Thursday, 30 April 2009

The (non)Standard again

Tane at "The Standard" writes
Once again, the people who we entrust to run our economy have failed us. Perhaps it’s time we considered some alternatives to the current model. Alternatives like industrial democracy that empower workers to make their own decisions and provide some accountability to management.
Actually no one has failed us, things are working the way they should. The point is that the system is a profit and loss system. Both parts of that statement provide incentives. In this case we are seeing the loss part. The loss part, when working correctly, results in businesses being allowed to fail, and thus resources being released from employments where they don't add value and made available for employments where they do.

Note that when resources are used for one purpose the same resources can't be used for another. What is important for welfare is that that resources find their way to the purposes we value most. As Peter T. Leeson has written recently
Enter the profit-and-loss system. Under this system, when producers use resources in ways that are consistent with our wants, they earn profits. When they don't, they earn losses. If losses are severe enough or accumulate over time, the producers who earn them go under.
When ineffective producers fail, resources they have been using to produce things we value less are freed for producing other things which we value more. In fact, who better to sacrifice the resources required to expand production of the goods and services we want than producers of the those things we don't? The whole profit-and-loss system works because successful producers reap rewards when they combine resources effectively and unsuccessful producers incur costs when they don't. It is both the prospect of making profits from making good decisions and of making losses from making bad ones which encourages producers to make choices that provides us with the good and services we want.

Tane continues
Because one thing’s for sure, you’d struggle to do any worse than the clowns who’re currently running the show.
Given this Tane should be happy with the profit and loss system. One thing it does well is remove the "clowns".

2 comments:

Tom M said...

Well put - I'm glad someone has the time to go through all the nonsense they put out at that site!

Paul Walker said...

Not ALL their nonsense. Then I really would have no time for anything else!