The General Economics Thread

Everyone's been going on about how subprime auto loans are the next housing market bubble, but I don't see it. The market share is just too small for it to be more than a minor blip.

Ironic if its the fact people arnt borrowing much to buy new cars that turns out to be the real problem.

I haven't been following the car loan market particularly of late, other than what I catch on the edges of various blogs, but it seems to me that a credit burst in the subprime loans market shouldn't affect new car sales much, if at all. Wouldn't most such loans be on used cars? It might ding a lot of dealerships, I suppose...

I dont really think that subprime loans have that much to do with it, Im just wondering if this type of restructuring is going to spread to the other car manufacturers.

Oh. Well, I was assuming that GM is suffering from lack of sales, which might be due to consumer credit problems. If that's true, then it could easily impact other manufacturers. Or it could be due to internal issues, which indicates against a spillover.

Major layoffs like this are never good news from an economic standpoint, and absolutely do have knock-on effects, but it's unclear how much resilience the macro economy has to demand shocks at the moment.

Edited by Fighteer on Nov 26th 2018 at 12:46:22 PM

Question. I've wondered on this for years, but why are companies so obsessed with growth? It's not enough to make 5 million in profits this quarter and 5 million the next quarter, if the profits are not ever-increasing, then a company is considered failing. Isn't sustainability good enough? If you are consistently making enough money to make profit, isn't that enough? Why does the profit have to keep getting bigger? Is it just plain ol' greed that drives it? Anybody can tell you that infinite growth is impossible, meaning that companies that are constantly pursuing growth, even to the detriment of the company itself, are setting themselves up for a fall.

This goes for the stock market as well. My original understanding of stocks was that if you believe a company will do well, you give that company some money to buy some shares. They get the benefit of some immediate liquidity, and you gain the benefit over time of getting paid dividends, which will hopefully eventually pay off the original cost and start making you some extra money. Nowadays I don't think anyone holds on to stocks for more than a week. It's just constant buy and sell, buy and sell.

As the threat of climate change looms large and we keep barreling closer to the point of no return, and the vast majority of pollution and ecological damage are caused by a relatively small handful of megacorps, I wonder when will people wake up? What's so bad about a mildly successful company that consistently does well year after year as opposed to some brand new startup that shoots up in a few months, then gets bought out or goes up for IPO, then is never heard from again?

The answer is quite simple, greed.

Constant income is great for people, but for businesses it represents that you're stagnant and everyone else is improving around you—unless the whole market has outright crashed. Combine with concepts of greater productivity etc. and the expectation is that output should be increasing even where population is stagnant.

Of course, limited resources demands that we find a better way of viewing these problems, but that requires rewriting the world's entire economic view since at least the age of mercantilism, and the human concept that it's not enough to be doing well, you have to be comparatively doing better.

And of course the population isnt stagnant, its growing constantly, so the national economy requires that, in order for the average standard of living to improve overall, employers must continue to improve productivity per employee. This is often done through technological innovation.

From an individual stockholder's perspective, if the company you own stock in isnt growing or expanding, then the value of your stock will fail to keep up with inflation, leading to a loss of wealth. f

Growth is the foundation of a capitalist system. Without it, most people would eventually fall into some form of impoverishment (though not everyone would).

Edited by DeMarquis on Dec 13th 2018 at 8:30:44 AM

Are conglomerates making a comeback?

Did they ever go away?

Well I've heard they were falling out of favor in the 80's, but recently there's the rise of Google's parent company Alphabet.

Conglomerates reflect the success of economies of scale, where a set of companies try to improve efficiency and cut waste by combining certain adminstrative and logistical elements. It usually works best when the companies involved make or deliver very similar things, and lends itself to industries where profit is best made by producing a large number of very similar items each of which carries a very small profit margin added to the price (automobiles, or cell phones). The main alternatives to economy of scale is an ecomony of quality, where the manufacturer produces a smaller number of more expensive items, with greater markup per item, which are popular because the public perceives the items to be of higher than average quality (Apple, Rolls Royce). Which of these two strategies is more popular at a given time will depend on economic circumstances within a particular market, and will tend to wax and wan across the decades. I wouldnt necessarily read too much into it.

