they can afford. This is just common sense.
The government doesn't take money from the corporations to make demand higher, but the government does largely determine the split between profits and wages. The modern industrial economy produces a tremendous surplus above the amount needed for survival. It is the government's job to decide how much of the annual growth in the surplus goes to profits and how much goes to wages. Without the intercession of the government eventually all of the growth in the economy from improved productivity and innovation will go to profits and wages will slowly decline relative to inflation. This is undesirable, we need a balance between supply and demand, between profits and wages.
The current government, movement conservatism, neoliberal philosophy is that the government has to subsidize and to maximize profits.
The government's job should be to make sure that the workers have a more equal footing to negotiate wages, to maintain a balance between profits and wages.
The corporation is a wholly artificial creation of the government. It is a creation that we have benefited a great deal from. They allow economies of scale, self-financing, sufficient research and development and a large degree of market control to allow large corporations a comfortable competitive arena conducive to risk taking.
The government provides support to corporations and business in general. It builds the roads, the canals and harbors, the common infrastructure that commerce requires. The government goes on to educate their workers, to protect industry from foreign competition when the industry is young and subsidize their foreign sales. In the past, the government has protected businesses and the economy in general from the worse of the predatory and unstable financial sector, which left on its own engages in alternating between bleeding businesses and consumers dry in a death of a thousand cuts, and collapsing the economy with one of their Ponzi schemes, such as the weaponized mortgage securization that nearly destroyed the world's economy in 2008.
If the government doesn't provide the balance that the economy needs, if it only subsidizes the corporations, you end up with what we have had for the last four decades, a low growth economy with low inflation, The Great Moderation, and ever increasing income inequality, and the resultant social stress from it that can be expressed in many ways, including electing a proto-fascist, incompetent buffoon as president. Most importantly this is an increasingly unstable condition in the economy. It can't last and the longer it continues the more chaotic the crash will be when it comes.
This has been a very interesting discussion - thanks to all (and don’t stop, I’m just saying thanks so far)
So far I’m seeing that if I make $50,000 in money this year from stock sales (capital growth) or dividends or interest on stock, and I try to claim that my sale and purchase (of all NON IPO stock) enabled the company to make more jobs and that I should therefore be entitled to an “I helped the economy kickback,” I am lying.
[full disclosure: it is my opinion that any time you acquire money by any means it shoud be taxed exactly the same as money gained by physical labor, progressively proratedbased on how much of it one person has acquired.]
So far I’m seeing that if I make $50,000 in money this year from stock sales (capital growth) or dividends or interest on stock, and I try to claim that my sale and purchase (of all NON IPO stock) enabled the company to make more jobs and that I should therefore be entitled to an “I helped the economy kickback,” I am lying.
[full disclosure: it is my opinion that any time you acquire money by any means it shoud be taxed exactly the same as money gained by physical labor, progressively proratedbased on how much of it one person has acquired.]
Horatio Parker
Veteran Member
Most of the time when I hear this argument it's from people who don't understand how the stock market works.
Canard DuJour
Veteran Member
Harry Bosch
Contributor
I agree with you that earning dividends (or recognized distributions from a stock) should be taxed at the same rate as labor. For a publicly traded company, its stock price can often be a barometer of its health. There are exceptions to this rule, but a company's stock price reflects investor perception of its ability to earn and grow its profits in the future. Usually the higher the stock price, the greater the optimism around the company's prospects. As a company's stock price increases, so does its market value.
Directly, you didn't help. Indirectly, you did by providing a secondary market for the shares.
I would agree with a provision: It's taxed in current dollars. On average this is about a wash for capital gains taxes (sometimes you'll do better, sometimes you'll do worse) and zeroes out most interest income.
If it's not taxed first at the corporate level, OK.
Harry Bosch
Contributor
The republicans are are trying to pass a law that would tax my wages on top of my state and local taxes are paid. That's a tax on a tax on a tax. If I get triple taxed, why not rich investors in Texas also?
Harry Bosch
Contributor
I'm taxed on my wages, taxed on my state and local taxes (can't deduct that anymore), taxed on 100% of my SSN. Rich guys are not taxed on 100% of their SSN income.