Full employment and market inefficiencies

[Exsubmariner]

Perhaps this should be in politics. If it's in the wrong place, please move it.

Working with some lazy and incompetant people got me thinking about this topic, so I am going to spew some thoughts here. I don't pretend they are in any way organized, or some treatis that is going to revolutionize economics, but I am interested in the thoughts of economists out there.

Here's how I think things break out.

Employers recognize a demand for a product or service. They need bodies to provide said service or manufacture the product. In this day and age, the market is driven ever more by new technologies. The gizmo you are selling does some great thing and everybody wants one or you need to provide people to fix said gizmos or figure out ways to reprogram them to make them better and then actually carry out the task of upgrading them.

These products are almost invariably new and few people have worked on them before. This leads to a bunch of inexperienced people working on something they have never seen before. There is usually a learning curve but most technically inclined people can usually cope. Then, there are those who can't or don't want to.

Let's imagine that there is a job that requires say ten people in a group to accomplish and there is one member of the group who just doesn't have the brains to get it and there is another member of the group who is plain lazy. That means that of the ten people, only 8 are effective and have to make up for the shortcomings of the other two.

These two bodies may have some utility. They may be able to fill simple roles and allow the other eight room to do the real core work that needs to take place. However, if the two extra people weren't around, the amount of work done by the other 8 wouldn't really change, other than to deal with the simple roles filled by the other two.

One might suspect that the employer of these ten people, say they are upgrading software programs, were to fire the two non-performers that they might go to work for the competition upgrading the competition's software product, therefore it is in the interest of their present employer to retain them. However, would they be any more effective at the competition?

Chances are that the one would revert to being lazy again after the probationary period and the other would still be incompetant at more than rudimentary tasks. So, I would think it would be an incentive to hurt the competition by letting one's non performers go work for them.

I think the problem comes in finding replacements. With a saturated job market, finding qualified replacements is tough. On the other hand, the employer does get to keep the salaries of the two non performers. Perhaps distributing it amoung the 8 others in the form of incentive pay or a bonus or raise of some sort.

Bottom line, I think it is costly to keep non performers employed. I think everyone out there reading this can think of someone in their office who fits the description of what I talked about in this post. However, the job market is so tight that these people invariably stay employed.

Or, is it something else? Are labor laws such these days that it is hard to get rid of anyone, therefore artifically lowering unemployment and placing the cost of social welfare on otherwise profitable enterprise?

[JMAnon]

Another consideration: it is difficult to attract new talent to a company that has a reputation for firing people for ordinary (as opposed to gross) incompetence.

[chezlaw]

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Another consideration: it is difficult to attract new talent to a company that has a reputation for firing people for ordinary (as opposed to gross) incompetence.

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God topic this, I plan to respond in more depth t the OP later but your point is strange (though it may be true).

Wouldn't most talented people be far happier working for a company that fired incompetent people (as long as it was handled competently).

chez

[JMAnon]

[ QUOTE ]

God topic this, I plan to respond in more depth t the OP later but your point is strange (though it may be true).

Wouldn't most talented people be far happier working for a company that fired incompetent people (as long as it was handled competently).

chez

[/ QUOTE ]

My point was drawn mainly from my experience in the legal services industry, which has some strange characteristics because it is a governmentally protected cartel of sorts. I would, however, expect to see the same phenomenon in any highly-competitive (from the employers' perspective) employment market. Large law firms almost never fire associates. They also make offers to almost all of their summer interns. Because of the competition for good associates, firms will hire and retain some incompetent folks so as not to ruin their reputation with potential recruits.

[chezlaw]

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[ QUOTE ]

God topic this, I plan to respond in more depth t the OP later but your point is strange (though it may be true).

Wouldn't most talented people be far happier working for a company that fired incompetent people (as long as it was handled competently).

chez

[/ QUOTE ]

My point was drawn mainly from my experience in the legal services industry, which has some strange characteristics because it is a governmentally protected cartel of sorts. I would, however, expect to see the same phenomenon in any highly-competitive (from the employers' perspective) employment market. Large law firms almost never fire associates. They also make offers to almost all of their summer interns. Because of the competition for good associates, firms will hire and retain some incompetent folks so as not to ruin their reputation with potential recruits.

