Economics is messy

By Seth Godin via sethgodin.typepad.com  Article

Human beings make rational decisions in our considered long-term best interest.

Actually, behavioral economics shows us that people almost never do this. Our decision-making systems are unpredictable, buggy and often wrong. We are easily distracted, and even more easily conned. …

The free market is free.

The free market only works because it has boundaries, rules and methods of enforcement. Value is created by increasing information flow and working to have as many contributing citizens as possible.

Profit is a good way to demonstrate the creation of value.

In fact, it’s a pretty lousy method. … Profit is often a measure of short-term imbalances or pricing power, not value. I hope we can agree that a caring nurse in the pediatric oncology ward adds more value than a well-paid cosmetic plastic surgeon doing augmentations. People with more money might pay more, but that doesn’t equate to value. …

The price of a stock represents the value of the company.

It turns out that the price of a stock merely reflects what a few people decided to trade it for today. Tomorrow, it will certainly be different, even if nothing about the company itself changes. There’s very little correlation with how the traders come to value a company in the market and how much value a company actually creates.

The only purpose of a company is to maximize long-term shareholder value.

Says who? Is the only purpose of your career to maximize lifetime income? If a company is the collective work of humans, we ought to measure the value that those humans seek to create.”

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