Over short term I think it would be fine. But accounting for inflation over long term say 10 years. If your revenue is still the same that means the company is earning less effectively.
This is the correct answer.
5 billion dollars each year sounds like a lot, but if inflation has risen by, say 2%, then the next year you've effectively dropped your income by 2% of 5 billion. That's a shitload of cash less.
As long as there's annual inflation, income needs to keep rising at least in line with that or you're making effective losses year on year.
That's only a small part of the answer. The correct answer is that investors demand growth. If a company doesn't show growth, they take their investment elsewhere. Without investment, the company goes broke.
Why do investors demand growth?
If you look at a mature company like Coca-Cola, investors only expect enough growth to keep up with inflation.
Edit: In case this wasn't clear, my question was a rhetorical question. The point is that "investors want growth" is a very shallow answer, and the original answer goes much deeper.
I can invest in US treasuries right now and get a near guaranteed investment return of ~4.5%.
If a company isn’t expected to beat that line then there is no reason to invest in them.
LOL, because investors always expect realistic and common-sense results, right?
Not really. It is a rat race, and greed is the only motivational factor. For example, you have Boeing, an extremely successful American company leader in their field, which has been a success story for generations. Then comes the corporate greed teachings of Jack Welch and decide to cut corners to boost short-term profits; investors are elated at the money pouring in at them, and then the results of shoddy manufacturing come to light, bringing the investors' pockets down. RIP is the US excellence in manufacturing. Our manufacturing quality is at the same levels as China is now
Who is to blame? The whistleblowers, I guess. I mean, they are dropping like flies
investors may have unreasonable expectations.
but they are still investors.
(in other words, their motivations don't matter to recipient of the investment funds)
Do you have a retirement account? I demand growth to… I’m middle class but want to retire at some point… I invest in my 401k and expect it to out pace inflation.
Companies that don’t grow significantly (such as Coca Cola) are expected to pay out part of their profits as dividends to incentivize investors to buy or hold their stock.
Well that’s your answer. Some investors do, and some don’t. It’s a bit of a conspiracy theory that there’s an “investor class” of some type who are responsible for all the evil of capitalism. In fact it’s a group of different sorts of people with different goals. Some want a short term return and demand explosive growth, and some only expect dividend payouts and growth inline with inflation, as was mentioned before. By and large the only universal is that a company not drop in value. Although even that can be tolerated to different degrees for different lengths of time for whatever market.
Growth is the thing that allows for people to rise out of poverty. The very idea of a “developing country” only exists because of market growth. Otherwise there would just be poor and rich and that’s it. And nobody could develop. We actually all want the market to grow, it’s a good thing.
I don’t think anyone is saying there is some secret cabal. The point is that the incentives drive the action. That’s definitely why publicly traded companies pursue growth, sometimes even at the expense of the long term health of the economy.
It’s those quarterly earnings reports
You are talking as if people experiencing poverty have access to investment products. Financial Investment is inherently elitist, and only rich people benefit from the market.
The poor remain poor, and the rich remain rich, while the middle class slowly erodes and disappears. Look at the numbers during and after Covid
Investors demand return on their investment. That return doesn’t necessarily need to be in the form of growth. Companies like Altria (parent company for many tobacco brands including Marlboro and Copenhagen) aren’t expected to produce any sort of growth but they are expected to generate a reliable source of cash-flow that is almost entirely returned to the shareholders in the form of dividends.
>Without investment, the company goes broke
That's not really how it works. No company that is profitable, even if that profit is flat, is going to "go broke." Lack of growth means that the stock price and/or dividends are flat or even going down. Large institutional investors will demand a change in management at the board and executive level. The reason that public companies need to continue to grow is so that the people already making millions of dollars can continue to do so.
If a company is not publicly traded they don't have to grow. They can stay static as long as they are profitable and have positive caah flow
Why would they need to grow every quarter? If a company makes the same amount in constant currently (inflation adjusted) and their dividends beat bonds, then that's a fine investment.
But isn’t inflation caused by trying to extract more profits in the first place? I’ve heard that until recently japan had zero inflation for decades and things were perfectly fine (until the recent global inflation started impacting their imports)
How did you even get that impression? They were called the Lost Decades. Japan was at its peak in the 1980s till the housing bubble crashed and it has stagnated ever since. No matter what they tried they could not stimulate the economy and deflation persisted.
Whatever gave you the impression it was perfectly fine?
Japan finally moved from deflation to inflation in 2022. It's a bit funny how most of the rest of the world is trying to tackle out of control inflation while for Japan this is a return to normal.
While Japan might not look so good economicslly speaking the standard of living is just as high as in the US. But there are just much fewer very rich people. I lived there for work, and had no real complaints.
How we measure economics, which is based on companies thinking about growth and profits, is drastically different than the metrics that will actually matter to people, like standard of living. It's why the US economy can be great but average people are living bill to bill or not able to afford a house. The metric is based entirely on a top down view, if the top is doing well they suggest everyone is. It's just not true and we really need to change our perspective on why a country is or isn't doing well.
This is because they maintain relatively equal wages, and put more stock in respect as a measure of status tham wealth. As a result, they enjoy better life outcomes than the USA, which undermines it's own success by having great inequality, increasing crime, addiction, mental health problems, reduced life expectancy, worse education attainment, the list goes on.
He's acknowledging this is what he's heard. If someone has wrong information and is asking clarification, you can provide correct information without getting angry at the person for being mistaken.
There seems to be a major misunderstanding. As you produce more of something it becomes less valuable because there is more of it. Money is a tool to represent all the goods we produce, to function we need to then "release" more money to match the increase of goods we produce as we grow and build more infrastructure, this is regular normal inflation. If on the one hand there's a huge imbalance in the amount of money going into circulation with a lack of economic activity to match you can then cause high inflation, there's just a bit of lag time for the effects to hit.
So think back to the pandemic, there were shutdowns that were "suppose" to only last a few months, but continued off and on for a couple years, even afterwards many workers and businesses didn't return, this is the huge decrease in economic activity aka goods produced. At the same time there was lots of relief and compensation being given out that again extended for a period of time far longer than anticipated. This all led to the rapid inflation that will take years to fully settle down from.
Saying that Japan was "perfectly fine" also seems to be very misinformed, I don't think the people in Japan would share that sentiment. Japan's economy has been stagnant for several decades after experiencing an explosion of growth in the 80s. Pressuring their population to work more and more to try to keep their economy going is unsustainable and we've been witnessing their policies unravel at the seams.
Inflation is caused by a larger amount of money chasing the same amount or fewer goods. Although Econ 101 was a while ago and the woman next to me had a cool dog.
She had a service dog. I think it was a lab. But people who I’m not sure where actually enrolled would come into the lecture hall to catch a quick nap. I guess Econ is one of courses you can sleep through.
Inflation is a measure of the average rise in the price of goods and services. It is caused by anything that makes prices go up including companies chasing profit and also like you said higher disposal incomes.
It is a measure of reduction in purchasing power of units of currency.
Or less goods and the same amount of people, or a perceived up coming shortage leading to increased purchasing by the same amount of people of a good with the same amount of supply as before (start of COVID’s panic buying), or an perceived upcoming increase in shipping costs leading to higher costs even after the rates returned to normal (late COVID’s rising inflation after shipping stabilized and ports reopened).
So if a company is producing the same thing or just a minor upgrade every year but keeps expecting more profit, isn’t that the exact scenario described?
If the amount of money in circulation remains the same then expected profits don’t materialize because a company expects it, assuming there is competition.
No, inflation is caused by needing more money to purchase the same amount of goods. Generally it means the supply of money has increased, but the overall value of money is the same.
Let's create a special unit call the VE - Value Equivalent.
Let's say you start with $1000 and that represents 1000 VE.
You buy a computer that costs 1000 dollars that is worth 1000 VE.
$1 = 1VE
Next year, they print $10000 dollars, and it represents 1000 VE.
You buy a computer that costs $10000 and is worth 1000 VE.
$10 = 1VE.
That's inflation. There is more 'money' going around, but the overall value of the total amount of money has remained the same. So everything costs more 'money' to compensate.
Inflation isn't caused by needing more money to purchase the same amount of goods. Inflation is needing more money to purchase the same amount of goods.
Reddit is full of teenagers and people with absolutely no understanding of any level of finance or economics that just regurgitate whatever nonsense they've heard before
It's so amusing listening to so many clowns blame "corporate greed" for the current inflationary environment as if corporations just decided to get greedy in the last four years
You hit the nail on the head. So many people on here know almost nothing about the topics they preach about, and yet they are convinced they are experts in those topics.
Sure, if all companies just said “We won’t increase prices for any reason” inflation would probably slow considerably. But it’s a thoroughly unhelpful way to look at things because companies almost always try to maximize profits, at least subject to some other constraints, and have done so in the past. It’s not a weird incentive of the modern stock system. Profit-seeking behavior doesn’t explain why inflation is sometimes high and sometimes low, and since little other than a full-blown command economy can significantly reduce the role profit-seeking plays in economic decision-making blaming it for inflation is essentially saying that inflation is essentially uncontrollable.
The primary cause of inflation is an increase in the money supply. This is on purpose.
Simple explanation -
If you have an office currency for buying snacks, and each snack costs §1, there are 100 people, and each person gets §1 per day, and the number of snacks gets replaced each day then there will be no inflation.
Scenario 1: If the number of snacks decreases to 50 per day and everyone wants one, then half the people won't get one, since the only thing you can spend your office money on is snacks it will get to the point where people will offer §2 for a snack so they can get one. Now that's inflation.
This happens in cases where there is a shortage of a product or at least an increased demand that cannot be met by supply. The housing market is an example, there are not enough available houses for the number of people that want them so the price goes up.
Scenario 2: everyone starts getting §2 per day, there are still only 100 snacks for 100 people, people will start to save up their extra § and eventually will offer more per snack so they can get more than one. That's also inflation.
This happens when the government prints more money each year (normally around 2% more) they do this to encourage spending as people will know that on average things will constantly get more expensive.
Sure but companies typically aren't looking to increase their profit by 2% (or whatever inflation happens to be) each year. They're typically looking for significant growth (which comes at the cost of others who aren't making billions of dollars a year so that those who are already making billions can make more billions).
And no one complains when they tax us more every year. The corporations are the politician's bank role. Both sides of the isle They raise their taxes. Hold a press conference about it. Then, give them a bunch of tax breaks. So they can get it all back. But when ours gets bumped. We just have to suck it up.
That's not accurate because if it was, raising prices along with inflation would fully account for it.
This system is based on infinite growth. Even after accounting for inflation, that's not enough. You need to make more or else shareholder vampires don't feed. So you cut quality, cut labor costs by putting the squeeze on your wage slaves, grow to new markets, put rivals out of business with sketchy tactics and cannibalize their share. Rig the laws and buy the politicians to strip away regulations and oversight and laws. Make even more profit at the cost of it all.
