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Too simple. Firm 1 is a multi-national corporation in country c1 that owns firm 2 in country c2.
The tax on profits in c1 is 10%, while the tax on profits in c2 is 40%.
Firm 2 has costs of $5, and produces an output of that brings in $10 worth of revenue.
Firm 1 buys the output of Firm 2 for $10 and produces another product that brings in $40 worth of revenue.
Based on this information will firm 1 be better off (have higher after-tax profits) operating as a vertically-integrated company or practicing perfectly legitimate transfer pricing (i.e. no input price fudging) by setting up firm 2 as foreign subsidiary? What if the tax structure is reversed? Will Firm 1's pricing strategy change?
How many apples, oranges, or potatoes are you going to eat? What other resources does this island have? If I am the guy with the apple tree's, (and yes you will need at least two of them) I can only eat so many apples and the other two guys can only eat so many apples. I can make other things with the apples. Applesause, cider, maybe find some other things and make a salad. I am betting that you can ferment the apple cider and get open a bar. The same works for the owner of the orange trees and the potato farmer.
Profits come from how many things I can build with a given resource that are wanted by others. If the cost to make apple pies is less than the sale price of the pies then I make a profit.
Lets look at a real business model.
I managed a window cleaning company 25 years ago. Rain is an issue. People don't care to have their windows cleaned in the rain. Other services that can be offered by a window cleaning company when it rains? That was a question that we had one year when we were in a very wet rainy season. We had equipment what we needed was a service. We started offering rain gutter cleaning service. Many people have them clogged with items from trees and other things. We also offered pressure washing, for patio's and sidewalks. We didn't make the same money as we did with the window cleaning but we did pay the bills.
Diversification of products or services especially when you have the same resource is a great way to make more money.
It is no secret that you may not make a lot of cash with a market of two. What about the option of exporting to other islands?
Your first sentence is simply not true. Perpetual debt escalation *isn't* inherent in consumer-capitalism. When it happens it is caused by fiscal and financial policy.
We live on an exponential debt curve. About every 80 years it goes ballistic and we have a global debt meltdown. The meltdown clears a lot of the existing debts, as bad or through repayment without the issuance of new debts. Then we start over. About 5 years ago I read a really nicely written peace about it. Starting with the tulip bulb crisis in the Netherlands through the great depression every 80 years a global economic depression.
Quote:
Originally Posted by rruff
We do have a lot of debt, but it isn't the cause of our poor economy at all. Rather it is a symptom of 40 years of policy intended to mask the negative effects of globalization. It's how the oligarchs were able to keep our economy boosted until the deed was done.
And the curve before that is a close fit for the flat part of an exponential debt curve to, from the end of the recovery from the last peek on the great depression.
Quote:
Originally Posted by rruff
The sensible way to deal with this, if our government was actually interested in the welfare of the public, would be to print money and give it to citizens. That would get demand, production, and inflation rolling, and reduce the exchange value of the US$, which would close the trade gap. They could have done this 8 years ago, but better late than never.
I agree with you on this one but...
I'd like to see something tried that hasn't been tried before. If debt is exponential then put wages exponential too. Up the minimum wage by 5% a year. Just thinking.
I would say profit can be generated by the difference between intrinsic value and relative value. If something is worth $5 in input cost (materials, labor, etc) but is valued at $25 in relative value to someone else, you have profit. Most people at 12pm would rather buy a fully cooked hamburger for $4 compared to buying a raw quarter pounder of ground beef for $1. The time and materials needed to make properly prepare the ground beef to eat isn't worth it on a relative scale when you can buy one for $4 and save yourself 1 hour of prep work and clean up.
Many things are worth different values to people in different situations, hence relative value.
I would say profit can be generated by the difference between intrinsic value and relative value. If something is worth $5 in input cost (materials, labor, etc) but is valued at $25 in relative value to someone else, you have profit. Most people at 12pm would rather buy a fully cooked hamburger for $4 compared to buying a raw quarter pounder of ground beef for $1. The time and materials needed to make properly prepare the ground beef to eat isn't worth it on a relative scale when you can buy one for $4 and save yourself 1 hour of prep work and clean up.
Many things are worth different values to people in different situations, hence relative value.
You are comparing willingness-to-pay measures, which are on the demand side. Profit (quasi-rent) is measure of the difference in revenue and variable costs. Long-run profits include capital costs. These are measures used in financial and national accounts for sellers of goods and services.
Total willingess-to-pay of a consumer for a good, rather the do without it, less the cost paid for the good is a measure of consumer surplus. It is not a part of any financial accounts or national accounts. Economists measure it as a part of total welfare, along with producer surplus which is a measure of profits. The two can be added together to get a total welfare estimate. But you can't take consumer surplus to the bank, although it certainly does reflect how much you will pay for a good or service. (If something costs more than your maximum willingness-to-pay for it, you won't buy it)!
This is an economics 101 riddle. In an economy of two people trading apples for oranges profits are impossible, in an economy of 3 people trading aples, oranges and potatoes profits are impossible except the disaster times would force one party or another to accept an enequal exchange. Profits are commonplace in an economy of 300 millions people. Is it because "disaster" mode is a permanent feature of mass economies?
Dumbest thing I've ever read. Hands down. Dumber than the Fake Moon Landing Conspiracy Theories.
We live on an exponential debt curve. About every 80 years it goes ballistic and we have a global debt meltdown.
2 data points? I already posted the curves. The Great Depression was not caused by high debt. Debt went up later. Excessive debt escalation was a symptom of our latest debacle, but not the cause.
The problem in both cases was the oligarchs taking a larger and larger share. This severely imbalances consumer capitalism. The first time it happened there was a correction. The 2nd time there hasn't been and there probably never will be.
You already know this. We've talked about it before.
2 data points? I already posted the curves. The Great Depression was not caused by high debt. Debt went up later. Excessive debt escalation was a symptom of our latest debacle, but not the cause.
The problem in both cases was the oligarchs taking a larger and larger share. This severely imbalances consumer capitalism. The first time it happened there was a correction. The 2nd time there hasn't been and there probably never will be.
You already know this. We've talked about it before.
So it's about generations
Boomers will give us another meltdown before they go
2 data points? I already posted the curves. The Great Depression was not caused by high debt. Debt went up later. Excessive debt escalation was a symptom of our latest debacle, but not the cause.
The problem in both cases was the oligarchs taking a larger and larger share. This severely imbalances consumer capitalism. The first time it happened there was a correction. The 2nd time there hasn't been and there probably never will be.
You already know this. We've talked about it before.
False. The Great Depression was indeed caused by debt - margin debt to be precise.
False. The Great Depression was indeed caused by debt - margin debt to be precise.
Merely the tipping point. Just like subprime loans were not the *cause* of the crisis in 2008.
The total debt level was low in 1929, and it doubled (%GDP) in the following 15 years.
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