[/ QUOTE ]
Its tough for me to comment on competent lawyers as I've only met a few hundred lawyers so far.

chez

[hmkpoker]

[ QUOTE ]
One might suspect that the employer of these ten people, say they are upgrading software programs, were to fire the two non-performers that they might go to work for the competition upgrading the competition's software product, therefore it is in the interest of their present employer to retain them. However, would they be any more effective at the competition?

[/ QUOTE ]

This smacks of a zero-sum mentality. Capitalism is not zero-sum. Two competing businesses can both profit in the long run. The bottom line isn't about hurting the competition, it's about making more personal wealth. The two lazy employees cost you money, the other eight make you money. You fire the other two so you have more money. Badda bing.

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Bottom line, I think it is costly to keep non performers employed.

[/ QUOTE ]

Of course.

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However, the job market is so tight that these people invariably stay employed.

[/ QUOTE ]

It's simpler than that. If the employee's product is worth more to the boss than the paid wage, he is useful and can continue working. If the employee's product is worth less to the boss than the wage, and significantly less such that the employer isn't firing people willy-nilly, creating huge transaction costs in hiring new workers and scaring his other employees, then he'll probably get fired.

If an employee has a skill that is more useful than another, he will demand more for his services. Entry level wages pay little, and skilled labor pays more. You get more per hour from skilled labor than unskilled labor.

[ QUOTE ]
Or, is it something else? Are labor laws such these days that it is hard to get rid of anyone, therefore artifically lowering unemployment and placing the cost of social welfare on otherwise profitable enterprise?

[/ QUOTE ]

Depends on where you go. It's harder in France than America.

[CityFan]

I think a lot of people posting on a philosophy board on a poker forum proably fit the description "plain lazy".

Employing people who are inefficient is just what we do. Inefficient people need work and are entitled to it. They will earn less in the long run, so there is still motivation for hard workers, but we cannot live in a society where the work ethic is "100% for ten hours a day or nothing". That is slavery.

[CityFan]

Also, naturally "lazy" people have a place in a successful business. They take up slack.

A business of any size experiences cycles of boom and bust, much like the economy as whole (there is a name for it but I can't remember what it is). If all the employees were 100-percenters who worked at full efficiency the whole time, there would be no-one to take the strain when workload was high, (and no-one to absorb the slack when it was low, although of course the 100%ers could just sit there doing nothing).

A company that works at 100% efficiency all of the time is ill-prepared for fluctuations in workload. A company that works at 90% efficiency has the capacity to move up a gear when circumstances demand it.

[tomdemaine]

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Inefficient people need work and are entitled to it.

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I double dare you to post this in politics /images/graemlins/smile.gif

[Darryl_P]

This is an HR question and Joshua has the right answer IMO.

To fire someone for poor performance only you really need a broad consensus at all levels (ie. the guy has to be really, really bad) because these types of firings really tend to frighten people. You will likely get reduced performance from the 8 good ones and one or two might even leave to find more secure employment (as perceived by them). If that happens, you've got a net loss on your hands.

There is also the issue of reputation as an employer. The fired guys are likely to badmouth the company and when they do, most of the listeners will side with them and not the company. When normal attrition occurs and you need replacements, the rep could come back to haunt you and make it difficult to find new talent.

Remember, most employees are self-conscious, a bit paranoid, and VERY security-minded, despite the fact that corporate culture makes it disadvantageous to be open about this.

[hmkpoker]

[ QUOTE ]
To fire someone for poor performance only you really need a broad consensus at all levels (ie. the guy has to be really, really bad) because these types of firings really tend to frighten people. You will likely get reduced performance from the 8 good ones and one or two might even leave to find more secure employment (as perceived by them). If that happens, you've got a net loss on your hands.

There is also the issue of reputation as an employer. The fired guys are likely to badmouth the company and when they do, most of the listeners will side with them and not the company. When normal attrition occurs and you need replacements, the rep could come back to haunt you and make it difficult to find new talent.

