Was just trying to explain to someone why everything is going to shit, specifically companies, and realized, I don’t fully get it either.
I’ve got the following explanation. The sentences marked with “???” are were I’m lost. Anyone mind telling me, if they’re correct and if so, why?
The past few years, central banks were giving out interest rates of 0% or even negative percentages. Regular banks would not quite pass this on, but you could still loan money and give it back later with no real interest payments.
This lead to lots of people investing in companies. As long as those companies paid out more money than those low interest rates, it was worthwhile. But at the same time, this meant companies didn’t have to be profitable, because they could pay out investors from money that other investors gave them???
This has stopped being the case, as central banks are hiking interest rates again, to combat inflation???
Literally money. More specifically, the financial need under a capitalist system for businesses to constantly grow and increase profits, and to focus on shareholder profits over making a good product. Most businesses on any sort of large scale today aren’t in it to do a good job at making whatever it is they make, they’re in it to make money. Their actual ‘business’ is just an incidental stop on the way to making more money.
You see this literally everywhere. Remember Odwalla? They made these great, super-thick bottled smoothy-like juices. Easily the healthiest thing you could find to drink in most of the places they were sold. Then Coca-Cola bought them out, changed the name to Naked Juice, and watered them all down. What we have now, as a result, is a pale imitation of what we once had.
Why? Because Odwalla was profitable, so it was profitable for Coca-cola to buy up a competitor for shelf space. But once they were bought up, there’s no incentive to deliver the same quality of product. They have no remaining competition, so they can release a shittier version and we’ll basically just suck it up because it’s still healthier than soda.
Our reward for worshiping currency is for everything ever made out of love of a craft or an art to be exploited and turned into a shittier version of itself.
The solution, to my reckoning, is to start making things you love because you love to make them and to refuse to sell out when they come knocking.
There’s only one thing I would alter in your statement. You said:
…and to focus on shareholder profits over making a good product.
I would say, "and to focus on shareholder profits over
making a good productanything else, including life itself.It’s more profitable for a health insurance company to deny someone’s claim than to pay for their healthcare in the US. The insurance company won’t care if that ultimately leads to the person’s death - they have to answer to their shareholders.
It’s more profitable for Nestlé or Google to siphon water from countries in the global South than it is to have sustainable practices that don’t exacerbate climate change. So what if that means that millions of people will die in the years to come? That’s their problem for being poor.
We need to bring about the kind of change that has politicians recognize that there is more to human life than a dollar amount, and that poverty is not a moral failing on the part of the individual. But until that happens, poverty is akin to a death sentence.
Ok but what you are asking is to crash the market, that will lead to more harm than good. Any better less drastic idea?
If the market can’t survive without being detrimental to human life on a large scale, it deserves to crash.
Sounds exactly what an evil super villain would say.
Is it evil to prioritize human life over the state of the market?
Is it good to prioritize the economy over human lives?
I wouls just add that it’s all about making profits and increasing them year per year, but always focusing on the short term. To the CEOs, shareholders and other directives, it doesn’t matter if the company goes bankrupt 10 years from now, as long as they suck in all the profits they can now.
Even if the company is very successful, with a very good product(s) and they could just go into easy-ride mode continuing to provide those products. They only want to make as much money as quickly as possible and once they get their hands on the company, the enshitification for the sake of quick profits ensues.
This is why I feel bad about any company releasing their “best product ever”, because it’s all downhill from there. The only thing left for the shareholders to do is cut costs, worsening the product.
There was a global supply chain shortage due to COVID. This meant that the demand for everything backed-up. This was compounded by people having more time at home and potentially more money to repurpose from services to goods, so the shift also drove up demand. When there is more demand for goods than the amount available, the cost of goods sold goes way up until you reach a threshold where people are forced to buy less or go broke. This is the elasticity of demand. Their is a point where certain goods are no longer appealing in price or affordable in general. It’s really bad when these are mandatory commodities like food.
This runaway inflation is always dealt with in the same way. The central bank raises interest rates for their notes/loans that they make with the banks across the country. This makes consumer and business loan interest rates rise, which makes them less appealing and also staves free cash flow, so people have less money to spend from loans, but potentially their salaries might be affected as well. This has the benefit of forcefully lowering demand. Whenever demand goes down, the cost of goods will start to go down. During the lull of demand, the supply chain can catch up as well. This is not the first time interest rates were raised to fix runaway inflation. Over time, interest rates will go back down again. It is cyclical.
One difference though is that the government is also in a cycle of under-regulating and over-regulating business. At the moment, we were promised more monopoly-busting and cracking-down on driving up prices in a collusive manner to fight the fed’s deflationary tactics and attempt to make windfall profits. Meaning, whole industries are not supposed to band together behind closed doors and agree to not lower their prices. That is called collusion and is supposed to be illegal. As long as that keeps happening, interest rates will keep getting hiked. The current administration seems to have more of a tolerance for this than they should. If things are going to shit, it’s due to this type of corporate cronyism with the government.