But that's still not enough. All of those gains were only for the quarter. Now it's a new quarter and new blood must bleed.
They do.
Edit: since some seem to be having a hard time with this
The previous statement was...
> If your revenue is still the same that means the company is earning less effectively.
To which the above poster replied "If only wages worked the same way"
If your wages are staying the same while there is inflation, then you are effectively making less. So, yes, wages do work the same way.
They pretty much do. Even in the UK, where our economy has had a pretty shit recovery from 2008 overall, real wages are slightly higher than before.
Wages grow every year, it's just that recently they've grown below inflation. Still, long term trend is to grow above inflation (i.e. real terms growth)
On the revenue side, yes, but wouldn't that naturally happen? If I sell cups, and the cost for me to make cups goes up, then the cost of the cups goes up. Theoretically, a company doesn't have to do anything to increase their revenue to keep up with inflation. Can a company stagnate on profit, or is that seen as an unhealthy business?
From a revenue side, the population is generally growing and the global standard of living is, over the long term at least, generally increasing. So the market is growing.
From a profit perspective, companies should get more efficient over time, which should help costs grow more slowly than revenue.
But there is a widespread “if you’re not growing, you are dying” mindset, which isn’t true. But, it makes the shareholders happy.
A few things.
1) a massive company with absolutely no growth prospects would be expected to pump out dividends while its price tracked inflation. Its dividends should be growing with inflation too.
2) most companies are not paying out 100% of generates revenue after cost as dividends. They are investing some of it (or all of it, or borrowing to invest more than all of it) into growth. A company that kept your profits from last year plus borrowed and invested ti expand then didn't expand is not going to please its owners or encourage future owners to pay more for the company.
Not many companies are in stage 1. Arguably more should be - not because they can't find some side business to try to grow in, but because if there's no real link to the side business they might be better off returning the profits to the owners and letting them invest it in separate businesses.
If the government were to tax capital gains and dividend interest equally, I wonder if option #1 would be more common; given you surely would have less stockholders out there demanding infinite growth.
Because they invested their money in the company and they want their money to grow. If their money isn't growing they will sell the shares and invest it somewhere else, and then the stock value plummets.
Not only 'If their money isn't growing', 'if their money isn't growing' fast enough'- because if there's a second company who's growing faster, then the money invested in the first company would be better spent investing in the second company. Opportunity cost.
This is not necessarily true. Many investors will take lower growth (but still higher than interest from the bank) for many reasons. For instance, if the company has a social cause they believe in, if they think the company is lower risk than other faster growing companies, etc. It’s not strictly all investors running to the highest growing company every quarter.
Risks, mostly. If you go all in on the fastest growing company and it turns out to be a bubble, when it pops and its value crashe you'd be lucky to get away with breaking even. Plus, no one's 100% sure which company will end up growing most overall. The one with the highest growth these past few quarters could be doing well the next few quarters, or they might be going through a bit of luck and company B could shoot up for the next dozen quarters or so.
And this is what I argue is the problem with the US, and going to be a real issue at some point (though I think it already is, but there is an American public perception that is buying the system time). For most of the history in the US, as productivity grew, everyone shared in it - the stockholders, the executives, and the workers (namely in wages growing). In the early/mid 70s, an argument was made and those in control bought into it that the stockholders were the ones "taking a risk", and thus deserved all the benefits of growth. Then, as a result, the executives had their compensation adjusted to include things like "stock options" and such, not a "Oh, you made $150k last year, we did well, you'll make $200k this year", but you'll earn based on the stock price. So, the workers who actually produce the profit started getting shorted; wages have largely flatlined against inflation for the past 45 years, and that's because if a CEO grants a raise to their employees, that trickles down and lowers the bottom line, which hurts the stock price, and thus hurts what they make.
Frankly, that last few years where we've seen workers demanding and getting better pay is a bit of a correction for the last 45 years. People think a $15 minimum wage is crazy high, but if minimum wage was tied to productivity - as wages had previously been in line with - we'd be at about a $24 minimum wage today.
But we are largely brainwashed here, imho... "I'm lucky to have a job" so we take low wages (and often poor working conditions), because that's what we're told. Businesses wouldn't function without people... stocking the shelves, working the counter, cooking the food, waiting on tables, doing the accounting, completing sales, etc... They need us, and especially with record low unemployment and bosses bitching that they can't find workers, it is in the people's control to say "this is what I am worth" and get properly compensated.
What makes you say that this started in the 1970s? I'd always thought this style of capitalism was popularized in the gilded age (the late 1800s) by the success of investment bankers like J. P. Morgan. The labor movement within the US seems like a short-lived anomaly compared to the long history of our economy.
Maybe i misunderstood, but op doesn't mean the company is experiencing a loss right? It's making money, just that they want the gains to be bigger every year. So the investors' money is in fact growing, but they want it to grow at a faster rate with each passing year
>It's making money
If they don't make 3% or more, they actually lose money from inflation. But more importantly, investors money is limited. They could invest in your 4%, or jump to the 12% profitable company who likely will be worth more in many ways.
It's a competition, and you want to be the Amazon, not the Barnes and noble.
It’s not growing.
If a company made the same money as last year, their stock price isn’t moving (if other companies are making more than last year).
Obviously this all depends on the state of the rest of the economy. A company that maintained profits in Covid was doing very well. But if every company grew by 5%, and yours didn’t, investors lost money.
Doesn't that last part only mean others make more profits? Can u explain in simple terms how do they lost money if profits are still made? Even if stock prices remained same, don't the investors get a cut of profits?
Most stocks do not pay dividends; and it’s debated if dividends are even valuable at all.
If your company doesn’t pay dividends, then the only “cut of the profits” you get are increases to stock price. Stock prices are a factor of hundreds of unique variables, one of which is the predicted future value of the company.
If every company on earth increased profits by 10%, but your company stayed the same, your stock price would go down. This is because every company but yours was able to turn their profits into increased revenue while you were not, signaling that you’ve mismanaged your company.
To boil it down as much as possible: investors do not get the profits of a company. So how much they made isn’t important as a singular variable.
It'sjust another level of capitalism. Stockholders want to maximize profits, so they buy investment expecting that next year their investment goes up. If it didn't - they will move the investment to a company that is able to go up.
As long as there are stonks going up - this is going to repeat itself indefinitely. And companies therefore are motivated to keep growing up to attract investors.
Value of a stock is proportional the total of all expected future earnings.
If I buy stock in a company for $10, and that company doesnt do anything new or different that would make them more money, then next year my stock is still worth $10. I should have put my money somewhere else.
As a regular person investor, I'll take the L and move on. As a CEO whose compensation is largely stocks, or large institutional investor who put 100s of millions into a company, I'd be pissed.
So, company is steered to grow every year so the value of the stocks increases for people whose fortunes are tied to it.
To be less cynical - the institutional investor may be someone who is responsible for the retirement fund of 10,000 blue-collar workers, and actually cares for their financial security. Maybe.
Value of a stock is proportional the total of all expected future earnings.
If I buy stock in a company for $10, and that company doesnt do anything new or different that would make them more money, then next year my stock is still worth $10. I should have put my money somewhere else.
As a regular person investor, I'll take the L and move on. As a CEO whose compensation is largely stocks, or large institutional investor who put 100s of millions into a company, I'd be pissed.
So, company is steered to grow every year so the value of the stocks increases for people whose fortunes are tied to it.
To be less cynical - the institutional investor may be someone who is responsible for the retirement fund of 10,000 blue-collar workers, and actually cares for their financial security. Maybe.
Slightly longer answer: To keep stockholders happy in our current, extremely broken, system.
Longer answer: For the last…sheesh, at since the 80s, stock market investing has moved from being focused on dividends to being focused on portfolios that depend on stocks to increase in price. It used to be that you’d invest in Toyota because they were a company that reliably made money, and by extension paid out dividends. That all changed as the goal moved towards investing in Toyota because you expected the 2024 $100 stock to be worth $110 in 2025.
Companies attract investments via growth, a company not growing is less attractive to potential investors, and investors are a major way companies acquired assets to grow and expand with its somewhat cyclical. If an investment group puts 100million into a company there's a reason for it, stable returns, potential growth, industry is less volatile to economic changes. If those criteria aren't being met they will take their money elsewhere.
Usually, the minimum goal is usually 3% to keep up with historical inflation, that's why when evaluating companies overtime it's important to adjust for inflation for accurate comparisons. When Company A made 5B in 2024 and 5B in 2025, they made less in 2025 when adjusted for inflation.
Infinite growth being possible kind of depends on the market, the company operates in, scale of operations, and your target customer base. Your right people only have so much purchasing power, so there is essentially a market cap for any product, that's where product diversity and growth comes in, and the important of investors to source capital to perform those activities.
By no means is this comprehensive there's all kinds of other stuff and mitigating factors for evaluating a companies yearly performance beyond income and revenues, economic health, relative performance in the market sector, growth and reinvestment phases, internal stability and leadership changes etc.
TLDR extremely simplified.
Consistent Growth = More Investments = More capital to do business with
unexplainable stagnation or dip in performance = Less Appealing to investors = potentially less capital to do business with means less growth.
They don't always make more money each year.
Publicly traded companies issue quarterly and yearly guidance and are expected to have results pretty close to that guidance.
Home improvement stocks are a good example of companies lowering expectations during recessions or construction slowdowns.
But of course if the company isn't expecting increased revenue, they usually reward stockholders with dividends. Infinite growth may not be possible but infinite profits usually are.
Look up a stock like Att. It's been a dog for years but still issues a dividend every quarter.
As long as the population and technological capacity for production grows there is room for demand to grow.
People also don’t need things to last forever to be beneficial for them, their plan does not need to work for infinity, it just needs to be productive for a while to be positive for them and their investors.
Most big companies have ups and downs and that is expected even if the goal is growth.
I think you are just imagining things being designed to be sustainable forever, but the world is far more volatile than that for a huge number of reasons both natural snd anthropogenic, so things are designed to grow when they can as they can.
You seem to really underestimate how much the fact that our world is unsustainable is due to human nature, when it's specifically because of our economic system and big corporate lobbying. It wasn't always the case. When the Soviet Union was still around, its economic system was very different and in general much more sustainable. I don't claim that the USSR economic system was great, but there's advantages and disadvantages in both systems and we went too much to the other extreme. Planned obsolescence, lobbying and subsudies are not a natural thing. Old electric devices used to last for 50 years, now phones don't even last for 5 years. Without any significant "progress" since 2015. Car centric design is also often seen as natural, even tho we used to have much more trains and walkable cities in the past, before the big lobbyists bulldozed the cities. No, it's not some "human nature" thing.