[/ QUOTE ]

Well said. The employer has to take care of the employees, just like the employees take care of him. This is true at all levels. Employers DON'T want labor unions to form.

[hawk59]

"
This smacks of a zero-sum mentality. Capitalism is not zero-sum. Two competing businesses can both profit in the long run. The bottom line isn't about hurting the competition, it's about making more personal wealth."

The non zero-sum part of capitalism comes about because the buyer and the seller of a product or service can both benefit. I make widgets and it costs me X to do so. I sell it to you for X plus some amount of profit. We both benefit because I make a profit, and you get something that you need that you could not make on your own for so cheap, or you do not want to be bothered with making it on your own.

Saying that two companies can both profit in the long run is correct, but it's not right to say this is an example of a non zero-sum game, because it IS a zero-sum game. Company A and B both make widgets, and there is a certain demand for widgets in the marketplace. Well if you increase your market share then you are taking business away from your competitor. All good businesses want to kill their competition, because it is a zero-sum game between competiting businesses.

[Riddick]

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Well if you increase your market share then you are taking business away from your competitor.

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This isn't true.. Assuming only two businesses, me and you, I can increase my market share % and you can simultaneously increase the amount of "business" you do. Thus I didn't "take" any business away from you.

Because time never stops, and people are constantly "consuming" their scarce time, among other reasons, there never exists a "certain" market demand.

Time must be considered in all economic analyses.

[tolbiny]

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[ QUOTE ]
To fire someone for poor performance only you really need a broad consensus at all levels (ie. the guy has to be really, really bad) because these types of firings really tend to frighten people. You will likely get reduced performance from the 8 good ones and one or two might even leave to find more secure employment (as perceived by them). If that happens, you've got a net loss on your hands.

There is also the issue of reputation as an employer. The fired guys are likely to badmouth the company and when they do, most of the listeners will side with them and not the company. When normal attrition occurs and you need replacements, the rep could come back to haunt you and make it difficult to find new talent.

[/ QUOTE ]

Well said. The employer has to take care of the employees, just like the employees take care of him. This is true at all levels. Employers DON'T want labor unions to form.

[/ QUOTE ]

It also takes resources to figure out who is underproducing.

[Exsubmariner]

Darryl, HMK, and all who contributed to this thread, thank you. I read the responses very carefully and I think the key here to understanding the issue at hand is based on tradeoffs and intangibles. Employers make tradeoffs for intangibles with tangibles.

For example, as Darryl said, the salaries of two underperformers is worth less than the prospect of getting to keep top performers around because they are "secure."

I once heard a story about a man who worked in a building maintenance shop in a major US city who came to work every day, sat in his own office, and took bets from everyone who worked in the building. Officially, he worked in building maintenance. He was really a bookie for the mob. In that case, the intangible for the building owners was not to have to pay some kind of other "protection" to the mob, and maybe they got a small cut on the action. If the owners were mobsters themselves, they got a tax debuctable office to run their book from.

If you are a corporation worried about being shaken down by the likes of Desse Dackson and his Wainbow Coawition, then you employ a cross section of minorities in your company and it saves you from the expense of a lawsuit and a possible enourmous penalty if you lose. All is intangible and unmeasurable, and unfortunately for capital, a reality in this day and age.

Now the world makes better sense.

[TheHusky]

[ QUOTE ]
Also, naturally "lazy" people have a place in a successful business. They take up slack.

A business of any size experiences cycles of boom and bust, much like the economy as whole (there is a name for it but I can't remember what it is). If all the employees were 100-percenters who worked at full efficiency the whole time, there would be no-one to take the strain when workload was high, (and no-one to absorb the slack when it was low, although of course the 100%ers could just sit there doing nothing).

A company that works at 100% efficiency all of the time is ill-prepared for fluctuations in workload. A company that works at 90% efficiency has the capacity to move up a gear when circumstances demand it.