I see.

Which existing companies do you see becoming conglomerates?

We've got plenty of existing ones, mate. Every time you hear of a merger, ta-da! Conglomerate.

But, for the real multi-headed hydras, look here.

Yes, I know that already.

What I meant to say was could companies like Apple, Microsoft or SpaceX become conglomerates?

Microsoft kind of already is: it buys and swallows smaller companies on the regular. What prevents it being a conglomerate as of now... is implementing a full rebrand-and-incorporation when it doesn't just axe massive portions of the poor sods. The framework for many of its departments and overseas concerns currently skirt being subsidiary companies by technicalities and a huge centralised whip. It wouldn't take much for it to shift to a slightly more decentralised set-up (proper regulation of the sector and a less permissive tax code would certainly help do it).

Apple is pretty similar with its highly aggressive takeover strategies and organisation. Again, because of external regulatory body and tax code factors pushing them that way.

In time, something like AT&T and Time-Warner will likely emerge as Silicon Valley matures and government gets to grips with dealing with it more effectively. If both Microsoft and Apple somehow avoid becoming like IBM, they'll form the cores that other, larger and decidedly more international partners coverage around. Don't look now, but some of the older telecoms companies might turn out to be those partners. After they wake up to the inevitable (eventually). Perhaps.

Google could be a larger partner. Or a core company, itself. <waggles hand>

This is all not necessarily good. Or bad. But, it's not an unfamiliar pattern.

It's often easy to forget that this is a well-trodden road, despite the shiny new tech a new industry starts booming with.

I cant speak to those specific examples, but the tech industry is generally a poor candidate for conglomeration because their administrative overhead is already so low that there isnt much to save. Most of the takeovers you hear about are actually about purchasing intellectual property. Once the copyrights of the bought-out company are secured, its usually dissolved as an organization.

Edited by DeMarquis on Dec 22nd 2018 at 9:30:47 AM

Fundamentally what the tech megacorps are doing is buying out potential future competition, they get the copyright/patents/whatever and stick it on a shelf somewhere. I suppose that's one way to keep their monopolies, and it causes much less grief than actually bothering to undercut the opposition once it shows up. Clever, although not particularly conducive to proper functioning of markets.

But would that be enough for other industries to avoid them forever? I'm sure companies like Disney or Comcast would love to get their hands on things like Facebook, Amazon or Apple. Likewise, Amazon among others has proven itself willing to branch out into other industries.

Edited by MorningStar1337 on Dec 26th 2018 at 9:07:37 AM

Investors have cold feet right now because Time Warner didnt go that well. I assume that somebody will eventually unite everything from studio to smartphone eventually (ie, a single corporate entity that includes components representing all the interconnected industries).

Edited by DeMarquis on Dec 26th 2018 at 6:06:54 AM

Nobody's going to control the software side of things because customers generally dislike walled gardens, and someone will provide an open platform to compete with closed platforms.

Question: Does food waste contribute to world hunger?

I recall as a kid assuming the old yarn about starving children in third world nations (ergo, clean your plate) was meant to convey that westerners buying more food than they consume was part of the problem. I'm curious if there's any truth to that?

Not overly. Most of the food thrown out is from restaurants and grocery stores.

And even then there's not really any way to get most of that food over to Africa or areas around the world with hungry problems because much of it is perishable and can't be stored long even under ideal conditions.

Now you could maybe make an argument that those restaurants and grocery stores could donate what they could to local food banks rather than dump but that's not a "world" hunger issue.

Yeah unless it’s a food imported from the third world than there’s no impact on the developing world.

Even if it is an imported food it might still be better to buy and waste it, as then the third world farmer gets some money for his crop rather than having it rot on the vine because he can’t sell it.

Generally third world poverty isn’t because the food is being wasted, it’s because some local warlord took the food.