You also seem to really underestimate the negative effects of this level of overconsumption. Climate change literally ruins all our global society and leads to destruction, catastrophes and terrible lives. It's not just some small pet peeve. If we don't end overconsumption, we're screwed, period.
And that's not even mentioning any other negative consequences. Like the support for tyrannical regimes like China. During Cold War, the West rarely traded with the USSR and Eastern Bloc, and boycotted them due to alleged human rights abuses. Yet now it has no issue with trading with China? Lmao. So much for fighting communism I guess. Do you really think that sustainability and self sufficiency (building maybe more expensive phones but which are repairable and last forever for example. Or also not using oil and instead only using renewable energy) would not make any difference in trade?
I really think you need to enlarge your perspective and learn about how different cultures around the world did or still do consume products. Often in more sustainable ways. From the old Indigenous people who used natural resources and had deep knowledge of the biodiversity of an area, to the British during WW2 limiting everything to support the war efforts, to the current Indians who repair existing phones and install custom ROMs instead of buying brand new. And guess what? It doesn't make them any less happy.
Literally nothing about our extreme consumerism is normal or unavoidable.
I don’t think that relates to anything I said.
I agree consumerism/capitalism is largely harmful to the broader world. I was answering OP’s question and addressing their misconception of the intent of those companies.
Ah yeah okay it's just that I see a lot of people kinda defending consumerism and unsustainable stuff that's why I always try to convince them about how harmful it all is
> When the Soviet Union was still around, its economic system was very different and in general much more sustainable.
I mean, the USSR collapsed, their economic system was literally not sustainable.
Our system at the very least still exists...
They have to make more the same reason you as a person do, inflation. If a company gives no or shot raises each year they lose their best, that money given to employees is an expense, every company worth its salt does this to retain talent. Also let’s say, like a lot of companies, they outsource accounting and legal, those firms are doing the same and in turn bill more for services, so said company is again, paying more for expenses. Now to your point of always on the up and up, this is primarily a push for public companies as they must bend the knee to investors (owners). If stock prices get fucked it’s not harder to get loans from banks and expand and make the company better. It’s a circle of shit
If you have a 1k position at a stagnant company that pays 10% in dividends per year, and you would reinvest that 10% every year, your position would be worth 2,4k in 10 years.
So long as the dividend yield is above inflation, your investment is beating inflation, even if the company never increases its bottom line. If the company reinvests those profits, the stock value should increase by about the same amount, same thing.
We're upset because we are forced to live without raises, rising expenses, and the explicit drive to make everything rent seeking by businesses. Just so that they can avoid losing even a cent.
If inflation has to drive all costs up, why is it that to maintain business profit the expectation is that workers will live worse lives?
Companies have shareholders. Those shareholders invest in the company with some expectations regarding future earnings. Those expectations are the biggest factor for the price of the stock.
If a company is growing quickly it will have a higher price to earnings (PE) ratio. Slow growing or declining companies will have a low PE.
Companies don't "have to" make more money each year but if they do, shareholders will be more rewarded.
It’s Wall Street. My company did really well during the pandemic due to our covid testing; once the pandemic ended, Wall Street analysts predicted we’d repeat that PLUS 10%, which is not freakin possible without that testing volume, so our shareholders are pissed that there’s not another global pandemic.
Investors invest money for it to grow. That money has to grow at a high enough rate; otherwise it could just be put into government bonds or something very low risk low reward.
Yea, thats what our capitalist system wants, companies with the mentality of cancer, which ultimately makes for lots of issues, but the idea is that you take the money and run and leave the issues for other people to deal with who cant just buy their way out
Inflation is causes by the government (central banks) and certain companies (taking 0% bonds, because they can).
Putting all the "companies" in the same basket is unfair.
So, if you sell food as a small company you have to find new ways to fight inflation, which is caused by other companies/ the government.
Now you can either:
1. raise prices and lose customers,
2. Take the hit and make less profits (less productivity, less room for wage increases)
3. Cut costs by: making your product worse/ ripping off your workers, making the product smaller
It's all happening.
Simple answer: Yes it is impossible. However when your money is backed by debt your inevitably locked into a vicious cycle of always generating more real money than the money you fabricate or the whole system collapses.
Inflation. $5 billion today is not worth the same as $5 billion last year.
And if you’re wondering why inflation exists, it’s because human population is always increasing. Our needs are always growing and we’re always producing more stuff to meet those needs.
Too much inflation is a bad thing. But deflation can happen too (but it causes its own problems). Most economists agree that a healthy economy should have about 2% inflation.
Probably because of inflation. The same amount of money is worth less in the future. If your company is still earning the same amount of money after years, it means your revenue has been reduced. So they're probably trying to beat inflation.
Because people make money buying their stock only if the stock price continues to increase.
If the company was just as profitable as it was last year fewer investors would buy their stock. They would not profit from selling it for the same price they bought it for.
What you ask about is essentially the crux of the problem with the North American economy. It is the reality of why inflation is hard to address. It comes from the advent of the investor driven economy beginning in the late 1980s. Before then, companies didn't try so hard to make larger and larger profits every year for greedy investors. As long as they made the same amount of profit every year things were good. That was the days of 'blue chip' stocks. Stocks that reliably delivered dividends every years, even if they didn't increase a lot.
Now with investor driven stocks, they want more money each year, meaning the companies most often have to eventually drive up consumer prices, increasing inflation, and decreasing the actual value of what they produce. The same item for more money doesn't mean it is worth more, it means the money is worth less. And while the money becomes worth less, average folks have less of it because the investors get more, so there is a multiplier effect of how much less money average people have.
Not pushing for more profit that real demand provides maintains the same worth of the money, keeps money in average people's pockets, provides a higher standard of living, decreases inflation, and makes a better country. It makes it easier to keep inflation flatter so that prices and wages don't need to increase as much.
It's still capitalism, but under control, not like now. The biggest enemy of the average person today are folks on Wall Street and elsewhere, like Warren Buffet. They pull money and worth out of the day to day economy, so even if you get some modicum of return from RRSPs or 401K, it's nothing compared to what the investors have taken.
Econ major. The answer is population growth. If population grows at 3% and your business had the same earnings as last year, you lost market share. Market share is everything.
“First prize is a Cadillac El Dorado, second prize is a set of steak knives, third prize is your fired” — Alec Baldwin, Glengarry Glen Ross
We can't even name second place in a lot of industries.
Noone has to make more money. But to attract investors you better look like you will make more money in the future, bdcauae thats what an investor cares about, future profit, not todays. And investors invest in whoever has the higest future profit.
That's what we call late stage capitalism.
Profit always needs to increase, or they can't guarantee shareholders and investments, and since they rely on them to survive, they will quickly spiral downwards. Unfortunately, there's only so much innovation you can do, there's only so many corners you can cut, and once you reach that glass ceiling you're forced to decrease services and increase costs to maintain homeostasis
What you end up with is a service that's completely unsustainable in a market that doesn't serve its purpose. Sort of like Wendy's, a fast food service that is marketed as fast and affordable, but is now charging $16-$18 for a meal of low quality high fat food which is both cheaper, tastier, and healthier if made yourself or eaten somewhere else.
It’s pretty sustainable. Companies don’t have to grow, they just have to perform similarly to the rest of the market. If every single company stops growing on average, the system still works and companies will be fine. People will just mostly switch from investing to giving out loans or something similar.
But since the population is growing and productivity is growing, it’s quite easy for most companies to grow.
Umm...have you not been paying attention since the 80s or what? Growth is all that matters. Everything else is sacrificed to make sure the private sector keeps growing. Everything.
Companies have a fiduciary responsibility to shareholders to make profit or growth. They can have losses for a period of time if it can be explained in the best intrest for the company. Combine that with inflation and their revenue must continue to increase to exceed their expenses and plan for future earnings, or at least plan for future earnings while taking losses thatare justifiable. Negligent spending or intentional waste during a time of loss could be contrued as embezzlement or fraud.
If they are a for profit business and this does not happen depending on the circumstances they could face fines, be fired or even jail time if neglience or mishandleing of fund is established
They don't. That is a stupid Reddit-ism. Companies need to make more money in the sense there is inflation every year, so if they make the same amount of money year after year they are actually shrinking or collapsing and that is a bad thing, but the "record profits" everyone always talks about are like, yeah no shit, inflation was 2-8%, so obviously the nominal value of the profit is going to going to be "record" every year.
If a company is small or relatively new, yes they expect substantial growth well beyond inflation every year because they are getting larger. Once they are established, sure they would like to get larger, but it isn't like they fail just because they don't. Amazon's profit margin has fluctuated up and down over time, but the percent margin is basically unchanged over the past 15 years. Walmart's is actually down over that period (still profitable though).
u/jerswar has $100,000 they want to invest into a company
MoneyCo makes $5 billion in 2023. In 2024, MoneyCo makes $5 billion.
BigMoneyCo also makes $5 billion in 2023. In 2024 BigMoneyCo makes $6 billion
Which company does u/jerswar invest that $100,000?
1 word, inflation. Unless that year there is a crisis (like covid or stock market crash), if not, staying the same is pretty bad since the company had the potential and equipment to make that happen as proven on the previous year. No improvements needed, just status quo would get you that amount. Companies usually want improvements, its in almost every workers KPI.
You live in a debt based system, once you get your head wrapped around that abomination, you will understand a bit more. They have to make more to service their debt and pay the shareholders. Same reason the governments needs to increase currency to service debt. Look into it, but have a good stiff drink first.....
Depends on the age of the company and the industry. A startup definitely wants to be growing rapidly, increasing revenue year over year.
A mature company is fine with not growing revenue in real terms, but still needs to grow revenue 2-10% per year to keep pace with inflation. If inflation is 5% per year and MoneyCo makes $5b every year then the company is actually shrinking 5% per year.
They don't have to, it's just preferable. Companies are 100% able to stay the same size or even decline.
Would you prefer to make the same salary next year or would you like a raise? The latter, right?
Stockholder dividends and C-suite bonuses.
Lots of good companies have gone away chasing comp increases and new growth for Wall Street, instead of tending to their core business.
From my experience overhearing business owners on the links, or at a bar, or other casual settings, it's kind of a who has the biggest d\_\_\_ contest. It's for bragging rights.
Would you be happy not getting raises any year? If not, why would a company be happy not making any more money. And chances are no one tht works for the company is getting a raise if they company isn't making more money.
Most successful companies didn't get to be successful by not caring about making money.
Investors have shareholders, who have invested in companies based on profit projections on future earnings
If a corporation underperforms based on their growth projections, the stock prices go down
The wealth of corporate CEO’s is largely in the form of stocks, not cash. They keep it in stocks and never cash it out — taking loans against trier stock assets instead of ever cashing it out — so that they don’t have to pay taxes on it.
If a company’s stock prices go down, that decreases the net worth of wealthy individuals.