[/ QUOTE ]

One thing that happens in the workplace is that when an employee has nothing to do, they will typiucally find something to do in order to take up their time. So even people who are working 100% are often not working 100% on things ate are nescessary or important. Left unchecked this effect leads to a bloated burocracy.

[hmkpoker]

Spend some time in the Politics forum. Half the threads are us arguing about how markets work /images/graemlins/tongue.gif

[Exsubmariner]

Been there, done that. I put this here because Borodog moved some of his discussions about economics over to this board. I figured I would get less loaded, and more cerebral responses over here.

[chezlaw]

Whilst the points of unions and moral matter, I think they are detail rather than the key issue.

Suppose the boss decides to take all that into account and has a policy of sacking all those that have a net negative effect on the firm i.e taking everything into account the firm will be better off without them or by replacing them.

This policy would make sense but cannot happen in a sizeable company.

[ QUOTE ]
It also takes resources to figure out who is underproducing.

[/ QUOTE ] as tolbany says;

is an understatment of the year. In a large company its impossible for those who are competent and care about the bottom line, to discover who are of net negative value.

Even in a small company its very difficult but at least the boss is likely to be aware of the people involved. Then he can get rid of those who he believes are of net negative value which isn't the same but is the best that can be done.

chez

[Borodog]

Exsub,

There are always many more jobs than there are workers to fill them, hence competition for workers is fierce, and there are always some instances of employees employed above their skill level. Time and the market tends to work this out, however. Given time, the employee hopefully gets better at his job, his bosses better match him with tasks he is capable of or suited for, or recognize the mistake they made in hiring him, and let him go.

Labor unions and regulations do interfere with the market process and increase costs and inefficiencies drastically, however, by protecting underproducing workers from competition and consequences.

[hmkpoker]

Good point.

[chezlaw]

[ QUOTE ]
Exsub,

There are always many more jobs than there are workers to fill them, hence competition for workers is fierce, and there are always some instances of employees employed above their skill level. Time and the market tends to work this out, however. Given time, the employee gets better at his job, his bosses better match him with tasks he is capable of or suited for, or recognize the mistake they made in hiring him, and let him go .

Labor unions and regulations do interfere with the market

[/ QUOTE ]
oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.

chez

[Exsubmariner]

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oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.



[/ QUOTE ]

You speak the truth, my brother. Just be careful not to say it around the office.

[chezlaw]

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[ QUOTE ]
oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.



[/ QUOTE ]

You speak the truth, my brother. Just be careful not to say it around the office.

[/ QUOTE ]
By fortune or design I spent most of my working life working for people I respected and if you have to work I recommend you try to do the same. Like me, you sound like you will go insane working for those you think are idiots.

I still had to work with plenty of idiots, now I actively seek out idiots to work with /images/graemlins/smile.gif

in the end we can only earn significantly above average wages because others are significantly less competent.

chez

[moorobot]

Right; because right after I drink a coke I always really want a pepsi to wash it down.

When somebody finishes a camel they light a malboro with the end of that; in fact everybody who smokes has a pack of all brands on them at the same time, and lights up 80 cigarretes at once.

When Wal-Mart buys all the jeans they can sell from one company it means they are going to buy up jeans from ten other companies for fun and let them sit in the basement.

Substitute goods my friend. Companies are competing against people who are trying to fulfill the same 'wants' as they are.

[Riddick]

preface:Im drunk as all get out; but you replied to me, and didnt quote anyhing: i have no idea what the hell you are talking about here or how you are addressing what i type...or were you not responding to me?

[Borodog]

[ QUOTE ]
[ QUOTE ]
oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.



[/ QUOTE ]

You speak the truth, my brother. Just be careful not to say it around the office.

[/ QUOTE ]

I'm not going to argue with this, but the market sorts this out as well, at a different level, where consumers are buying products and investors are buying shares.

[moorobot]

You only had one post in this thread.

[Riddick]

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You only had one post in this thread.

[/ QUOTE ]

OK, in that case, I agree with what you typed, and note your sarcasm, approving it, but how does it address what I typed?

[chezlaw]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.



[/ QUOTE ]

You speak the truth, my brother. Just be careful not to say it around the office.