Additionally, you have outside actors like China who are buying up land and businesses and contributing to the turmoil in clever ways like making housing and food less affordable.
Source: Am MBA.
Everyone giving you simple one-word explenation is most probably wrong.
“that’s capitalism” is the new “the devil did that”
Most of these businesses operated at near unsustainable levels with almost negligible interest rates on loans, and now they’re panicking because their business model is shit and they’re trying to recover however they can by enshittifying everything.
Because 2013 happened. And 2013 was bullshit. I’m sure Adobe Creative Cloud, iOS 7 and the Xbox One would gladly explain that to you. Oh, and I forgot Vine. I mean, it was really good, but it basically led to Musical.ly, which led to TikTok. YouTube also got rid of the customisable channel page, instead giving us a simple banner instead (I said instead 3 times now). And did I mention fingerprint scanners on phones? I’m sure you all remember Facebook Home. You don’t? Well, you’re better off not remembering it. Also, they killed Brian Griffin only to ressurect him from the dead all of a sudden. And finally, Office 2013. There’s nothing wrong with it, it just looked like garbage.
All of this led to the dystopian lifestyle we’re currently living in.
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But at the same time, this meant companies didn’t have to be profitable, because they could pay out investors from money that other investors gave them???
Few, if any, of the big tech companies were playing out any kind of dividend to investors. It was more that they were content for companies to maybe someday make money as opposed to actually making money,
That assumes dividends are the way stock players make money, which is, to put it rudely, boomer thinking. The company doesn’t need to pay you a dividend if your stock goes up 30% YOY because of your ‘infinite growth’, you get your money from selling the stock. This is why the markets are so fucked, because the big trading algorithms that drive day to day trading push companies to overextend and in some cases believe the lie that is infinite growth so their short term investors can reap rewards over a few weeks, then move on to the next company, leaving the first one holding the bag for their own actions.
Doesn’t help when companies that resist this trend suffer from activist investors that use their media influence to say that a long running company is ‘suffering’ when it really is just consistently growing slowly and safely. Pushing for restructures and endless inflation. It’s the 80s all over again, just rebranded.
Cause 1% of people own 99% of everything. That’s never going to not be a shitty situation.
But also shit has been bad for marginalised groups since like forever. Now we’re all just getting a taste of that as our masters pull the ladder up from under them.
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Your post is obviously mainly about interest rates, which wasn’t clear from the headline. Why do you think higher interest rates equal “everything going to shit”?
I was just quoting the hyperbolical question of the person I wanted to explain to, somewhat taken out of context. I didn’t expect this question to get so much attention, otherwise I would’ve given that title more thought, too. I hate doomeristic titles, too.
The problem is that money is permited to generate money. So the more you have beyond the threshold to sustain yourself the more you can generate without labour. The business with no interest loans accelerates things but it isn’t the problem. It is that the system rewards idle investors at the expense of those whose labour actually generates value.
Capitalism wasn’t fine until someone broke it. The core concepts behind it are flawed.
I’ve said this plenty of times but it bears repeating, the problem isn’t capitalism or the type of social structure, the problem is people. Capitalism is a simplistic and ultimately ineffective solution, because it doesn’t account for the human problem.
People will always try to game the system. We need a system that recognises and accounts for that.
Based on what you’ve posted here alone:
Companies that don’t have to be profitable is not quite the case to make. They have to either provide a service valuable enough to gather continual revenue from investors or subsidies to exist… or they have to have a plausible promise of becoming profitable. Easy money really lowers the bar on how plausible that promise needs to be.
Ripping up on that E brake by hiking interest rates has a twofold effect: first it raises back the bar on how useful a service or profitable a company is or aims to be for investors. Secondly it has an overall effect on the economy, including profitable companies with strong investments since all loans are subject to the interest rates. So while that can produce the intended deflationary effect, the whole economy has to recalibrate.
And that’s where things tend to feel like they’re going to shit.
Everything isn’t going to shit. The sky is still blue, food is growing, people have good lives.
The current economic issues are cyclical in nature, due to our form of global capitalism, we have 7-10 year up swings and down swings.
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It’s cyclical and it’s been happening for thousands of years. It’s part of our human nature.
We all work together and build systems, societies and civilizations and do great things. We become wealthy and then slowly concentrate that wealth to smaller and smaller groups of people. Eventually the majority of the wealth is controlled by a very small group of people and everyone else has nothing. The system at this point can not sustain itself and collapses. Then the whole human system restarts again from the bottom.
It’s happened many many times throughout human history.
We are just at the height of one of those cycles.
Maybe this can change in the software space with the advent of foss.
It kinda is I suppose, even if very, very slowly.
Worldwide economic growth is coming to a halt and what we’re seeing is the ripples it causes.
The tail end of this ripple is large corporations death grip on increased profits every quarter. But the reality is that at some point you can not successfully grow profits past the peak without destroying everything. We are in the initial phase of the destruction onslaught.