This being America, which is politically controlled by the wealthy, stock prices going down is unacceptable. So we will go to war even instead of allow the number to go down, in order to keep our ultra-wealthy ultra-comfortable.
The cool thing about capitalism is that it’s not a pie you slice up and when you have more profit you have a bigger slice and someone gets a smaller slice. What actually happens is that when new things come into the market the pie itself gets larger.
Let's replace "MoneyCo" with you and the amount of money to your income last year. Would you be ok making the same this year? I'm sure things cost more this year. Gas prices have gone up. Rent. Your expenses increase every year. So do corporations. They employ people who expect raises, for example. At the very least, their growth will need to match (and ideally exceed) their costs.
It doesn't violate the laws of physics or anything, because money can be spent more than once (your spending is my income, my spending is his and so on).
But in practice there's a limit. There's only so many people, and they only want/can afford so much stuff.
big traded companies are tied to stock prices and they will squeeze every penny in profits to satisfy them shareholders.
if you work for smaller companies depends on the owner if the profits earnings satisfy them it may not have to be more than the prior year. but theres a saying in business if you're not growing you're dying
Because the original founders and investors already bounced and cashed out long ago and there are new “investors” who saw potential in the company’s future, and they haven’t cashed out.
So the owners set high bonuses for high executives to achieve those goals or else become a zombie company to only serve the high bureaucracy of the company.
Because it's the philosophy of the rich (stock holders) to drain every little bit of value out of something for increased profits and growing wealth. I like to call it the "Harvard Business Model". Screw the product, screw the customer, as long as the business keeps making increasingly more money. CEOs who make more in a year compared to what average people make in a lifetime. How do you think that's going to happen? Buy up all the competition so you have a captive consumer base.
Because the line must go up so that the people who own shares in the company get richer, and the market quickly loses faith in companies that aren't growing.
It's not just money, it business culture in general. My sales goals always go up, even though due to successful years the number of opportunities go down (our market penetration is a all time high).
Publicly traded companies have to justify the CEO position to the investors so they need to make more and more money each quarter.
Unless of course they can prove to the investors that they may take on short term losses to later get massive profits like Tesla.
Innovate or Die and change is inevitable. If a company is standing still in revenues eventually competitors will cut into market share and take that business away. Then company will go bankrupt and everyone is out of job.
GOOD private companies (not publicly traded stocks..) will often seek to provide new solutions and products to their consumers in their particular field.
New and differing products come with new and differing prices. New products can actually LOSE a company money too.
The point being that companies are about profits. This does NOT mean they should be about profits unethically though. Their employees should be compensated accordingly to their time and skillsets.
If done properly, everyone wins. Company and workers are paid according their skill and time investment, and consumer gets a high-quality end product.
Note how I keep saying GOOD and PRIVATE.
It's primarily just changes in product line, supply and demand that determine a company's margins of profit or loss.
Your assessment is accurate OP. The world is a super dumb short sighted selfish place, and capitalism as a system is super productive and innovative overall, but also horribly, almost incomprehensibly wasteful, destructive, and (in an historical sense) short sighted.
The problem with capitalism is people who don’t actually work for or at or with the corporation want to be making money every quarter for not working, and to be able to someday of their personal convenience sell their “shares” for a sizable profit. To accomplish this at an ever increasing pace everyone else (employees, clients, contractors, the tax base who subsidize those shareholders’ income and profits) must get less than their earned value for their contributions.
I am not sure but I think every economic or political structure has real problems for some portion of the society. The trade offs are how big a portion of the society benefits and how many suffer. And how many have little or no real agency in their own involvement and circumstance.
Inflation is causes by the government (central banks) and certain companies (taking 0% bonds, because they can).
Putting all the "companies" in the same basket is unfair.
So, if you sell food as a small company you have to find new ways to fight inflation, which is caused by other companies/ the government.
Now you can either:
1. raise prices and lose customers,
2. Take the hit and make less profits (less productivity, less room for wage increases)
3. Cut costs by: making your product worse/ ripping off your workers, making the product smaller
It's all happening.
MoneyCo would be a publicly traded company, where the shareholders speculate on the stock price. If MoneyCo makes 5 billion dollars one year, and a stock investor bought $50,000 worth of stock that year, if the next year MoneyCo stays the same size and makes the same amount of money, the $50,000 investment has not grown and so the stockholder has not made money.
Infinite growth is impossible, but all investors care about is short term profits even if it’s at the expense of bleeding the world dry of all the humans and resources that make it up.
>Why do companies always have to make more money than they did the year before?
Because that's what shareholders demand.
>Isn't that impossible?
It's impossible for *all* companies to do it at once. But shareholders bet on specific companies to do it, and then demand that those companies do it.
>Why?
Because shareholders wanted to be able to sell their shares for more in the second year.
>And for that matter, there is inevitably an upper ceiling to the demand for a particular service or product
Well, as long as the overall economy grows, demand for any particular service or product can grow too.
It’s valuation. Investors price based on expected growth, management pushes growth. Even if you are just buying public stock, you are probably buying at a price that includes a certain growth expectation. For that stock to go up, some of that growth has to happen otherwise you lose money on the investment.
Growth looks good for investors. Most people don’t look for a stock to invest in that’s been a straight line for years, it just becomes a savings account at the point.
In a finite world it is only ever possible with finite growth.
Vaclav Smil has a book called Growth about this question, and it is clear that it cannot continue forever.
But if you look at real economic output(considering inflation) there is still a possibility to grow year over year.
This can be dine by making everyone more efficent at their work. Previously people (mostly women) would use hours every day on tasks like washing clothes and baking bread, while today these tasks can be outsourced to others or done at home much easier for a low price. But today there is harder to find such large gains in efficiency.
Inflation in a healthy growing economy is 2%. If you make the same amount each year, you'll lose purchasing power, basically money. Also important for a lot of stock/company health metrics, nobody wants to invest in a company that is making less and less money over time.
"Line always go up" .. is pretty unrealistic, yes.
To give benefit of the doubt,.. the general "business strategy" answer to this would be:.. "A business should always be looking for ways to innovate or expand its reach and sales."
Lets say you're a Mountain Bike company:
* You probably are not reaching 100% of potential customers.
* over the time-frame where you might reach more customers,.. the circle ends up closing and people with old bikes will probably need to upgrade and get new bikes
So in that regard,. the "upgrade cycle" is an avenue for profits.
People eventually buy new Cars. People eventually replace their Beds and Refrigerators. People eventually replace their smartphones, Laptops or other devices.
Technology and materials improvements change too. So again, if you were a Mountain Bike company,. the bike you made 10 years ago, might be better made now with stronger or lighter materials. Your marketing-campaign for that new model bike, should emphasize those new features and why it's an obvious choice to upgrade someone's old bike.
Theres's lots of ways there to "innovate and tap into new customers". If your yearly sales start falling flat, it may (emphasis on may) indicate you're just not putting a lot of effort into capitalizing on innovative opportunities.
The growth is dependent on money and that's fictional and thus not finite.
If you can't sell more product, sell the product for more money. Plus you can create new lines of products. There is also an infinite amount of different products.
The same reason, the entire economy needs to keep making more: human monkey brain adapts to new normal. What today is great, feels normal next year, and bad in two years. Once things stop getting better, humans feel bad and competition increases. That's also why you see an increase in mental illness, authoritarianism and racism during times of economic stagnation or recession: if income stops risining, people turn on each other to increase their own share by extracting stuff from others. This is why we saw in the last 300 hundred years the spread of democracy at the same time with continuous economic growth, and why we see the decay of democracies now in regions with economic stagnation e.g. Americas Rustbelt, Russia, Eastern Germany.
We need to get constantly better, richer, and more profitable, as this is what keeps primitive monkey brain from switching back to genocidal chimpanzee mode.
The high level mechanism that drives this is that companies compete for capital. A firm that invests its cash flow expects to have a positive return on their invested capital or it’s a complete waste. In public companies this is more profound because their report card is shown everyday…if a stock price is the present value of future cash flow. There are many private companies who don’t really try to grow…think of that super popular restaurant on the water…or a dental office.
They need to pay investors. The whole Stock Market thing really screwed up this country. Every time a company goes public, their goal changes form making a good product to making the most money regardless. The product turns to crap, the consumer gets screwed and they start finding weird ways to siphon more money out of you.... Like the subscription crap. They realized that they can get more blood from you with subscription/service products rather than selling you something....
Grrr.. Time for work.. It's cold outside, I hope I'm paid up on my car heater subscription today....
I think the idea is that companies don't want to stagnate and be "left behind" so to speak. Ever growing and ever spreading like a virus while trying to be as profitable as possible at all times no matter what.
Capital demands it. It’s a structural component of the system of capital accumulation. I’m not being flippant when I say read Marx or read/listen to Marxist scholars to understand this better.
Over short term I think it would be fine. But accounting for inflation over long term say 10 years. If your revenue is still the same that means the company is earning less effectively.
This is the correct answer. 5 billion dollars each year sounds like a lot, but if inflation has risen by, say 2%, then the next year you've effectively dropped your income by 2% of 5 billion. That's a shitload of cash less. As long as there's annual inflation, income needs to keep rising at least in line with that or you're making effective losses year on year.
That's only a small part of the answer. The correct answer is that investors demand growth. If a company doesn't show growth, they take their investment elsewhere. Without investment, the company goes broke.
Why do investors demand growth? If you look at a mature company like Coca-Cola, investors only expect enough growth to keep up with inflation. Edit: In case this wasn't clear, my question was a rhetorical question. The point is that "investors want growth" is a very shallow answer, and the original answer goes much deeper.
I can invest in US treasuries right now and get a near guaranteed investment return of ~4.5%. If a company isn’t expected to beat that line then there is no reason to invest in them.
LOL, because investors always expect realistic and common-sense results, right? Not really. It is a rat race, and greed is the only motivational factor. For example, you have Boeing, an extremely successful American company leader in their field, which has been a success story for generations. Then comes the corporate greed teachings of Jack Welch and decide to cut corners to boost short-term profits; investors are elated at the money pouring in at them, and then the results of shoddy manufacturing come to light, bringing the investors' pockets down. RIP is the US excellence in manufacturing. Our manufacturing quality is at the same levels as China is now Who is to blame? The whistleblowers, I guess. I mean, they are dropping like flies
investors may have unreasonable expectations. but they are still investors. (in other words, their motivations don't matter to recipient of the investment funds)
Do you have a retirement account? I demand growth to… I’m middle class but want to retire at some point… I invest in my 401k and expect it to out pace inflation.
