9 ms·

Every voluntary exchange is a net plus or it wouldn't occur.

criley2 11y ago
It's a net plus for the investors and owners, not necessarily for "the economy". If one believes the health of the economy is measured by the broad-based success of those involved in the economy, then M&A is rarely a net good for the economy, as it generally converts labor and assets into investment and profit. They'll downsize, fire redundant people, sell off redundant assets and be more profitable with a smaller business. Great for investors, not great for the people who lose their jobs and the businesses those displaced workers used to spend at.
- ISL 11y ago
  Investors are people, too.
- UK-AL 11y ago
  It sounds bad but firing unnecessary workers means that those workers will eventually be used for something more productive. A net gain.
  - techsupporter 11y ago
    > those workers will eventually be used for something more productive. A net gain. Not always. One of the more strident criticisms of this economic recovery (since 2008) is that the size of the workforce has shrunk because some workers are unable to reenter it after having been laid off. The increases in efficiency seemingly aren't translating into higher wages or more jobs, just more net returns to the finance folks.
  - dagw 11y ago
    Assuming a frictionless economy and an infinite timeframe. In the real world many of those workers will die of old age before your "eventually" rolls around.
    - UK-AL 11y ago
      Ok then. Lets follow your idea to a logical conclusion, lets ban companies closing down and merging with other companies to protect jobs and labour. So now you have unused companies that are not provided any useful service. They are mainly there for jobs for jobs sake. There will be lots of smaller companies with lots of duplicated resources, which could have otherwise have merged and shared resources. At what point does this become silly? You might as well pay people to dig giant holes. If you were able merge two companies, fire people, and get rid of unused assets and still serve the same amount of customers. That means there was massive waste, and the merge resolved that.
      - dagw 11y ago
        No the logical conclusion of my argument is that we as a society have to start accepting that a large number of people will live a large part of their lives without being "productive" and find ways to deal with that. Also we have to accept that what is long term best for "The Economy" isn't necessarily short term best for all the people in the economy. I'm not against growth, I'm just against ignoring and refusing to pay the very real human costs of growth.
        UK-AL 11y ago
        "No the logical conclusion of my argument is that we as a society have to start accepting that a large number of people will live a large part of their lives without being "productive" and find ways to deal with that." I actually think we are far from that, because human wants are virtually unlimited, so there will always be jobs required for humans in arts/entertainment/engineering. Things that will always require a human judgement. But lets assume we are? The best way to force action is for it actually happen. If we just create non-jobs to cover it up, politicians will put off doing something about it for a long time.
mikeash 11y ago
That's not necessarily true if the parties involved incorrectly estimate the consequences. Since humans are far from omniscient, there's no particular reason to assume their ideas of how the outcome will unfold are accurate.
- TylerE 11y ago
  Case in point: HP/Compaq
  - amyjess 11y ago
    Or AOL/Time Warner.
calpaterson 11y ago
No, it doesn't have to be a net plus, it just has to be thought to be a net plus for the trade to happen. The Time Warner/AOL merger was thought to be a good idea but it was not actually a good idea!
michaelt 11y ago
There's a lot of indication that, on average, mergers and acquisitions destroy shareholder value [1] [2]. But they're good for the bankers and consultants who advise on such things, and often for the incentive system the shareholders have offered the CEO. And not every acquisition destroys value, think of Google buying Youtube. Of course we are going to buck the trend, right? [1] http://www.nber.org/digest/aug03/w9523.html http://www.nber.org/digest/aug03/w9523.html [2] http://www.businessinsider.com/damodaran-the-acquisition-process-destroys-more-value-than-anything-else-corporations-do-2012-6?IR=T http://www.businessinsider.com/damodaran-the-acquisition-pro...
normloman 11y ago
Sounds like you live in a fantasy land where everyone acts rationally! How's the weather down there?
dragonwriter 11y ago
> Every voluntary exchange is a net plus or it wouldn't occur. This generalization is justified if, and only if, there are no externalized costs and the perfect knowledge of resulting utilities pillar of the rational choice model accurately reflects reality; neither of these are true generally of real-world transactions, so the generalization is unjustified. Like the world without friction of many introductory mechanics problems, the world of Econ 101, while it may be a useful foundation for building an understanding of the real world, is very much not the real world.

