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Kontiki
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Canada
Aug 2001
time: 00:17
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quote:
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?
quote:
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?
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Kontiki
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Canada
Aug 2001
time: 00:17
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quote:
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?
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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?
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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quote:
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.
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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DP
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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quote:
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]
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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quote:
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
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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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.
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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quote:
Originally posted by Kidicious
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? |
Free will, kid-- If you don't want to rent my tractor or apartment or whatever, then don't. Just don't be suprised that lots of others will rent stuff to their advantage ( they will make more and more money and wonder what all the "exploitation" crap is about).
My question is how do you not allow the businesses to profit. You need food and almost all that is available to a city dweller comes from businesses. I expect most of the agribusinesses and food conglomerates could outwait your decision not to purchase and when you do purchase, they will earn a profit.
You talk about this "incentive" like its something that people consciously decide to pay. They don't. People pay a price for their eggs and milk and cheese. . . and guess what . .. on some of those products a profit is made and others there is none and people don't care as long as it is a fair price for the item they are purchasing.
Oh and why not stop saying "incentive" when you just mean profit??
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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quote:
Originally posted by Kidicious
You're contradicting yourself. How can the premium be incentive if it only equals the risk cost? |
I rejected that assumption on your part several times now as I still see your term "risk cost" as a garbage term. i even presented an example with numbers where the risk premium would be insufficient to invest despite the fact that risk premium exceeded risk cost ( as you defined it).
If a project has a 10% chance of losing 500million, that would mean a risk cost of 50million. So what ? Its an irrelevant number ( doesn't even consider the capital cost)
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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Back to kid -- what is the difference between risk premium (which I have defined a couple of times ) and incentive? . . . and why does this two part distinction matter since a risk premium by its nature is a higher expected rate of return to compensate for or incentivize a risky investment?
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Kontiki
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Canada
Aug 2001
time: 00:17
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quote:
Originally posted by Kidicious
Because you did more work than them.
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Let's back up for a second. How does time off for doctors and teachers work, exactly? Do people stop getting sick or going to school?
But to more directly deal with this question, it's OK for someone to get more paid time off for working harder, but not more money. What's the difference, exactly?
quote:
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? |
Isn't all housing state owned? Are there different levels of state housing? Why is the food for the poor worse than for everyone else?
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Kontiki
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Canada
Aug 2001
time: 00:17
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quote:
Originally posted by Kidicious
You're losing my interest Kontiki. |
Why? You think communism is better than capitalism. Surely you can explain what makes it better. In order to do that, I'd think you'd have to know how it works.
Seriously, do you really want to have an honest discussion? I fail to see how you can do that without defending your ideas.
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Velociryx
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of Candle'Bre
Apr 1999
time: 05:17
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Well good! Now you have someone else to be annoyed at! 
Just back for a moment to catch up on the latest gems from Kamp Kidicious!
And what can I say...the more things change, the more they stay the same.
Yes, Capital does, in fact, create value simply by its presence in an equation.
You can either dig that ditch with your hands (slow, labor intensive process)
OR you can take out a loan from someone who scrimped and saved his money, and DO something with it.
The ACT of gaining this capital (money, in this case) ALLOWS you options you did not have before.
That is, in and of itself, valuable.
So you take the money and go buy yourself a tractor.
But hey....before you go getting too carried away, that was MY money used to buy the tractor.
Money I can't use right now, cos you spent it to buy something for yourself.
I want my money back, paid in full, plus a premium.
Why? Because money received tomorrow is generally worth LESS than money received today. That's one. Two, because you are using MY money. Risking MY money (store of value for my accumulated labor) on something you bought for yourself. There's a risk involved to me. A risk that I might not get the money back. That tacks a little more onto the premium I'll be expecting. We call this premium "interest." You're renting my money. I want it back and then some.
You can either choose to accept my loan and vastly simplify your life, or you can continue digging the ditch with your hands. Your call. Your choice. Those are my terms, and I get to set the terms, since it is, after all, my money up for grabs.
Of course, if I WANT to loan the money out, then my terms can't be too harsh, especially since I'm not unique in my scrimping and saving. Thus, there is an incentive built in for me not to charge too much. If I try, you'll borrow elsewhere, and I lose an opportunity.
Balance.
Kid says, "no...you should just buy the tractor for me. Or let me borrow your money, keep it indefinitely, and pay you back exactly what I borrowed, because that way, you're not getting compensated for anything but your labor (or in this case, my accumulated labor). Which is utter tripe, because there are more factors than that.
What if you never pay me back at all (a default)? What if you squander the money, or simply run off with it? These are risks I face when offering my capital out. Risks that you MUST compensate for if you want the money.
You have freedom of choice here. You don't have to take the money.
What you choose is entirely up to you.
-=Vel=-
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:17
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quote:
Originally posted by Kidicious
I'm about done with you Flubber. I don't like the way you are going about the discussion. It's very annoying to me. |
Too bad. If you cannot handle logical questions, posed politely, it says more about you than me.
I am really not suprised. This follows the patterns of our previous discussions where long responses with detailed examples from the real world get met with one flip responses or insults from you .
The bottom line is you only seem willing to debate if someone accepts your definitions and premises as they sit. Thats not possible when they do not make sense
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14-12-2004 02:46
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