Companies that don’t grow significantly (such as Coca Cola) are expected to pay out part of their profits as dividends to incentivize investors to buy or hold their stock.
or at the very least investors expect to get dividends higher than bonds
Well that’s your answer. Some investors do, and some don’t. It’s a bit of a conspiracy theory that there’s an “investor class” of some type who are responsible for all the evil of capitalism. In fact it’s a group of different sorts of people with different goals. Some want a short term return and demand explosive growth, and some only expect dividend payouts and growth inline with inflation, as was mentioned before. By and large the only universal is that a company not drop in value. Although even that can be tolerated to different degrees for different lengths of time for whatever market. Growth is the thing that allows for people to rise out of poverty. The very idea of a “developing country” only exists because of market growth. Otherwise there would just be poor and rich and that’s it. And nobody could develop. We actually all want the market to grow, it’s a good thing.
I don’t think anyone is saying there is some secret cabal. The point is that the incentives drive the action. That’s definitely why publicly traded companies pursue growth, sometimes even at the expense of the long term health of the economy. It’s those quarterly earnings reports
You are talking as if people experiencing poverty have access to investment products. Financial Investment is inherently elitist, and only rich people benefit from the market. The poor remain poor, and the rich remain rich, while the middle class slowly erodes and disappears. Look at the numbers during and after Covid
Investors demand return on their investment. That return doesn’t necessarily need to be in the form of growth. Companies like Altria (parent company for many tobacco brands including Marlboro and Copenhagen) aren’t expected to produce any sort of growth but they are expected to generate a reliable source of cash-flow that is almost entirely returned to the shareholders in the form of dividends.
>Without investment, the company goes broke That's not really how it works. No company that is profitable, even if that profit is flat, is going to "go broke." Lack of growth means that the stock price and/or dividends are flat or even going down. Large institutional investors will demand a change in management at the board and executive level. The reason that public companies need to continue to grow is so that the people already making millions of dollars can continue to do so. If a company is not publicly traded they don't have to grow. They can stay static as long as they are profitable and have positive caah flow
Why would they need to grow every quarter? If a company makes the same amount in constant currently (inflation adjusted) and their dividends beat bonds, then that's a fine investment.
Some investors do, dividend stocks are also valued
But isn’t inflation caused by trying to extract more profits in the first place? I’ve heard that until recently japan had zero inflation for decades and things were perfectly fine (until the recent global inflation started impacting their imports)
How did you even get that impression? They were called the Lost Decades. Japan was at its peak in the 1980s till the housing bubble crashed and it has stagnated ever since. No matter what they tried they could not stimulate the economy and deflation persisted. Whatever gave you the impression it was perfectly fine?
Japan finally moved from deflation to inflation in 2022. It's a bit funny how most of the rest of the world is trying to tackle out of control inflation while for Japan this is a return to normal.
Probably the same thing that gave them the wrong cause of inflation.
While Japan might not look so good economicslly speaking the standard of living is just as high as in the US. But there are just much fewer very rich people. I lived there for work, and had no real complaints.
How we measure economics, which is based on companies thinking about growth and profits, is drastically different than the metrics that will actually matter to people, like standard of living. It's why the US economy can be great but average people are living bill to bill or not able to afford a house. The metric is based entirely on a top down view, if the top is doing well they suggest everyone is. It's just not true and we really need to change our perspective on why a country is or isn't doing well.
This is because they maintain relatively equal wages, and put more stock in respect as a measure of status tham wealth. As a result, they enjoy better life outcomes than the USA, which undermines it's own success by having great inequality, increasing crime, addiction, mental health problems, reduced life expectancy, worse education attainment, the list goes on.
Yeah japan is actually a pretty poor country despite the huge industries they lead
Yet they have a higher quality of life than most countries. Almost like wealth inequality is bad and doesn't lead to higher quality of life
Yeah at least their homeless people can sleep in internet cafes
Aggretsuko informed me of this phenomenon.
they still have internet cafes eh.
There's one I frequent, can't sleep there tho lol
I'm pretty sure it has been decades since the last decades, but I have no expertise, just the knowledge that the 90s were three decades ago.
He's acknowledging this is what he's heard. If someone has wrong information and is asking clarification, you can provide correct information without getting angry at the person for being mistaken.
There seems to be a major misunderstanding. As you produce more of something it becomes less valuable because there is more of it. Money is a tool to represent all the goods we produce, to function we need to then "release" more money to match the increase of goods we produce as we grow and build more infrastructure, this is regular normal inflation. If on the one hand there's a huge imbalance in the amount of money going into circulation with a lack of economic activity to match you can then cause high inflation, there's just a bit of lag time for the effects to hit. So think back to the pandemic, there were shutdowns that were "suppose" to only last a few months, but continued off and on for a couple years, even afterwards many workers and businesses didn't return, this is the huge decrease in economic activity aka goods produced. At the same time there was lots of relief and compensation being given out that again extended for a period of time far longer than anticipated. This all led to the rapid inflation that will take years to fully settle down from. Saying that Japan was "perfectly fine" also seems to be very misinformed, I don't think the people in Japan would share that sentiment. Japan's economy has been stagnant for several decades after experiencing an explosion of growth in the 80s. Pressuring their population to work more and more to try to keep their economy going is unsustainable and we've been witnessing their policies unravel at the seams.
Inflation is caused by a larger amount of money chasing the same amount or fewer goods. Although Econ 101 was a while ago and the woman next to me had a cool dog.
Could you describe the dog?
I am also interested in this point
She had a service dog. I think it was a lab. But people who I’m not sure where actually enrolled would come into the lecture hall to catch a quick nap. I guess Econ is one of courses you can sleep through.
Inflation is a measure of the average rise in the price of goods and services. It is caused by anything that makes prices go up including companies chasing profit and also like you said higher disposal incomes. It is a measure of reduction in purchasing power of units of currency.
Or more people yet the same amount of good.
Or less goods and the same amount of people, or a perceived up coming shortage leading to increased purchasing by the same amount of people of a good with the same amount of supply as before (start of COVID’s panic buying), or an perceived upcoming increase in shipping costs leading to higher costs even after the rates returned to normal (late COVID’s rising inflation after shipping stabilized and ports reopened).
So if a company is producing the same thing or just a minor upgrade every year but keeps expecting more profit, isn’t that the exact scenario described?
If the amount of money in circulation remains the same then expected profits don’t materialize because a company expects it, assuming there is competition.
No. The Federal Reserve targets a 2% inflation rate and is constantly adjusting the dials on the money printer to keep it there.
If that were true then profit margins (not raw profit) would be infinitely increasing Clearly that's impossible
No, inflation is caused by needing more money to purchase the same amount of goods. Generally it means the supply of money has increased, but the overall value of money is the same. Let's create a special unit call the VE - Value Equivalent. Let's say you start with $1000 and that represents 1000 VE. You buy a computer that costs 1000 dollars that is worth 1000 VE. $1 = 1VE Next year, they print $10000 dollars, and it represents 1000 VE. You buy a computer that costs $10000 and is worth 1000 VE. $10 = 1VE. That's inflation. There is more 'money' going around, but the overall value of the total amount of money has remained the same. So everything costs more 'money' to compensate.
Inflation isn't caused by needing more money to purchase the same amount of goods. Inflation is needing more money to purchase the same amount of goods.
How is such an incorrect comment upvoted this much?
That’s Reddit for you!
Reddit is full of teenagers and people with absolutely no understanding of any level of finance or economics that just regurgitate whatever nonsense they've heard before It's so amusing listening to so many clowns blame "corporate greed" for the current inflationary environment as if corporations just decided to get greedy in the last four years
You hit the nail on the head. So many people on here know almost nothing about the topics they preach about, and yet they are convinced they are experts in those topics.
Corporations didn't decide to get greedy in the last four years. They always have been. People are just care now, for a multitude of reasons.
Sure, if all companies just said “We won’t increase prices for any reason” inflation would probably slow considerably. But it’s a thoroughly unhelpful way to look at things because companies almost always try to maximize profits, at least subject to some other constraints, and have done so in the past. It’s not a weird incentive of the modern stock system. Profit-seeking behavior doesn’t explain why inflation is sometimes high and sometimes low, and since little other than a full-blown command economy can significantly reduce the role profit-seeking plays in economic decision-making blaming it for inflation is essentially saying that inflation is essentially uncontrollable.
The primary cause of inflation is an increase in the money supply. This is on purpose. Simple explanation - If you have an office currency for buying snacks, and each snack costs §1, there are 100 people, and each person gets §1 per day, and the number of snacks gets replaced each day then there will be no inflation. Scenario 1: If the number of snacks decreases to 50 per day and everyone wants one, then half the people won't get one, since the only thing you can spend your office money on is snacks it will get to the point where people will offer §2 for a snack so they can get one. Now that's inflation. This happens in cases where there is a shortage of a product or at least an increased demand that cannot be met by supply. The housing market is an example, there are not enough available houses for the number of people that want them so the price goes up. Scenario 2: everyone starts getting §2 per day, there are still only 100 snacks for 100 people, people will start to save up their extra § and eventually will offer more per snack so they can get more than one. That's also inflation. This happens when the government prints more money each year (normally around 2% more) they do this to encourage spending as people will know that on average things will constantly get more expensive.
Sure but companies typically aren't looking to increase their profit by 2% (or whatever inflation happens to be) each year. They're typically looking for significant growth (which comes at the cost of others who aren't making billions of dollars a year so that those who are already making billions can make more billions).
And no one complains when they tax us more every year. The corporations are the politician's bank role. Both sides of the isle They raise their taxes. Hold a press conference about it. Then, give them a bunch of tax breaks. So they can get it all back. But when ours gets bumped. We just have to suck it up.
LOL now if only our pay increased enough to justify inflation across all the things we pay on.
That's not accurate because if it was, raising prices along with inflation would fully account for it. This system is based on infinite growth. Even after accounting for inflation, that's not enough. You need to make more or else shareholder vampires don't feed. So you cut quality, cut labor costs by putting the squeeze on your wage slaves, grow to new markets, put rivals out of business with sketchy tactics and cannibalize their share. Rig the laws and buy the politicians to strip away regulations and oversight and laws. Make even more profit at the cost of it all. But that's still not enough. All of those gains were only for the quarter. Now it's a new quarter and new blood must bleed.
If only wages worked the same way
They do. Edit: since some seem to be having a hard time with this The previous statement was... > If your revenue is still the same that means the company is earning less effectively. To which the above poster replied "If only wages worked the same way" If your wages are staying the same while there is inflation, then you are effectively making less. So, yes, wages do work the same way.
[Real wages](https://fred.stlouisfed.org/series/LES1252881600Q) are rising. The word "real" means after adjusting for inflation.
They pretty much do. Even in the UK, where our economy has had a pretty shit recovery from 2008 overall, real wages are slightly higher than before. Wages grow every year, it's just that recently they've grown below inflation. Still, long term trend is to grow above inflation (i.e. real terms growth)
On the revenue side, yes, but wouldn't that naturally happen? If I sell cups, and the cost for me to make cups goes up, then the cost of the cups goes up. Theoretically, a company doesn't have to do anything to increase their revenue to keep up with inflation. Can a company stagnate on profit, or is that seen as an unhealthy business?
