On Tue, Jun 17, 2008 at 3:06 PM, Andrew Lentvorski <[EMAIL PROTECTED]> wrote: > Bob La Quey wrote: >> >> On Tue, Jun 17, 2008 at 7:56 AM, Martin Franco <[EMAIL PROTECTED]> wrote: >> >>>> You imply that a business owner should take all the risks but at best >>>> break even, while only his employees make money? >>> >>> I meant to imply that there should be no business owner, that the >>> business should be owned by its employees, not by a single/few >>> individuals. >> >> My experience has been that very few people want to take on >> the responsibilities and risks of ownership. People want to >> share profits but rarely losses. In a world where all risk >> cannot be avoided one must come up with a mechanism for >> compensating the risk takers. How do you propose to do this? > > There is an implication that the business owners are taking risk. > > The current debacle on Wall Street highlights that those people are not > expecting that there is risk involved.
I disagree, it highlights only that the long side gambled and lost, and that most people are mathematically enumerate and economically ignorant. The short sides of stocks and interest rates are probably making money on balance right now. That congress is making political hay by allowing those who gambled and lost to welch out indicates that few people consider the consequences of losing before taking a risk, and that congress hasn't a clue except where stirring up emotion to get elected is concerned, which can hurt us all in extreme cases. > Risk is only for the small fry, dontcha know. Respecfully disagree again. Risk isn't just for the small fry, small capital bases are. If you have a thousand dollars and I have ten dollars we agree to bet that you win 2 cents for guessing heads or tails correctly and lose one penny for calling the toss incorrectly, as long as we bet a penny, I have little to fear. I would need to take a thousand losses in a row before I couldn't bet any more. If, however, we increase the bet size to a dollar per toss, now my capital base is not enough to go up against yours. I could only survive ten losses in a row before being wiped out. The risk is the same for both of us, and the mathematical expectation is .5 for both of us. But you can take bigger individual losses and longer strings of smaller losses and still keep playing. I can't. Failure to understand the importance of this phenomenon in the markets is responsible for countles examples of spectacular gains followed by spectacular ruin. I used to teach people to trade, and the students who grasped this early developed into consistently profitable traders. One showed more talent that her teacher and is now a millionairess. Those who didn't, or tried to fight it, were just tragic, and there's nothing you can do about it. > >> Profit = Resources retained for future use. Inequity of distribution >> exists in all known human systems. Inequity of risk also exists. >> Unfortunately classical Marxist analysis of all of these problems >> is superficial and impedes and real understanding of the problems. >> The Marxist systems have tended to degenerate into bureaucratic >> state monopolies of the worst possible kind. Anarchism, in the sense >> that you used it, has not ever been found to be persistent. A >> sustainable, equitable economy remains an open problem. An open >> problem not likely to succumb to old dogmas. > > I don't think such a sustainable, fully-equitable economy exists. There > must be some inequity (originally spelled that inequitability--the Net > really is making me stupid) to drive motion in the economy. The goals > should probably be A) a bottom level that we consider a fair starting point > and B) the opportunity to rise from there without a lot of barriers. Agreed, provided it's understood that there will always be somebody for whom there is no fair starting point, for the same reasons that inequity of distribution exists in all human systems, and that a risk is not made unfair merely because one or more people risk, and lose. > The problem currently is that we favor those who have already succeeded. > People who have already succeeded should have *fewer* protections from risk > rather than more. > > Please note: this is different from "we should take their money." While I > am no Microsoft fan, I do not want to see them brought down. I *do* want to > see others helped up so that they can provide viable alternatives. I agree, for reasons already discussed this post involving capital base size. Those who have already succeeded have more protection against risk built-in to their larger capital base, provided they decrease their "bet size" after a big loss. This is not always possible, but a lot of that has to do with stupid tax and financial regs, and a K-12 educational system that refuses to teach people how to define and manage risk properly, moreso than anything else. IMNSHO. Robert Donovan -- [email protected] http://www.kernel-panic.org/cgi-bin/mailman/listinfo/kplug-list
