Bigthink - User Ideas Feed

Re: Has capitalism run amok?

Bigthink — Mon, 21 Jan 2008 16:12:55 +0100

Where is capitalism failing today?

Capitalism is functioning within the given institutional structure, which includes tax laws, labor laws, government spending decisions, contract law, etc.

What needs to change in the system?

The system changes continually with changes in the application of the institutional structure and with the advancement of knowledge on how to use any given structure.

Currently, we have a floating exchange rate system in place, which is capable of sustaining full employment and price stability. This is a major advancement over the previous gold standard, which necessarily resulted in periodic recessions and depressions and allocated real resources to the production and accumulation of gold.

However, we continue to fail to recognize how to sustain sufficient demand for full employment and we fail to utilize techniques of government spending that will promote price stability; so, the promise of floating exchange rates has yet to be realized.

Re: Why does fiscal responsiblity matter?

Bigthink — Mon, 21 Jan 2008 16:05:09 +0100

Is fiscal responsibility essential to creating a stronger, more prosperous nation, or is the matter overhyped?

Worse, the matter is totally confused. By identity, government budget deficits = 'non-government' accumulation of financial assets denominated in that currency.

That means net savings desires of the non-government sectors can only be accommodated by government fiscal balance.

Therefore, if government deficit spending is insufficient to satisfy the total net savings desires of the non-government sectors, the evidence is unemployment and excess capacity in general, which is also known as a lack of aggregate demand.

Re: What is the most exciting thing going on in business today?

Bigthink — Mon, 21 Jan 2008 13:35:24 +0100

: The combination of weak demand, due to world budget deficits being too small, and rising prices of food and fuel, due to the Saudis acting as the swing producer (they are a monopoly supplier at the margin), is creating a highly disruptive 'stagflation' condition much like the 70's.

Re: Re: Are you worried about America's economy?

Bigthink — Mon, 21 Jan 2008 13:33:28 +0100

Yes, I see weaker demand, supported by rising exports that diminish demand in the rest of the world, while inflation accelerates due to imperfect competition in the production of crude oil.

Re: Are CEO's salaries bloated?

Bigthink — Mon, 21 Jan 2008 13:20:11 +0100

Everyone deserves a fair price for their work,
As a matter of 'game theory' if a person has to work to eat and survive, but business only has to hire if it determines it can sufficiently profit by adding employees, it is an 'unfair game' biased against workers, and we should expect real wages to stagnate over time.

And this is exactly what we observe.

but should there be caps on CEO salaries?
The corporate structure is part of the general institutional structure, which is producing the seemingly higher than necessary CEO salaries. Simple caps would have other consequences.

More fundamental changes to the institutional structure are needed to put incentives in place for alternative distributions of incomes.

Is it fair to lay off workers when your own salary is worth tens of millions of dollars.
At the macro level, with sufficient aggregate demand to ensure full employment, efficiency increases total output. Therefore, layoffs without production cuts potentially benefit the entire population.

However to get that outcome, the current institutional structure has to be adjusted to include the necessary incentives.

Or, does the market require high salaries to retain the highest quality leaders and the lifestyle they must lead in their high risk jobs?
No. The reason for the high CEO salaries is a function of the corporate structure that includes the legal arrangements between shareholders, board of directors, and management. It is the resulting interaction that will continue to push up CEO salaries.