It's a net plus for the investors and owners, not necessarily for "the economy". If one believes the health of the economy is measured by the broad-based success of those involved in the economy, then M&A is rarely a net good for the economy, as it generally converts labor and assets into investment and profit. They'll downsize, fire redundant people, sell off redundant assets and be more profitable with a smaller business. Great for investors, not great for the people who lose their jobs and the businesses those displaced workers used to spend at.

ISL 11y ago
Investors are people, too.
UK-AL 11y ago
It sounds bad but firing unnecessary workers means that those workers will eventually be used for something more productive. A net gain.
- techsupporter 11y ago
  > those workers will eventually be used for something more productive. A net gain. Not always. One of the more strident criticisms of this economic recovery (since 2008) is that the size of the workforce has shrunk because some workers are unable to reenter it after having been laid off. The increases in efficiency seemingly aren't translating into higher wages or more jobs, just more net returns to the finance folks.
- dagw 11y ago
  Assuming a frictionless economy and an infinite timeframe. In the real world many of those workers will die of old age before your "eventually" rolls around.
  - UK-AL 11y ago
    Ok then. Lets follow your idea to a logical conclusion, lets ban companies closing down and merging with other companies to protect jobs and labour. So now you have unused companies that are not provided any useful service. They are mainly there for jobs for jobs sake. There will be lots of smaller companies with lots of duplicated resources, which could have otherwise have merged and shared resources. At what point does this become silly? You might as well pay people to dig giant holes. If you were able merge two companies, fire people, and get rid of unused assets and still serve the same amount of customers. That means there was massive waste, and the merge resolved that.
    - dagw 11y ago
      No the logical conclusion of my argument is that we as a society have to start accepting that a large number of people will live a large part of their lives without being "productive" and find ways to deal with that. Also we have to accept that what is long term best for "The Economy" isn't necessarily short term best for all the people in the economy. I'm not against growth, I'm just against ignoring and refusing to pay the very real human costs of growth.
      - UK-AL 11y ago
        "No the logical conclusion of my argument is that we as a society have to start accepting that a large number of people will live a large part of their lives without being "productive" and find ways to deal with that." I actually think we are far from that, because human wants are virtually unlimited, so there will always be jobs required for humans in arts/entertainment/engineering. Things that will always require a human judgement. But lets assume we are? The best way to force action is for it actually happen. If we just create non-jobs to cover it up, politicians will put off doing something about it for a long time.

mikeash 11y ago

That's not necessarily true if the parties involved incorrectly estimate the consequences. Since humans are far from omniscient, there's no particular reason to assume their ideas of how the outcome will unfold are accurate.

TylerE 11y ago
Case in point: HP/Compaq
- amyjess 11y ago
  Or AOL/Time Warner.

calpaterson 11y ago

No, it doesn't have to be a net plus, it just has to be thought to be a net plus for the trade to happen. The Time Warner/AOL merger was thought to be a good idea but it was not actually a good idea!

michaelt 11y ago

There's a lot of indication that, on average, mergers and acquisitions destroy shareholder value [1] [2]. But they're good for the bankers and consultants who advise on such things, and often for the incentive system the shareholders have offered the CEO. And not every acquisition destroys value, think of Google buying Youtube. Of course we are going to buck the trend, right? [1] http://www.nber.org/digest/aug03/w9523.html http://www.nber.org/digest/aug03/w9523.html [2] http://www.businessinsider.com/damodaran-the-acquisition-process-destroys-more-value-than-anything-else-corporations-do-2012-6?IR=T http://www.businessinsider.com/damodaran-the-acquisition-pro...

normloman 11y ago

Sounds like you live in a fantasy land where everyone acts rationally! How's the weather down there?

dragonwriter 11y ago

> Every voluntary exchange is a net plus or it wouldn't occur. This generalization is justified if, and only if, there are no externalized costs and the perfect knowledge of resulting utilities pillar of the rational choice model accurately reflects reality; neither of these are true generally of real-world transactions, so the generalization is unjustified. Like the world without friction of many introductory mechanics problems, the world of Econ 101, while it may be a useful foundation for building an understanding of the real world, is very much not the real world.