[/ QUOTE ]

I'm not going to argue with this, but the market sorts this out as well, at a different level, where consumers are buying products and investors are buying shares.

[/ QUOTE ]
It does sort it out eventually but not in a way the results in large companies being competent.

Rather a cycle emerges where competent companies become large and contain great resources and momentum, they get lauded by the markets and retain the market support whilst the incompetence takes over and decline set in. This lasts for a long time until the hardening of the company arteries and the new smaller competent companies emerge to slowly kill it off. Some of these smaller companies then grow and take the role of the previous ones.

The problem isn't caused or resolved by markets. The incompetence is a fundemental problem resulting from a disconect between the aims of the owners (shareholders) and the aims/rewards of the management/workers down the line. If there was a mechanism for aligning these aims/rewards then something could be done about it but the larger the company the greater the disconnect becomes.

Sometimes the market recognises the stored wealth and releases it by taking over the company and selling off the bits but this only works after the company has been incompetent for some time and doesn't stop the emergence of new incompetent companies (though it does speed things up).

chez

[Exsubmariner]

[ QUOTE ]
There are always many more jobs than there are workers to fill them, hence competition for workers is fierce,

[/ QUOTE ]

You know, Boro, I've heard you say this before, but I don't necessarily buy into it. I don't think it is true in all times and places. It may be true today, with the present Federal Banking structure always there to provide freshly printed capital to finance whatever enterprise springs up. But, there was a time in the history of this country that the economy waxed and waned. There was even a period of a decade after 1929 that there were droves of unemployed people and it lasted several years.

I guess what I am saying is no, not when capital is limited. I can't fully buy into your statement.

[JMAnon]

[ QUOTE ]
Right; because right after I drink a coke I always really want a pepsi to wash it down.


[/ QUOTE ]

Maybe not, but maybe tomorrow 3 newborns in China will want a Coke and two others will want Pepsi.

[Borodog]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.



[/ QUOTE ]

You speak the truth, my brother. Just be careful not to say it around the office.

[/ QUOTE ]

I'm not going to argue with this, but the market sorts this out as well, at a different level, where consumers are buying products and investors are buying shares.

[/ QUOTE ]
It does sort it out eventually but not in a way the results in large companies being competent.

Rather a cycle emerges where competent companies become large and contain great resources and momentum, they get lauded by the markets and retain the market support whilst the incompetence takes over and decline set in. This lasts for a long time until the hardening of the company arteries and the new smaller competent companies emerge to slowly kill it off. Some of these smaller companies then grow and take the role of the previous ones.

The problem isn't caused or resolved by markets. The incompetence is a fundemental problem resulting from a disconect between the aims of the owners (shareholders) and the aims/rewards of the management/workers down the line. If there was a mechanism for aligning these aims/rewards then something could be done about it but the larger the company the greater the disconnect becomes.

Sometimes the market recognises the stored wealth and releases it by taking over the company and selling off the bits but this only works after the company has been incompetent for some time and doesn't stop the emergence of new incompetent companies (though it does speed things up).

chez

[/ QUOTE ]

Frankly, I don't care. The result is that over time, consumers see ever higher standards of living. I couldn't care less about the details.

[Borodog]

[ QUOTE ]
[ QUOTE ]
There are always many more jobs than there are workers to fill them, hence competition for workers is fierce,

[/ QUOTE ]

You know, Boro, I've heard you say this before, but I don't necessarily buy into it. I don't think it is true in all times and places. It may be true today, with the present Federal Banking structure always there to provide freshly printed capital to finance whatever enterprise springs up. But, there was a time in the history of this country that the economy waxed and waned. There was even a period of a decade after 1929 that there were droves of unemployed people and it lasted several years.

I guess what I am saying is no, not when capital is limited. I can't fully buy into your statement.

[/ QUOTE ]

It doesn't matter whether you "buy into it" or not; it's an irrefutable fact. It's true by definition. Human wants are endless, and labor is required to satisfy wants. Wouldn't you like to have a personal maid, masseuse, cheuffer, automechanic, concubine, golf or tennis pro, or any number of other labor intensive luxury? Of course. Why can't you? Because they cost too much. Why do they cost too much? Because someone else is willing to pay more for the labor of your potential maid, cheuffer, or concubine than you are.