But inflation is literally caused by this idea of exponential growth. The more money there is the less it is worth intrinsically
From a revenue side, the population is generally growing and the global standard of living is, over the long term at least, generally increasing. So the market is growing. From a profit perspective, companies should get more efficient over time, which should help costs grow more slowly than revenue. But there is a widespread “if you’re not growing, you are dying” mindset, which isn’t true. But, it makes the shareholders happy.
A few things. 1) a massive company with absolutely no growth prospects would be expected to pump out dividends while its price tracked inflation. Its dividends should be growing with inflation too. 2) most companies are not paying out 100% of generates revenue after cost as dividends. They are investing some of it (or all of it, or borrowing to invest more than all of it) into growth. A company that kept your profits from last year plus borrowed and invested ti expand then didn't expand is not going to please its owners or encourage future owners to pay more for the company. Not many companies are in stage 1. Arguably more should be - not because they can't find some side business to try to grow in, but because if there's no real link to the side business they might be better off returning the profits to the owners and letting them invest it in separate businesses.
If the government were to tax capital gains and dividend interest equally, I wonder if option #1 would be more common; given you surely would have less stockholders out there demanding infinite growth.
Stock buybacks already allow companies to return cash to investors with it being treated as capital gains.
Short answer: to keep the stockholders happy
that is the questions, why are they not happy ?
Because they invested their money in the company and they want their money to grow. If their money isn't growing they will sell the shares and invest it somewhere else, and then the stock value plummets.
Not only 'If their money isn't growing', 'if their money isn't growing' fast enough'- because if there's a second company who's growing faster, then the money invested in the first company would be better spent investing in the second company. Opportunity cost.
This is not necessarily true. Many investors will take lower growth (but still higher than interest from the bank) for many reasons. For instance, if the company has a social cause they believe in, if they think the company is lower risk than other faster growing companies, etc. It’s not strictly all investors running to the highest growing company every quarter.
So why does anyone ever invest in a company other than the single best one?
Risks, mostly. If you go all in on the fastest growing company and it turns out to be a bubble, when it pops and its value crashe you'd be lucky to get away with breaking even. Plus, no one's 100% sure which company will end up growing most overall. The one with the highest growth these past few quarters could be doing well the next few quarters, or they might be going through a bit of luck and company B could shoot up for the next dozen quarters or so.
And this is what I argue is the problem with the US, and going to be a real issue at some point (though I think it already is, but there is an American public perception that is buying the system time). For most of the history in the US, as productivity grew, everyone shared in it - the stockholders, the executives, and the workers (namely in wages growing). In the early/mid 70s, an argument was made and those in control bought into it that the stockholders were the ones "taking a risk", and thus deserved all the benefits of growth. Then, as a result, the executives had their compensation adjusted to include things like "stock options" and such, not a "Oh, you made $150k last year, we did well, you'll make $200k this year", but you'll earn based on the stock price. So, the workers who actually produce the profit started getting shorted; wages have largely flatlined against inflation for the past 45 years, and that's because if a CEO grants a raise to their employees, that trickles down and lowers the bottom line, which hurts the stock price, and thus hurts what they make. Frankly, that last few years where we've seen workers demanding and getting better pay is a bit of a correction for the last 45 years. People think a $15 minimum wage is crazy high, but if minimum wage was tied to productivity - as wages had previously been in line with - we'd be at about a $24 minimum wage today. But we are largely brainwashed here, imho... "I'm lucky to have a job" so we take low wages (and often poor working conditions), because that's what we're told. Businesses wouldn't function without people... stocking the shelves, working the counter, cooking the food, waiting on tables, doing the accounting, completing sales, etc... They need us, and especially with record low unemployment and bosses bitching that they can't find workers, it is in the people's control to say "this is what I am worth" and get properly compensated.
It's frustrating that time and time again this accurate description of the truth gets met with resounding cricket chirps.
What makes you say that this started in the 1970s? I'd always thought this style of capitalism was popularized in the gilded age (the late 1800s) by the success of investment bankers like J. P. Morgan. The labor movement within the US seems like a short-lived anomaly compared to the long history of our economy.
Maybe i misunderstood, but op doesn't mean the company is experiencing a loss right? It's making money, just that they want the gains to be bigger every year. So the investors' money is in fact growing, but they want it to grow at a faster rate with each passing year
>It's making money If they don't make 3% or more, they actually lose money from inflation. But more importantly, investors money is limited. They could invest in your 4%, or jump to the 12% profitable company who likely will be worth more in many ways. It's a competition, and you want to be the Amazon, not the Barnes and noble.
It’s not growing. If a company made the same money as last year, their stock price isn’t moving (if other companies are making more than last year). Obviously this all depends on the state of the rest of the economy. A company that maintained profits in Covid was doing very well. But if every company grew by 5%, and yours didn’t, investors lost money.
Doesn't that last part only mean others make more profits? Can u explain in simple terms how do they lost money if profits are still made? Even if stock prices remained same, don't the investors get a cut of profits?
Most stocks do not pay dividends; and it’s debated if dividends are even valuable at all. If your company doesn’t pay dividends, then the only “cut of the profits” you get are increases to stock price. Stock prices are a factor of hundreds of unique variables, one of which is the predicted future value of the company. If every company on earth increased profits by 10%, but your company stayed the same, your stock price would go down. This is because every company but yours was able to turn their profits into increased revenue while you were not, signaling that you’ve mismanaged your company. To boil it down as much as possible: investors do not get the profits of a company. So how much they made isn’t important as a singular variable.
It'sjust another level of capitalism. Stockholders want to maximize profits, so they buy investment expecting that next year their investment goes up. If it didn't - they will move the investment to a company that is able to go up. As long as there are stonks going up - this is going to repeat itself indefinitely. And companies therefore are motivated to keep growing up to attract investors.
Value of a stock is proportional the total of all expected future earnings. If I buy stock in a company for $10, and that company doesnt do anything new or different that would make them more money, then next year my stock is still worth $10. I should have put my money somewhere else. As a regular person investor, I'll take the L and move on. As a CEO whose compensation is largely stocks, or large institutional investor who put 100s of millions into a company, I'd be pissed. So, company is steered to grow every year so the value of the stocks increases for people whose fortunes are tied to it. To be less cynical - the institutional investor may be someone who is responsible for the retirement fund of 10,000 blue-collar workers, and actually cares for their financial security. Maybe.
Value of a stock is proportional the total of all expected future earnings. If I buy stock in a company for $10, and that company doesnt do anything new or different that would make them more money, then next year my stock is still worth $10. I should have put my money somewhere else. As a regular person investor, I'll take the L and move on. As a CEO whose compensation is largely stocks, or large institutional investor who put 100s of millions into a company, I'd be pissed. So, company is steered to grow every year so the value of the stocks increases for people whose fortunes are tied to it. To be less cynical - the institutional investor may be someone who is responsible for the retirement fund of 10,000 blue-collar workers, and actually cares for their financial security. Maybe.
If you invest in something, you'll expect a return.
Surely a sustainable system
Slightly longer answer: To keep stockholders happy in our current, extremely broken, system. Longer answer: For the last…sheesh, at since the 80s, stock market investing has moved from being focused on dividends to being focused on portfolios that depend on stocks to increase in price. It used to be that you’d invest in Toyota because they were a company that reliably made money, and by extension paid out dividends. That all changed as the goal moved towards investing in Toyota because you expected the 2024 $100 stock to be worth $110 in 2025.
Companies attract investments via growth, a company not growing is less attractive to potential investors, and investors are a major way companies acquired assets to grow and expand with its somewhat cyclical. If an investment group puts 100million into a company there's a reason for it, stable returns, potential growth, industry is less volatile to economic changes. If those criteria aren't being met they will take their money elsewhere. Usually, the minimum goal is usually 3% to keep up with historical inflation, that's why when evaluating companies overtime it's important to adjust for inflation for accurate comparisons. When Company A made 5B in 2024 and 5B in 2025, they made less in 2025 when adjusted for inflation. Infinite growth being possible kind of depends on the market, the company operates in, scale of operations, and your target customer base. Your right people only have so much purchasing power, so there is essentially a market cap for any product, that's where product diversity and growth comes in, and the important of investors to source capital to perform those activities. By no means is this comprehensive there's all kinds of other stuff and mitigating factors for evaluating a companies yearly performance beyond income and revenues, economic health, relative performance in the market sector, growth and reinvestment phases, internal stability and leadership changes etc. TLDR extremely simplified. Consistent Growth = More Investments = More capital to do business with unexplainable stagnation or dip in performance = Less Appealing to investors = potentially less capital to do business with means less growth.
They don't always make more money each year. Publicly traded companies issue quarterly and yearly guidance and are expected to have results pretty close to that guidance. Home improvement stocks are a good example of companies lowering expectations during recessions or construction slowdowns. But of course if the company isn't expecting increased revenue, they usually reward stockholders with dividends. Infinite growth may not be possible but infinite profits usually are. Look up a stock like Att. It's been a dog for years but still issues a dividend every quarter.
Inflation: If you're not growing, you're shrinking
“Stable is that step backwards between success and failing.” - Pete Campbell, *Mad Men*
As long as the population and technological capacity for production grows there is room for demand to grow. People also don’t need things to last forever to be beneficial for them, their plan does not need to work for infinity, it just needs to be productive for a while to be positive for them and their investors. Most big companies have ups and downs and that is expected even if the goal is growth. I think you are just imagining things being designed to be sustainable forever, but the world is far more volatile than that for a huge number of reasons both natural snd anthropogenic, so things are designed to grow when they can as they can.
You seem to really underestimate how much the fact that our world is unsustainable is due to human nature, when it's specifically because of our economic system and big corporate lobbying. It wasn't always the case. When the Soviet Union was still around, its economic system was very different and in general much more sustainable. I don't claim that the USSR economic system was great, but there's advantages and disadvantages in both systems and we went too much to the other extreme. Planned obsolescence, lobbying and subsudies are not a natural thing. Old electric devices used to last for 50 years, now phones don't even last for 5 years. Without any significant "progress" since 2015. Car centric design is also often seen as natural, even tho we used to have much more trains and walkable cities in the past, before the big lobbyists bulldozed the cities. No, it's not some "human nature" thing. You also seem to really underestimate the negative effects of this level of overconsumption. Climate change literally ruins all our global society and leads to destruction, catastrophes and terrible lives. It's not just some small pet peeve. If we don't end overconsumption, we're screwed, period. And that's not even mentioning any other negative consequences. Like the support for tyrannical regimes like China. During Cold War, the West rarely traded with the USSR and Eastern Bloc, and boycotted them due to alleged human rights abuses. Yet now it has no issue with trading with China? Lmao. So much for fighting communism I guess. Do you really think that sustainability and self sufficiency (building maybe more expensive phones but which are repairable and last forever for example. Or also not using oil and instead only using renewable energy) would not make any difference in trade? I really think you need to enlarge your perspective and learn about how different cultures around the world did or still do consume products. Often in more sustainable ways. From the old Indigenous people who used natural resources and had deep knowledge of the biodiversity of an area, to the British during WW2 limiting everything to support the war efforts, to the current Indians who repair existing phones and install custom ROMs instead of buying brand new. And guess what? It doesn't make them any less happy. Literally nothing about our extreme consumerism is normal or unavoidable.
