The End of Profits
Ambition, hopes, dreams, achievement, success…all to the letter driven by profits. Though they are the foundation upon which capitalism is built, we rarely actually discuss the importance of profits. It is implied, after all, that if we don’t profit from our ventures…they are not worth undertaking.
Dublin dweller and self defined anti-economist Phil Pilkington wonders if we are actually mistaken in this assumption. Though the idea alone is enough to scare most from the debate for fear of wasted time, he actually makes an interesting point…
Namely, what if we have simply reached a saturation point in terms of profitability in global economics and markets. What if we simply can’t grow anymore? It does seem, as Pilkington points out, that the lofty dreams of climate control and global warming supression can only come to life with some sort of industrial scale back and economic growth ceiling.
For a more in depth look at the issue from a practical angle, take a look at what Prof. Bill Mitchell has to say about Japan.
Although the Japanese economy has been growing at a very sluggish rate, employment has been plentiful, incomes have been kept secure and prices have been reasonably stable. I’d also point to the fact that the manufacturing sector continues to be as dynamic as ever – Japan still produces extremely high-quality, up-to-date cars and electronics.
Mitchell claims the key to this seemingly illogical equation balancing out is public spending. Bringing back to us the logic of the Bush years which claimed that if we would just spend, all would be well. Not sure I fully concurr but I do have to say the argument seems a lot more plausible to me than it would have five or even three years ago.
So let’s assume that the rationale is correct. Global population growth has been on a steady decline and will only continue that trajectory. Governments are more involved in markets than they have been since the fall of the Berlin Wall. Fewer and fewer individual investors are involved in market speculation. Dare I say it… maybe they are right?
If that really is the case, how does that bode for Wall Street and the financial services industry as a whole. Those who decried the end of the street at the peak of the crisis were certainly premature, but maybe they too…were right. How does life change behind the walls of the Wall Street fortress if growth and profit proliferation begin taking a back seat to just living life?
What do you guys think? Can the world survive if profits hit a ceiling and cease to grow? More importantly for us here…can Wall Street?
Maybe its just me but it seems like more an more articles are being steeped in sarcasm to the point where a reader has little sympathy for the authors point and actively tries to disprove it. Pilkington's article is a good example of this, but according to him I must be insane since I don't agree that human beings can "prevent global warming from melting the planet."
Ultimately he is suggesting that increased public spending through debt is a sustainable model for post-growth. Even with required savings fueling this debt bindge, eventually a country adopting this policy would have to default on it's loans. His solutions for this inherent problem is only a few lines and not novel: "Public debt might rise, but as we see clearly in the case of Japan, this should not be a concern – and it will probably fall again once the proper spending and taxation policies are implemented."
We have heard this mantra before, high taxes and large government spending waste money and destroy economies. I don't know how many more examples we need before it becomes completely obvious to everyone. As nations develop growth rates will slow down. I am a firm believer in reducing population growth to replacement rate levels. But his suggestions would stifle productivity, reduce a high-income earners incentive to work and dramatically increase public debt to the point of default.
As a last note, I find it amusing that he implies continued deficity based public spending would have avoided Ireland's current situation. What a myopic way to look at things. Yes Ireland is going through tough austerity and yes there is an increasing likelihood that they might default. To suggest that increasing public spending would avoid default is not only counter-intuitive, it's just wrong. Prolonging default by continuing to fund deficits only postpones the inevitable. you don't get out of a hole by digging even deeper.
The only systemic obstacle to profitability is government meddling.
tell all of the aspiring middle class and the poor in BRIC that they should just go life live and there is no more growth... this is insane.
So the whole point of this article is to put the government through eternal debt and kick the can down the road? Japan's public debt is primarily financed internally from the high savings rate of wealthy Japanese. Essentially, Japan's poor and middle class are indebted to the rich with the government serving as middle man. This situation will only endure so long as Japan experiences deflation or very low amounts of inflation.
This guy's genius totally original plan is to what tax and spend?
He fails to understand that people, businesses, and especially capital are mobile. Most new growth over the past 30 years wasn't fueled by population growth or copious government spending but by technology and innovation. I agree with him that economists are generally wrong and don't account for things such as human happiness and the environment, but all he's doing is replacing one set of flawed logic with his own flawed logic.
Profits will continue to grow - at least in relative terms. If we have declining populations then absolute profits may decline, but per-capita will continue to improve.
The whole global warming thing is such a red herring. Even if there were an emissions cap - it just means we would change to use less emitting resources and eventually keep producing. Either by being more efficient, or using more non-emitting sources like nuclear, or low-emitting sources like natgas. Might not happen overnight, might be painful, but it could be done.
It seems ridiculous to think that people will just give up all ambition and never want to improve their life whether that be investing in their own dreams or putting money into other people ideas.
Also has the author taken into account the major growth in tech companies lately(mostly those that deal with the internet) or the next explosion of wealth to come from the quickly growing alternative fuels market. What about all of the profit that will come from those?
And even if we were about to hit some imaginary wall in profits wouldn't there be deflation in the economy not inflation like we are still seeing today and more than likely well into the future?
So in short I would have to completely disagree with this article.
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