[chezlaw]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
oh if only the world worked this way. In practice, in large companies, the incompetence strays up the ladder into management and fairly soon the people deciding on others competence are themselves incompetent.



[/ QUOTE ]

You speak the truth, my brother. Just be careful not to say it around the office.

[/ QUOTE ]

I'm not going to argue with this, but the market sorts this out as well, at a different level, where consumers are buying products and investors are buying shares.

[/ QUOTE ]
It does sort it out eventually but not in a way the results in large companies being competent.

Rather a cycle emerges where competent companies become large and contain great resources and momentum, they get lauded by the markets and retain the market support whilst the incompetence takes over and decline set in. This lasts for a long time until the hardening of the company arteries and the new smaller competent companies emerge to slowly kill it off. Some of these smaller companies then grow and take the role of the previous ones.

The problem isn't caused or resolved by markets. The incompetence is a fundemental problem resulting from a disconect between the aims of the owners (shareholders) and the aims/rewards of the management/workers down the line. If there was a mechanism for aligning these aims/rewards then something could be done about it but the larger the company the greater the disconnect becomes.

Sometimes the market recognises the stored wealth and releases it by taking over the company and selling off the bits but this only works after the company has been incompetent for some time and doesn't stop the emergence of new incompetent companies (though it does speed things up).

chez

[/ QUOTE ]

Frankly, I don't care. The result is that over time, consumers see ever higher standards of living. I couldn't care less about the details.

[/ QUOTE ]
/images/graemlins/tongue.gif

Seriously, its the details that undermine your argument that ac won't lead to government again. I'm not saying your definitely wrong in claiming it wont but you do rely on an assumption of competence and its a false assumption.

chez

[Riddick]

Chez,

It is certainly the details in which we find the reason why larger firms tend to be more inefficient, or as you put it, "incompetent." And these details can somewhat vaguely be described in your "cycle" explanation, but they have been expounded on in far greater and more accurate detail chiefly by economists Ludwig Von Mises and Murray Rothbard, as I briefly summarize below-

[ QUOTE ]
If there was a mechanism for aligning these aims/rewards then something could be done about it but the larger the company the greater the disconnect becomes.


[/ QUOTE ]

Clearly incentive is the mechanism you speak of. Incentives are what directly spur the employment of means(aims) towards ends (rewards).

The reason why it seems such a mystery as to why larger firms suffer increases in "incompetence" stems from the traditional, organismic theory of a firm - that a firm is a sentient, acting entity guided by production curves, cost curves, mathematical functions, etc, in other words that a firm and its productive role can be quantified in some sort of calculus equation. Surely if we base our model of the firm on this fictional entity then it certainly will be a mystery when large-size firms don't fit our convenient economic models in their display of inefficiency and incompetence, and we'll be left only hoping that they figure it out one day.

In reality though, a firm is simply the result of unquantifiable individual action. Our theory of a firm can be derived from the study of human action since, within the firm, it is individual actors who are naturally driven by incentive (as all human action is). But the incentive merely compels us to act. In a firm, the means which an actor will employ to achieve his end will rest on his economic calculation.

Economic calculation - this mechanism is the means by which producers (firms) assess, coordinate, and plan (i.e. calculate) their production to meet the market. It primarily involves forecasting, and the firm's profit rests on the correctness of the calculations. The difficulty and resulting failure in employing these means (calculating) will derail the achievement of their ends.

"The problem with valuation as firm size increases" - Simply put, which of the following calculations is easier A) 1+3=? B) 4345+454765467+234245634+321900897=?

Or, which question is easier to answer - "What is your favorite form of poker?" or "What is your favorite song?"