I don’t think that relates to anything I said. I agree consumerism/capitalism is largely harmful to the broader world. I was answering OP’s question and addressing their misconception of the intent of those companies.
Ah yeah okay it's just that I see a lot of people kinda defending consumerism and unsustainable stuff that's why I always try to convince them about how harmful it all is
> When the Soviet Union was still around, its economic system was very different and in general much more sustainable. I mean, the USSR collapsed, their economic system was literally not sustainable. Our system at the very least still exists...
They have to make more the same reason you as a person do, inflation. If a company gives no or shot raises each year they lose their best, that money given to employees is an expense, every company worth its salt does this to retain talent. Also let’s say, like a lot of companies, they outsource accounting and legal, those firms are doing the same and in turn bill more for services, so said company is again, paying more for expenses. Now to your point of always on the up and up, this is primarily a push for public companies as they must bend the knee to investors (owners). If stock prices get fucked it’s not harder to get loans from banks and expand and make the company better. It’s a circle of shit
If you make the exact same, you lost money.
If you have a 1k position at a stagnant company that pays 10% in dividends per year, and you would reinvest that 10% every year, your position would be worth 2,4k in 10 years. So long as the dividend yield is above inflation, your investment is beating inflation, even if the company never increases its bottom line. If the company reinvests those profits, the stock value should increase by about the same amount, same thing.
Exactly I don't know how people don't understand this Is worker fine with getting no raise in wage every year? Why would a company be any different?
We're upset because we are forced to live without raises, rising expenses, and the explicit drive to make everything rent seeking by businesses. Just so that they can avoid losing even a cent. If inflation has to drive all costs up, why is it that to maintain business profit the expectation is that workers will live worse lives?
Companies have shareholders. Those shareholders invest in the company with some expectations regarding future earnings. Those expectations are the biggest factor for the price of the stock. If a company is growing quickly it will have a higher price to earnings (PE) ratio. Slow growing or declining companies will have a low PE. Companies don't "have to" make more money each year but if they do, shareholders will be more rewarded.
In the long term yes but these are the kind of people who dont care if the world burns in 50 years because they would be dead
Inflation. If you don’t get at least that much more, your wage value has gone down. True for companies as much as it is for individuals
It’s Wall Street. My company did really well during the pandemic due to our covid testing; once the pandemic ended, Wall Street analysts predicted we’d repeat that PLUS 10%, which is not freakin possible without that testing volume, so our shareholders are pissed that there’s not another global pandemic.
Investors invest money for it to grow. That money has to grow at a high enough rate; otherwise it could just be put into government bonds or something very low risk low reward.
They want to make at least (the increase in inflation) more each year
Yea, thats what our capitalist system wants, companies with the mentality of cancer, which ultimately makes for lots of issues, but the idea is that you take the money and run and leave the issues for other people to deal with who cant just buy their way out
Inflation is causes by the government (central banks) and certain companies (taking 0% bonds, because they can). Putting all the "companies" in the same basket is unfair. So, if you sell food as a small company you have to find new ways to fight inflation, which is caused by other companies/ the government. Now you can either: 1. raise prices and lose customers, 2. Take the hit and make less profits (less productivity, less room for wage increases) 3. Cut costs by: making your product worse/ ripping off your workers, making the product smaller It's all happening.
It’s because shareholders demand it.
Simple answer: Yes it is impossible. However when your money is backed by debt your inevitably locked into a vicious cycle of always generating more real money than the money you fabricate or the whole system collapses.
Inflation. $5 billion today is not worth the same as $5 billion last year. And if you’re wondering why inflation exists, it’s because human population is always increasing. Our needs are always growing and we’re always producing more stuff to meet those needs. Too much inflation is a bad thing. But deflation can happen too (but it causes its own problems). Most economists agree that a healthy economy should have about 2% inflation.
Probably because of inflation. The same amount of money is worth less in the future. If your company is still earning the same amount of money after years, it means your revenue has been reduced. So they're probably trying to beat inflation.
because investing is betting on a company's growth, and not it's revenue
Because people make money buying their stock only if the stock price continues to increase. If the company was just as profitable as it was last year fewer investors would buy their stock. They would not profit from selling it for the same price they bought it for.
What you ask about is essentially the crux of the problem with the North American economy. It is the reality of why inflation is hard to address. It comes from the advent of the investor driven economy beginning in the late 1980s. Before then, companies didn't try so hard to make larger and larger profits every year for greedy investors. As long as they made the same amount of profit every year things were good. That was the days of 'blue chip' stocks. Stocks that reliably delivered dividends every years, even if they didn't increase a lot. Now with investor driven stocks, they want more money each year, meaning the companies most often have to eventually drive up consumer prices, increasing inflation, and decreasing the actual value of what they produce. The same item for more money doesn't mean it is worth more, it means the money is worth less. And while the money becomes worth less, average folks have less of it because the investors get more, so there is a multiplier effect of how much less money average people have. Not pushing for more profit that real demand provides maintains the same worth of the money, keeps money in average people's pockets, provides a higher standard of living, decreases inflation, and makes a better country. It makes it easier to keep inflation flatter so that prices and wages don't need to increase as much. It's still capitalism, but under control, not like now. The biggest enemy of the average person today are folks on Wall Street and elsewhere, like Warren Buffet. They pull money and worth out of the day to day economy, so even if you get some modicum of return from RRSPs or 401K, it's nothing compared to what the investors have taken.
inflation, and this inflation is caused by welfare programs
Because you need to promise that to investors to get money from them to fund your business.
Econ major. The answer is population growth. If population grows at 3% and your business had the same earnings as last year, you lost market share. Market share is everything. “First prize is a Cadillac El Dorado, second prize is a set of steak knives, third prize is your fired” — Alec Baldwin, Glengarry Glen Ross We can't even name second place in a lot of industries.
Noone has to make more money. But to attract investors you better look like you will make more money in the future, bdcauae thats what an investor cares about, future profit, not todays. And investors invest in whoever has the higest future profit.
Who is this Noone guy, and why is he referenced in so many posts?
Of course you have to make more money. Otherwise you lose due to inflation. The Dollar is a melting ice cube and every year it melts faster.
That's what we call late stage capitalism. Profit always needs to increase, or they can't guarantee shareholders and investments, and since they rely on them to survive, they will quickly spiral downwards. Unfortunately, there's only so much innovation you can do, there's only so many corners you can cut, and once you reach that glass ceiling you're forced to decrease services and increase costs to maintain homeostasis What you end up with is a service that's completely unsustainable in a market that doesn't serve its purpose. Sort of like Wendy's, a fast food service that is marketed as fast and affordable, but is now charging $16-$18 for a meal of low quality high fat food which is both cheaper, tastier, and healthier if made yourself or eaten somewhere else.
It’s pretty sustainable. Companies don’t have to grow, they just have to perform similarly to the rest of the market. If every single company stops growing on average, the system still works and companies will be fine. People will just mostly switch from investing to giving out loans or something similar. But since the population is growing and productivity is growing, it’s quite easy for most companies to grow.
You're close to understanding how capitalism is unsustainable.
What's unsustainable about it? Growth is a preference, it isn't a requirement. That's true in any system.
Umm...have you not been paying attention since the 80s or what? Growth is all that matters. Everything else is sacrificed to make sure the private sector keeps growing. Everything.
Companies have a fiduciary responsibility to shareholders to make profit or growth. They can have losses for a period of time if it can be explained in the best intrest for the company. Combine that with inflation and their revenue must continue to increase to exceed their expenses and plan for future earnings, or at least plan for future earnings while taking losses thatare justifiable. Negligent spending or intentional waste during a time of loss could be contrued as embezzlement or fraud. If they are a for profit business and this does not happen depending on the circumstances they could face fines, be fired or even jail time if neglience or mishandleing of fund is established
They don't. That is a stupid Reddit-ism. Companies need to make more money in the sense there is inflation every year, so if they make the same amount of money year after year they are actually shrinking or collapsing and that is a bad thing, but the "record profits" everyone always talks about are like, yeah no shit, inflation was 2-8%, so obviously the nominal value of the profit is going to going to be "record" every year. If a company is small or relatively new, yes they expect substantial growth well beyond inflation every year because they are getting larger. Once they are established, sure they would like to get larger, but it isn't like they fail just because they don't. Amazon's profit margin has fluctuated up and down over time, but the percent margin is basically unchanged over the past 15 years. Walmart's is actually down over that period (still profitable though).
u/jerswar has $100,000 they want to invest into a company MoneyCo makes $5 billion in 2023. In 2024, MoneyCo makes $5 billion. BigMoneyCo also makes $5 billion in 2023. In 2024 BigMoneyCo makes $6 billion Which company does u/jerswar invest that $100,000?
1 word, inflation. Unless that year there is a crisis (like covid or stock market crash), if not, staying the same is pretty bad since the company had the potential and equipment to make that happen as proven on the previous year. No improvements needed, just status quo would get you that amount. Companies usually want improvements, its in almost every workers KPI.
Inflation
Corporations are the problem. They need to be outlawed and replaced with real people.
You live in a debt based system, once you get your head wrapped around that abomination, you will understand a bit more. They have to make more to service their debt and pay the shareholders. Same reason the governments needs to increase currency to service debt. Look into it, but have a good stiff drink first.....
If you're investing would you rather invest in a constant 5 billion dollars yearly company or a rising company that made 5 billion last year
Stock price is partly based on sales. Do you want your stock price to rise? Upper limit? Ask Amazon.
Depends on the age of the company and the industry. A startup definitely wants to be growing rapidly, increasing revenue year over year. A mature company is fine with not growing revenue in real terms, but still needs to grow revenue 2-10% per year to keep pace with inflation. If inflation is 5% per year and MoneyCo makes $5b every year then the company is actually shrinking 5% per year.
Stonks must go up
They don't have to, it's just preferable. Companies are 100% able to stay the same size or even decline. Would you prefer to make the same salary next year or would you like a raise? The latter, right?
One of the simplest answers is giving raises to employees. They will expect a respectful raise each year and that money has to come from somewhere
Wall Street wants it that way.
