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This is an old European disease. Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. Taxing excess profits be
by madballster 3y ago
This is an old European disease. Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. Taxing excess profits beyond what are already high tax rates is popular amongst voters (e.g. see poll results in the UK, 2022). However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services. If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".
- toyg 3y ago> see if competition takes care of the "problem". We have seen: for industries with big capital requirements or heavy regulatory frameworks (enacted for everyone's safety), it just doesn't.
- jntvjnvutnuvt 3y agoWhich industries with big capital requirements don't have competitors?
- zdw 3y agoAnything with a natural monopoly. Utilities (water, electric, telephony/cable/data services) or where having two of something makes no sense given physical limitations (Transportation sector, etc.)
- jntvjnvutnuvt 3y agoYou're right but the person is talking in the context of competition and how competition doesn't reduce profit margins "for industries with big capital requirements."
- Hamcha 3y agoIn the US: ISP & Healthcare
- jntvjnvutnuvt 3y agoMost Americans have access to AT&T, Verizon and T Mobile. They also have a choice of insurance plans and healthcare providers.
- MSFT_Edging 3y agoBut will their choice of health insurance provider be accepted at the hospital an ambulance took them to? Who knows but for that person, its time to play bankruptcy roulette.
- jntvjnvutnuvt 3y agoMany healthcare plans cover emergency out of network hospitals.
- behringer 3y agoSpinning that roulette wheel I see.
- MSFT_Edging 3y agoLove when people prove the point while trying to refute it.
- happymellon 3y agoMany, and not all? What a wild system you have.
- pkaye 3y agoDidn't the no surprises act change that for emergency issues? The insurer has to cover it as in plan.
- dj_gitmo 3y ago> AT&T, Verizon and T Mobile. These are mobile providers. For home internet with a physical connection you usually don't have a choice and it is not outlandish to consider them a "natural monopoly" like you would electricity and water.
- codedokode 3y agoSocial networks, search engines.
- JimtheCoder 3y agoThose have low capital requirements, but their moat is the network effect.... I can buy a script to build a Facebook clone from an Indian Dev for like $50.
- Silhouette 3y agoBanking! If there are meaningful competitors then that implies there is meaningful competition. But many financial services firms have been making huge windfall profits by creating a wide interest rate spread even though they would still be (very) profitable with much lower spreads and their customers have a clear incentive to go with a competitor offering a better interest rate. So clearly there is not effective competition in this market.
- jntvjnvutnuvt 3y agoWell, there are thousands of banks in the US alone that offer mortgages and loans.
- cmmeur01 3y agoAnd that number has been steadily trending down with mergers and acquisitions.
- Silhouette 3y agoAnd are they offering them at competitive rates or are they all mysteriously making enormous profits despite the "competition"? Because in much of Europe it's definitely the latter that is happening. There are lots of banks but evidently they are not really competitors.
- gwright 3y agoIrrespective of the the benefits and/or feasibility of competition to bring prices down, the larger problem with this ad-hoc windfall profit tax is that it is ad-hoc. This is changing the rules after the game has started. The article reports the effort as a "surprise tax".
- Silhouette 3y agoThis is changing the rules after the game has started. The point is that a windfall is also - by definition - a favourable change in the rules after the game has started. The moral question here should be a simple one. Did the investors in the banks know (or at least reasonably expect) that they would make these profits when they decided to make their investment? If they didn't and they invested anyway then there's a reasonable argument for a windfall tax as long as it only claws back gains they had no reasonable expectation of making and did nothing useful to earn.
- ilyt 3y agoCompanies made ad-hoc profits on pretending it's the inflation and raising the prices while having rising profits. I have zero problems with ad-hoc tax on that. Frankly I think taxing some part of revenue instead of just income on big companies would be beneficial, no more "investing" in making market harder to newcomers (or outright buying them out) and getting tax cut on that.
- xmonkee 3y agoits not a “game”. Its the people of Italy legislating whats best for the people of Italy. This is what government is. You are pre-supposing a capitalist framework where private enterprise should compete with the people. You could alternatively think of private enterprises being allowed to exist at the pleasure of the people. And that is the way it should be. People are real, companies are fiction.
- gwright 3y agoJust because it was accomplished via a "legislative process" doesn't automatically make it a good idea. Surprise laws are a bad idea in any economic system IMHO. It isn't even a "capitalist" issue.
- dinkblam 3y agofully agreed. if you look at e.g. California, those European diseases might start to infect the USA too...
- tensor 3y agoUnfortunately the old American disease of not ensuring competition and instead passing regulation ensuring monopolies stay in power means the "problem" is not actual solved, and is in fact made worse.