Naturally, as the inputs increase, as the things to be considered in the valuation process increase, the difficulty of the calculation increases, which leads to the rise of inefficiency and incompetence. The firm will still exist, even profitably, and be able to sustain this inefficiency and incompetence provided one (or both) of two things: 1) It can still deliver what the consumers want better than competing firms, 2) violent intervention into the marketplace (read: government) bolsters its position (through erecting artificial barriers to entry, tariffs, subsidy, etc)

Borodog,

These "details" are in fact very important, for the same incentive and calculation problems that lead a massive firm coordinating and planning over 30,000 employees and $10 billion in capital, while being bolstered by violent intervention into the market, to be inefficient and incompetent are the same exact reasons why we know that a massive socialist government coordinating 300 million people and $12 trillion in capital will be, well, I would say *far beyond* inefficient and incompetent, perhaps even...impossible?

Of course, the difference is that when we say that a large firm is inefficient, it is at the cost of dollars. When we say that a massive socialist government is inefficient, it is at the cost of not only dollars but lives.
---

More detailed analysis can be found here:
Economics, Technology, and the Size of the Firm (http://www.mises.org/rothbard/mes/chap10a.asp#2C._Economics_Technology_Size) (Chapter 10 of Man, Economy, and State)

Economic Calculation in the Socialist Commonwealth (http://www.mises.org/econcalc/Ch2.asp)

Economic Calculation and the Limits of Organization (http://www.mises.org/journals/rae/pdf/rae9_2_1.pdf)

[chezlaw]

[ QUOTE ]
Chez,

It is certainly the details in which we find the reason why larger firms tend to be more inefficient, or as you put it, "incompetent." And these details can somewhat vaguely be described in your "cycle" explanation, but they have been expounded on in far greater and more accurate detail chiefly by economists Ludwig Von Mises and Murray Rothbard, as I briefly summarize below- ....

[/ QUOTE ]
I only do vague /images/graemlins/smile.gif

Thanks for the interesting post.
[ QUOTE ]
The firm will still exist, even profitably, and be able to sustain this inefficiency and incompetence provided one (or both) of two things: 1) It can still deliver what the consumers want better than competing firms, 2) violent intervention into the marketplace (read: government) bolsters its position (through erecting artificial barriers to entry, tariffs, subsidy, etc)

[/ QUOTE ]
I'd add 3) which is the large company can create 'profits' by feeding of itself. e.g cutting neccesary costs where because the cost savings acrue quicker than the future profits lost, it appears like the company is making money [this may be a very sensible thing for the management to do from their point of view]

Part of the general problem is the time delay between action and result and the usual result oriented thinking that afflicts everything. If a company sets a stupid course but gets lucky in the short term then the person who sets the stupid course gets rewarded and their course gets followed more strongly (and vice verca).

chez

[Exsubmariner]

Yes, I would like very much to have a chauffer, maid, gardener, and concubine. But, I don't have capital to pay for them and since I would have to have a lot of capital, since I can't make more by employing them, those jobs in fact do not exist. Although, I appreciate your assertion that in fact, they do.

[moorobot]

[ QUOTE ]
I'm not going to argue with this, but the market sorts this out as well, at a different level, where consumers are buying products and investors are buying shares.

[/ QUOTE ]

Unless, of course, the consumers have faulty or otherwise imperfect information (true be definition, as you like to say, and sellers have an incentive to make it worse), or investors are incompetent, or short sighted ("low time preference morons", as you might call them), or basing there own decisions on imperfect information (true by definition as well).

No market is ever 100% efficient. Markets merely give indications of whether past market decisions have been well informed or not.

In fact, futures markets that would make your comment true don't even exist for most products and services anyway.

[moorobot]

[ QUOTE ]
Why do they cost too much? Because someone else is willing to pay more for the labor of your potential maid, cheuffer, or concubine than you are.

[/ QUOTE ] Obviously, in addition, if the jobs did not pay people enough to survive, we might not have unlimited jobs, or it might be true, but completely and utterly trivially true; a meaningless tautology.

We might also have a problem if people preferred to say, steal, or beg for money, than work at the only jobs they can get.

We don't have unlimited time or unlimited capital in order to constantly try to fulfill desires for commodoties and paid services. Demand side economics; don't ignore it.