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How we can fix the economy and help both the rich and the poor at once
- Thread starter TSLexi
- Start date
A debt legally requires the issuer to repay it. Equity does not. Go look up the difference between stocks and bonds. Those who own equity are owners.Owners are investors.its the same thing, except theres no interest. people are paying to own it for "unlimited potential"
You need to understand the difference between accounting profit and economic profit.
If I have two choices for my $1 million, and one of them is investing in my business, and another is investing it in a one-year Treasury bond, I haven't really made an economic profit if my business doesn't have a risk-adjusted return greater than the Treasury bill's risk-free return.
There are four factors of production:
1. Land, which are IP rights and physical land
2. Labor, which is the ability to work, either physically or intellectually
3. Capital, which are the equipment and services used in production
4. Entrepreneurship, which is the ability to combine the above three factors
The payment for land is called economic rent, the payment for labor is called wages, the payment for capital is called economic interest, and the payment for entrepreneurship is called economic profit.
So whenever you see a company reporting a profit, it is really reporting a cost much like the cost of it's equipment or the cost of its employees or the cost of it's IP licenses and land. Capital investment is a cost, and when scarce, the price (interest) gets bid up, so capital investments are attracted to the least risky firms first. Therefore, riskier investments have to return more.
Where this distinction (or people's failure to make this distinction) has bite is when it comes to discussions of regulating or nationalizing some industry for the good of the people. One argument that is always made is that the evil private businesses are making profit and, after regulation or nationalization, the company won't make a profit (or, at least, a outsized profit) and that money can be returned to the people. This is exactly like saying that, for example, the pharmaceutical industry spends lots of money on research and development and, if we stopped them from spending that money, medicine would cost less. In both cases, medicine will soon cost nothing, but not in a good way.
Nor does taxation make any difference. If the government decided that it didn't want to pay for the steel it uses to make bombers and so it just stole the steel, the steel is still being paid for, albeit not by the end-user. Since any end-user will use more steel if it's free, the result is that a greater cost is being paid with less return than if the government just paid for it. That is a dead-weight loss. Exactly the same is true with taxation.
Finally, even if we can recognize economic profits when we see them, we still can't appropriate them without shooting ourselves in the foot. Outsized returns are a signal that supply is too limited. It attracts entrants into the market; investors can make more money there than elsewhere. The only exception is when there are barriers to entry that can't be overcome. The most common barrier? Government regulation.
If I have two choices for my $1 million, and one of them is investing in my business, and another is investing it in a one-year Treasury bond, I haven't really made an economic profit if my business doesn't have a risk-adjusted return greater than the Treasury bill's risk-free return.
There are four factors of production:
1. Land, which are IP rights and physical land
2. Labor, which is the ability to work, either physically or intellectually
3. Capital, which are the equipment and services used in production
4. Entrepreneurship, which is the ability to combine the above three factors
The payment for land is called economic rent, the payment for labor is called wages, the payment for capital is called economic interest, and the payment for entrepreneurship is called economic profit.
So whenever you see a company reporting a profit, it is really reporting a cost much like the cost of it's equipment or the cost of its employees or the cost of it's IP licenses and land. Capital investment is a cost, and when scarce, the price (interest) gets bid up, so capital investments are attracted to the least risky firms first. Therefore, riskier investments have to return more.
Where this distinction (or people's failure to make this distinction) has bite is when it comes to discussions of regulating or nationalizing some industry for the good of the people. One argument that is always made is that the evil private businesses are making profit and, after regulation or nationalization, the company won't make a profit (or, at least, a outsized profit) and that money can be returned to the people. This is exactly like saying that, for example, the pharmaceutical industry spends lots of money on research and development and, if we stopped them from spending that money, medicine would cost less. In both cases, medicine will soon cost nothing, but not in a good way.
Nor does taxation make any difference. If the government decided that it didn't want to pay for the steel it uses to make bombers and so it just stole the steel, the steel is still being paid for, albeit not by the end-user. Since any end-user will use more steel if it's free, the result is that a greater cost is being paid with less return than if the government just paid for it. That is a dead-weight loss. Exactly the same is true with taxation.
Finally, even if we can recognize economic profits when we see them, we still can't appropriate them without shooting ourselves in the foot. Outsized returns are a signal that supply is too limited. It attracts entrants into the market; investors can make more money there than elsewhere. The only exception is when there are barriers to entry that can't be overcome. The most common barrier? Government regulation.
" To get a broader consumption tax, she said the UK government introduced a tax on "sin industries" such as those selling oil and gas, alcohol, cigarettes and fuel. "
http://www.theage.com.au/business/t...dvisers-tell-tony-abbott-20141201-11xo8q.html
http://www.theage.com.au/business/t...dvisers-tell-tony-abbott-20141201-11xo8q.html
Should have done the two things below simultaneously for long long time:
1. Perhaps one thing to consider is not all companies to be taxed with same way/%, depending on different nature and objectives of individual industries/companies.
Utilities should be lowest tax. ...
2. Maximum annual profit % should be limited for individual industries differently, in order to stimulate more ethical expenses and employees, rather than making wealthy ones getting further wealthier.
Utilities should be lowest limit on maximum profit %. ...
Any abnormal profits exceeding the above-mentioned per-determined standards should be, basically nearly all, taxed to Governments.
One main reason is simply the success of a business is partly if not mainly due to a Government's long term investments on education system, infrastructure system, social security/ stability, political system, hospitals, retirement system, culture facilities, society planning/ structure, entertainments, defense, etc. etc.
Never too late!!!