- zmnd 3y ago> The US is home to over 4,700 FDIC-insured banks. It’s not far off from the EU, which has 5,171, but stop and consider that the EU consists of 27 countries. The UK currently has 365 banks, and Canada has 83
- panick21_ 3y agoThese numbers have strong historical reasons. The US had unit banking leading to a gigantic explosion in banks and this number has been going down as bank merge since the end of unit banking in the 30s. Canada on the other hand had branch banking, meaning a few insitution each covering the whole country. So Canada had very far fewer banks historically. During the Great Depression many 1000$ of banks failed in the US and none in Canada.
- SeanLuke 3y agoThe number of countries in the EU seems to be not the best argument, though their distribution might be. The USA has one bank for every 70617 people. The EU has one bank for every 86637 people. Italy is rather much more concentrated, having seen a huge decrease in unique banks over the last decade. It has one bank for every 134624 people.
- zmnd 3y agoI shared the whole quote, but the goal was to just highlight that the number of banks is fairly similar. I agree that the number of people is a better characteristic in this context, however the number of countries is important. EU has many different cultures, languages, regulations, so they have to have more banks. But looking at data, despite these considerations, EU still has worse competition. So still not sure what exactly parent meant.
- ilrwbwrkhv 3y agoAnd that is why so many british businesses incorporate in the virgin islands or cayman.
- fock 3y agowhich could easily be visited by a landing ship full of guardia di finanza. If the corrupt british regime would not offer protection for services rendered...
- bastardoperator 3y agoTIL not being a capitalist is a disease.
- concinds 3y agoYour assumption, that if without these extra taxes, more banks would be created and the industry would become less concentrated, seems untrue. The banking industry seems to be becoming hugely concentrated in every Western country, regardless of windfall taxes.
- rightbyte 3y agoMaybe the tax could be progressive to help smaller players? I dunno why only wage tax is progressively taxed.
- gruez 3y ago>I dunno why only wage tax is progressively taxed. Companies are just groups of people. Why should a group of 100 people get taxed more than a group of 100,000 people? Progressive rates on wages make sense because it's applied to each person individually.
- staticman2 3y ago"Companies are just groups of people." The legal definition is certainly not "groups of people." Describing them in this folksy way is outright misleading.
- gruez 3y agoYeah there's a bunch of other stuff like limited liability and governance rules, but they're not really to the topic at hand which is why bigger companies should get taxed more.
- kevinventullo 3y agoWhy should a group of 100 people get taxed more than a group of 100,000 people? It would be the other way around. This is in order to encourage the formation of new groups, which almost always start out small.
- webdood90 3y agoI didn't think it was possible but banking shills apparently exist > If one wants free enterprise and reap its benefits who wants this from banking??? > one has to allow high profits for companies and see if competition takes care of the "problem" ah, yes - we've seen this work so many times before!
- prepend 3y ago> who wants this from banking??? I certainly do. I like have lots of choices and banking is important to me. I also like innovative new banking products. I wish there was free enterprise in banking, it seems like we have an oligopoly, in the US at least.
- webdood90 3y agodo you also enjoy bailouts?
- deleted 3y ago[deleted]
- bko 3y agoI don't know. I kind of like competition in banking. I like free checking, ATM fee reimbursement, better customer service, better websites and apps, better alerting etc. You get that through competition for my deposits.
- gowld 3y agoThat causes lower profits, so won't be affected by windfall tax.
- bko 3y agoMaybe they won't but new competitors will see the outsized profits and try to get my business by offering these things. I have all these things at my bank (TD) so the system seems to work. This is pretty uncontroversial basic economics...
- Biologist123 3y agoThe final sentence of this comment requires at least two underlying assumptions to hold true: 1. Investors invest for speculative returns, not predictability or risk minimisation. 2. Free enterprise is possible within existing political-economic frameworks.
- mschuster91 3y ago> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem". Banks will do just the same that all megacorps do: buy up their competitors with all the excess profit to make even more profit.
- IG_Semmelweiss 3y agoIf banks would be forced to choose between: 1- Windfall tax 2- Elimination of banking license regulations What do you think would be their choice? They would choose (3) "pay money to lobby for none of the above" and instead lobby congressmen/deputies, to eliminate this question
- barbazoo 3y ago> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem". I sometimes wonder if perhaps other parts of the world have a different vision of how to run their economy. Surely "free enterprise" isn't a universal rule and certainly not the way it is conducted in North America. Maybe they're just doing things differently?
- Hamcha 3y ago> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem" One must just glance at the US to see what happens, the high profits get used to lobby politicians to make competition impossible, thus the problem doesn't get solved and becomes the status quo.
