26 March 2009

Righteous Profit

Some of the discussion of various CEO and bankster bonuses generally has come down to "people have a right to make a profit".

Rights are things that apply equally to everybody.

If making a profit is to apply equally to everybody, that's a rather strong form of socialism.

Doesn't seem likely that socialism is what they mean, does it?

If it does not apply equally to everybody, the version being put forward is a con; they're using "right" as a word that can't be argued with, instead of "privilege" or "prerogative". ("Members of my class deserve to have society arranged to guarantee we get money"; it's not really any different as an attitude than not letting the serfs move around was, in particularly oppressive aristocratic regimes.)

There's a huge difference between profit as a necessity; the thing you have to have to keep doing the otherwise interesting and worthwhile thing, and profit as a goal.

Profit as a goal, profit maximization, eventually destroys value. Value is the ratio between cost and benefit; five dollar shoes that last a month are worse value than fifty dollar shoes that last three years. (And yes, I'd like it if I could get long-lasting fifty dollar shoes, too. But the point of Vimes' Boots isn't real numbers, it's the ratio of cost and benefit.)

So if you're maximizing profit, you are setting out to reduce that cost:benefit ratio; you're reducing the value your produce or service represents to your customers.

So, sure, profit, is a necessity on some scale of time; what it isn't is a virtue. Virtues are good things in any quantity; you can't have too much generosity or courage or kindness in the world.

It's very easy to have too much profit; any time the benefit doesn't exist and the profit does, the value is undefined, and the profit is too great. For people who have crashed the banking system of most of the world in such a splendidly thorough way the crater is not all dug yet, I'd say it was very clear the benefit doesn't exist and so any profit is illegitimate.

Same thing with lots of pork barrel projects and public-private partnerships; the private half is rarely interested if they don't see it as an opportunity to either guarantee profit (irrespective of benefit, which is again damaging to value) or increase profits.

It's not even that difficult to measure value; measuring value could do with being discussed a lot more.

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