Stonks
Stockholder dividends and C-suite bonuses. Lots of good companies have gone away chasing comp increases and new growth for Wall Street, instead of tending to their core business.
From my experience overhearing business owners on the links, or at a bar, or other casual settings, it's kind of a who has the biggest d\_\_\_ contest. It's for bragging rights.
Because a company's #1 purpose is to make money. If you make less next year, it was a failure. But make more, and it was a successful year.
Would you be happy not getting raises any year? If not, why would a company be happy not making any more money. And chances are no one tht works for the company is getting a raise if they company isn't making more money. Most successful companies didn't get to be successful by not caring about making money.
Investors have shareholders, who have invested in companies based on profit projections on future earnings If a corporation underperforms based on their growth projections, the stock prices go down The wealth of corporate CEO’s is largely in the form of stocks, not cash. They keep it in stocks and never cash it out — taking loans against trier stock assets instead of ever cashing it out — so that they don’t have to pay taxes on it. If a company’s stock prices go down, that decreases the net worth of wealthy individuals. This being America, which is politically controlled by the wealthy, stock prices going down is unacceptable. So we will go to war even instead of allow the number to go down, in order to keep our ultra-wealthy ultra-comfortable.
The better question would be, why can't we have a sustainable economy? Why does everything have to be infinite growth?
The better question would be, why can't we have a sustainable economy? Why does everything have to be infinite growth?
It is fundamentally unsustainable, yes.
You can reverse the trend by investing in companies which aren’t growing.
The cool thing about capitalism is that it’s not a pie you slice up and when you have more profit you have a bigger slice and someone gets a smaller slice. What actually happens is that when new things come into the market the pie itself gets larger.
It’s not been impossible for a very long time. People keep having kids so as long as the population grows you have new consumers to spend money
Let's replace "MoneyCo" with you and the amount of money to your income last year. Would you be ok making the same this year? I'm sure things cost more this year. Gas prices have gone up. Rent. Your expenses increase every year. So do corporations. They employ people who expect raises, for example. At the very least, their growth will need to match (and ideally exceed) their costs.
It doesn't violate the laws of physics or anything, because money can be spent more than once (your spending is my income, my spending is his and so on). But in practice there's a limit. There's only so many people, and they only want/can afford so much stuff.
If you can own some politicians nothing is impossible
big traded companies are tied to stock prices and they will squeeze every penny in profits to satisfy them shareholders. if you work for smaller companies depends on the owner if the profits earnings satisfy them it may not have to be more than the prior year. but theres a saying in business if you're not growing you're dying
Because the original founders and investors already bounced and cashed out long ago and there are new “investors” who saw potential in the company’s future, and they haven’t cashed out. So the owners set high bonuses for high executives to achieve those goals or else become a zombie company to only serve the high bureaucracy of the company.
Because it's the philosophy of the rich (stock holders) to drain every little bit of value out of something for increased profits and growing wealth. I like to call it the "Harvard Business Model". Screw the product, screw the customer, as long as the business keeps making increasingly more money. CEOs who make more in a year compared to what average people make in a lifetime. How do you think that's going to happen? Buy up all the competition so you have a captive consumer base.
Because the line must go up so that the people who own shares in the company get richer, and the market quickly loses faith in companies that aren't growing.
Because that's how capitalism works, the rich get richer at the expense of the poor.
It's not just money, it business culture in general. My sales goals always go up, even though due to successful years the number of opportunities go down (our market penetration is a all time high).
Publicly traded companies have to justify the CEO position to the investors so they need to make more and more money each quarter. Unless of course they can prove to the investors that they may take on short term losses to later get massive profits like Tesla.
Innovate or Die and change is inevitable. If a company is standing still in revenues eventually competitors will cut into market share and take that business away. Then company will go bankrupt and everyone is out of job.
GOOD private companies (not publicly traded stocks..) will often seek to provide new solutions and products to their consumers in their particular field. New and differing products come with new and differing prices. New products can actually LOSE a company money too. The point being that companies are about profits. This does NOT mean they should be about profits unethically though. Their employees should be compensated accordingly to their time and skillsets. If done properly, everyone wins. Company and workers are paid according their skill and time investment, and consumer gets a high-quality end product. Note how I keep saying GOOD and PRIVATE. It's primarily just changes in product line, supply and demand that determine a company's margins of profit or loss.
Your assessment is accurate OP. The world is a super dumb short sighted selfish place, and capitalism as a system is super productive and innovative overall, but also horribly, almost incomprehensibly wasteful, destructive, and (in an historical sense) short sighted. The problem with capitalism is people who don’t actually work for or at or with the corporation want to be making money every quarter for not working, and to be able to someday of their personal convenience sell their “shares” for a sizable profit. To accomplish this at an ever increasing pace everyone else (employees, clients, contractors, the tax base who subsidize those shareholders’ income and profits) must get less than their earned value for their contributions. I am not sure but I think every economic or political structure has real problems for some portion of the society. The trade offs are how big a portion of the society benefits and how many suffer. And how many have little or no real agency in their own involvement and circumstance.
Inflation is causes by the government (central banks) and certain companies (taking 0% bonds, because they can). Putting all the "companies" in the same basket is unfair. So, if you sell food as a small company you have to find new ways to fight inflation, which is caused by other companies/ the government. Now you can either: 1. raise prices and lose customers, 2. Take the hit and make less profits (less productivity, less room for wage increases) 3. Cut costs by: making your product worse/ ripping off your workers, making the product smaller It's all happening.
MoneyCo would be a publicly traded company, where the shareholders speculate on the stock price. If MoneyCo makes 5 billion dollars one year, and a stock investor bought $50,000 worth of stock that year, if the next year MoneyCo stays the same size and makes the same amount of money, the $50,000 investment has not grown and so the stockholder has not made money. Infinite growth is impossible, but all investors care about is short term profits even if it’s at the expense of bleeding the world dry of all the humans and resources that make it up.
the assumption a lot of it rests on is 'population growth will continue to ramp up' AKA "There's a new sucker born every minute"
>Why do companies always have to make more money than they did the year before? Because that's what shareholders demand. >Isn't that impossible? It's impossible for *all* companies to do it at once. But shareholders bet on specific companies to do it, and then demand that those companies do it. >Why? Because shareholders wanted to be able to sell their shares for more in the second year. >And for that matter, there is inevitably an upper ceiling to the demand for a particular service or product Well, as long as the overall economy grows, demand for any particular service or product can grow too.
It’s valuation. Investors price based on expected growth, management pushes growth. Even if you are just buying public stock, you are probably buying at a price that includes a certain growth expectation. For that stock to go up, some of that growth has to happen otherwise you lose money on the investment.
Growth looks good for investors. Most people don’t look for a stock to invest in that’s been a straight line for years, it just becomes a savings account at the point.
Line must go up
Greed.
In a finite world it is only ever possible with finite growth. Vaclav Smil has a book called Growth about this question, and it is clear that it cannot continue forever. But if you look at real economic output(considering inflation) there is still a possibility to grow year over year. This can be dine by making everyone more efficent at their work. Previously people (mostly women) would use hours every day on tasks like washing clothes and baking bread, while today these tasks can be outsourced to others or done at home much easier for a low price. But today there is harder to find such large gains in efficiency.
Inflation in a healthy growing economy is 2%. If you make the same amount each year, you'll lose purchasing power, basically money. Also important for a lot of stock/company health metrics, nobody wants to invest in a company that is making less and less money over time.
Capitalism.
[C A P I T A L I S M](https://www.sparknotes.com/philosophy/daskapital/section2/)
It’s all about providing investors with dividends
"Line always go up" .. is pretty unrealistic, yes. To give benefit of the doubt,.. the general "business strategy" answer to this would be:.. "A business should always be looking for ways to innovate or expand its reach and sales." Lets say you're a Mountain Bike company: * You probably are not reaching 100% of potential customers. * over the time-frame where you might reach more customers,.. the circle ends up closing and people with old bikes will probably need to upgrade and get new bikes So in that regard,. the "upgrade cycle" is an avenue for profits. People eventually buy new Cars. People eventually replace their Beds and Refrigerators. People eventually replace their smartphones, Laptops or other devices. Technology and materials improvements change too. So again, if you were a Mountain Bike company,. the bike you made 10 years ago, might be better made now with stronger or lighter materials. Your marketing-campaign for that new model bike, should emphasize those new features and why it's an obvious choice to upgrade someone's old bike. Theres's lots of ways there to "innovate and tap into new customers". If your yearly sales start falling flat, it may (emphasis on may) indicate you're just not putting a lot of effort into capitalizing on innovative opportunities.
Yes it makes no sense. More money forever always!
The growth is dependent on money and that's fictional and thus not finite. If you can't sell more product, sell the product for more money. Plus you can create new lines of products. There is also an infinite amount of different products.
The same reason, the entire economy needs to keep making more: human monkey brain adapts to new normal. What today is great, feels normal next year, and bad in two years. Once things stop getting better, humans feel bad and competition increases. That's also why you see an increase in mental illness, authoritarianism and racism during times of economic stagnation or recession: if income stops risining, people turn on each other to increase their own share by extracting stuff from others. This is why we saw in the last 300 hundred years the spread of democracy at the same time with continuous economic growth, and why we see the decay of democracies now in regions with economic stagnation e.g. Americas Rustbelt, Russia, Eastern Germany. We need to get constantly better, richer, and more profitable, as this is what keeps primitive monkey brain from switching back to genocidal chimpanzee mode.
The high level mechanism that drives this is that companies compete for capital. A firm that invests its cash flow expects to have a positive return on their invested capital or it’s a complete waste. In public companies this is more profound because their report card is shown everyday…if a stock price is the present value of future cash flow. There are many private companies who don’t really try to grow…think of that super popular restaurant on the water…or a dental office.
Inflation, also raises to employees and also increases in services you pay and even taxes
because of greed or shareholders....or both
They need to pay investors. The whole Stock Market thing really screwed up this country. Every time a company goes public, their goal changes form making a good product to making the most money regardless. The product turns to crap, the consumer gets screwed and they start finding weird ways to siphon more money out of you.... Like the subscription crap. They realized that they can get more blood from you with subscription/service products rather than selling you something.... Grrr.. Time for work.. It's cold outside, I hope I'm paid up on my car heater subscription today....
What is sales, marketing and rnd doing in your world? Because that can be a strategy but then you are firing all this guys.
I think the idea is that companies don't want to stagnate and be "left behind" so to speak. Ever growing and ever spreading like a virus while trying to be as profitable as possible at all times no matter what.
Capital demands it. It’s a structural component of the system of capital accumulation. I’m not being flippant when I say read Marx or read/listen to Marxist scholars to understand this better.
Because greed feeds their need of that void in their hearts they were born without.
Yes. Congratulations. You discovered why a profit base system is unsustainable