- bko 3y agoI think that's correct. I have a theory about bullshit jobs in highly regulated or profitable industries. Places like Google have a ton of employees that don't contribute anything but make work projects. Why don't they just cut the workforce in half? Because their profit margin would be too high. It's already 25% with all the bloat. Imagine if their profit margin shot up to 50%? They would likely be dragged in front of Congress to explain themselves. It's even more true for banks (who i would argue have even more bullshit jobs where people literally do nothing) You could think this is good as it supports people but I think it's kind of sad thousands of people get up and go to work every day with no impact on anything,just waste away at a desk. This doesn't even mention the economic waste
- bushbaba 3y agoBullshit jobs are encouraged for management to grow their org into a promotion. These companies are growing so nobody really questions the bloat as making the wrong move might impact future growth (or cause your action to be blamed for growth miss).
- hnfong 3y agoBullshit jobs are created for many reasons, I think you and GP are both right. GP's point may not be obvious on the surface, but another way to look at it is, if for example the economy cools down and GOOG is pressured to maintain its profits, you can bet that management will decide to lay off even more people. In this sense it is just behaving as if it earns as much money as "expected" (by shareholders or the public, doesn't matter).
- inglor_cz 3y agoI think the other HNer is closer to the truth: in a bureaucratic organization, the more people you manage, the more important you are. So, basically, result of a status competition that comes from misalignment between the interests of the company and the interests of individual managers.
- prepend 3y agoI’ve wondered this too. I don’t think it’s conscious so much as it’s unclear exactly what jobs are bullshit. So when profits are high, there’s more leeway to allow jobs that you’re not quite sure. But when times are tough you start making riskier jobs because you just don’t have the funds to support bullshit jobs.
- TomK32 3y agoWikipedia doesn't list many, but the USA had one in 1980. Surprisingly the US oil companies have survived this https://en.wikipedia.org/wiki/Crude_Oil_Windfall_Profit_Tax_Act_of_1980 https://en.wikipedia.org/wiki/Crude_Oil_Windfall_Profit_Tax_...
- scotty79 3y ago> Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. What is it then? I think it's a clear sign that competition doesn't work and savings were not passed to consumers. The thesis that competition will work eventually reeks of trickle down economics. Such tax is just punishment for the lack of competition. It sends a message that if you are not going to compete for the customer then you can't keep the profits gained from your reluctance to compete.
- ilyt 3y agoWell, exactly right. The competition only works if competitors are willing to give consumer a better deal, and if moving between competitors is easy enough. But if they decide "well, media say there is inflation so we have excuses to rise prices far higher than actual rise of costs", well...
- ilyt 3y agoWell unless the companies decide to just not compete on price and keep it high, see the fuel prices in EU.
- solumunus 3y agoSpoiler: it doesn’t. Also, I’m in Europe and my bank gives me better deals on savings than any American bank offers.
- niux 3y agoWhat bank are you using?
- neilwilson 3y agoI'd go further than that. Corporate profits become stores of value. The money stops moving, which reduces the transaction rate and lowers inflation. That is, after all, how interest rates work. We 'tax' the mortgage payers and give it to deposit holders to hold as a store of value. That reduces the transaction rate. So if we tax corporate profits and redistribute it around, then interest rates have to go higher to force the money released from the corporate profit store, to the deposit holder store. If prices are too high, the solution is to encourage the capitalisation of more competition, not encourage keeping money in the bank.
- polishdude20 3y agoBut like, you can use those profits before they get taxed to pay your workers more and invest in more and better equipment and tooling. So you can lower your tax bracket by providing a better service anyways.
- spacebanana7 3y ago> This is an old European disease. Permanent high taxes are better than unpredictable windfall taxes. It's very difficult to budget for the future when you don't know how much tax you're paying by a binary order of magnitude. When industry specific, it can create perverse incentives for outsourcing.
- throw0101a 3y ago> However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services. And how many de novo banks have there actually been in any country recently? In the US, the land of plenty (banks), there's been one in the last twenty years. Bloomberg's Odd Lots podcast just had an episode on this (including the topic of de novo): * https://www.youtube.com/watch?v=8lPFHWgxq5c https://www.youtube.com/watch?v=8lPFHWgxq5c Banking is low margin, and it takes decades to get any kind of return: few, if any folks, have the patience for that kind of ROI when there are alternatives.
- ABCLAW 3y agoRetail banking is low margin high volume, but a bank's CMG or IB divisions are NOT low margin operations. Trading desk margins vary depending on the strength of the group and the clientele. If you're a primary desk for a trillion dollar AUM entity, you make a very pretty penny off your Bloomberg terminal subscription.