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Saturday, February 5, 2011

Five Year Plan

In the Soviet Union, State leaders would talk about their "Five Year Plan". They announced all planned production for the next five years.

In Communist USA, State leaders don't plan that long! A CEO talks about his "Three Month Plan" or "Twelve Month Plan". A politician doesn't plan past the next election.

Instead of the Politburo controlling the economy, instead the US economy is controlled by a handful of CEOs.

CEOs and politicians suffer from the Principal-Agent problem. They control resources they don't technically own. A corporation is owned by the shareholders, but the CEO acts like he's the sole owner. Tax revenue is owned by the people, but politicians treat it like their own personal money.

The incentive is for the CEO to use short-term tricks to push up the share price. He cashes out his options/equity and moves on to a better job. Some other fool is stuck with the losses. A "hot CEO" will switch jobs every few years. One example is John Thain.

A pro-State troll says "Option grants align the interests of the CEO with the interests of the shareholders." That is false. An option is worth nothing if the share price is flat. An option is a huge windfall if the share price doubles. The incentive is for the CEO to use tricks to push up the share price. Besides, if the share price doubles, is that genuine growth or merely compensation for inflation? Via inflation, any CEO with an option grant receives a huge windfall.

I pointed out to someone "The State financial system is falling apart. It's better to learn tangible useful skills, rather than learning financial tricks." He replied "So what? I don't care as long as my bonus check clears. If the system falls apart 5 years later, why should I care? I'm going to steal as much as I can in those five years until the system collapses."

This is why the current system is doomed. The incentive is to maximize short term profits. If there's a collapse in five years, that's someone else's problem. In the meantime, you've cashed out. Bernard Madoff is the role model, and not some who actually does useful work.

In the Soviet Union, State leaders bragged about their "Five Year Plan". In Communist USA, State leaders don't plan past the next election or earnings statement. The incentive is to maximize short-term profit, while wrecking long-term value. That is unsustainable. It's a consequence of the Principal-Agent problem. State leaders control resources they don't actually own. The incentive is to steal as much as you can, and dump problems on the next guy.

There isn't any long-term planning. The CEO isn't really looking past the next earnings statement. The politician isn't planning past the next election.

6 comments:

Anonymous said...

>The incentive is to steal as much >as
>you can, and dump problems on the
>next guy.

An acquaintance of mine once said that politics is what happens in everyday life, but just on a larger scale and publicly.

I once worked for a company that obviously used government as its role model from what you said in your post.

Everybody in a certain area of the company would do fake work and string it out for as long as they possibly could. If they didn't explicitly lie they would lie by omission. I once asked a clown at work to show me his work and he refused. Obviously something crooked was going on. Once the project was about to explode the clowns resigned from the company. Several different sets of clowns at the company used the same trick. As soon as a project was about to blow up they would either resign or better still move to another job in the company. The disaster would then be handed over to someone else and all the original workers would lie about it.

Everything was short term and nobody looked at things beyond their nose.

Once we were at a client's site and the manager there told my clown crooked boss that he should try the same tricks he was pulling there at another bank now that his mate had resigned and moved to another bank i.e. she was saying he was using his mate at the bank to give him work and the work he did was mainly fake.

Skeptic said...

The banksters money isn't going to be worth much in 10 years because of hyperinflation that will have to match Zimbabwe's to keep up with spending after the oil currency becomes the yuan and/or the euro. Soon, we will have $100 trillion dollar bills like Zimbabwe has, and it will take 10 of those to buy a cup of coffee.

Some of them managed to stuff into gold, but the gold is all gone. Many gold certificates aren't worth much because of leveraged sales.

165,000 tonnes of gold has been mined in human history. About half of this has been lost due to being used in manufacturing, or just worn away from gilding, etc. Of the 80,000 tonnes remaining, the value is around $2.8 trillion, which is much less than is invested in gold right now.

Maybe the banksters can move to china and get a job in the coal mines after this all falls apart, assuming they didn't convert their dollars to yuan enough in advance.

Skeptic said...

Don't forget! In 1980 the Zimbabwe dollar was worth more than the US dollar!

230 million percent inflation is coming to the US too and soon.

I don't care how rich Bill Gates is now, his net worth won't buy a bag of oranges when this decade is over - all through the magic of hyperinflation.

FSK said...

Many insiders have inflation-hedged assets. For example, owning the State electricity monopoly has relatively constant value, even during hyperinflation.

However, State monopolies become worthless during hyperinflation. State thugs lose the ability to use violence to prevent competition.

Anonymous said...

I am still not buying into the inflation idea. The only way for inflation to happen is for everyone to have a lot of money without there being a lot of goods to buy. We have the exact opposite now. There is less money floating around but plenty of goods, houses, cars, etc. sitting around waiting to be bought. All this fake money being printed and given to banks etc. is not being spent into the economy. If u give a few people or companies trillions of dollars, there would be very little inflation because that money never reaches the point where it is spent back into the economy.

FSK said...

If you think real inflation is low, you are a fool.

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