In a world in which some industries are much easier to enter than others.. ?

Question

is there a systematic distortion in the pattern of investment, which is something over and above the general instability that employment policy is designed to control? .. over and above mistakes in forecasting which are liable to occur? .. and over and above the misdirection of investment through speculative influences??

Only useful answers, please!!!

Hey, did you read the last line??? only useful answers..ok?

muncie birder: lol.. you're right! my pic is meant not so much as to attract but to distract.. ha ha! good answer, btw.. that given while your mind was not at the question, how much more if you would focus on it.. can you try again? ~ smile!

NotEasilyFooled: yes, your answer is a very useful one!

Gator: Hi, don't worry I don't get offended so easily.. but NO, I was not referring to the investment necessary to start a business, am way beyond that.

By "the general instability that employment policy is designed to control", I was referring to..in practice where employment is not based on any particular theory but follows the line of resistance.. investment is the easiest thing to cut when restriction appears to be called for and the thing to boost when a stimulus is needed.

Not only is the system distorted by its bias towards investing in what happens to be profitable, but even within that sphere there is no reason to expect the profit motive to lead to a well balanced pattern of investment.. this has always been a weak point.

I hope that helps.. oh wait, why am I answering my own question.. hmmm? ha ha!

Answer 1

I concur with NotEasilyFooled first part of his answer, but I would take issue with the second part.

Yes, highly regulated industry does indeed keep competitors at bay, but would that necessarily distort investment patterns? The assumption being that the greater the difficulty to enter the industry, the lower the investment capital flowing to that industry. Look at the Pharmaceutical and Medical Industry. They are the most regulated in the world, yet one that billions (if not trillions) of dollars of investment capital flow through. If I remember correctly, to bring 1 drug to market, the Pharma company will invest on average $700 million and 10-15 years before getting final FDA approval. And yet, in the past say 6-7 years, there have been a plethora of new drugs hitting the market (just turn on the TV and you can't miss them).

Granted, the companies that are now the big Pharma companies were probably established prior to heavy fed regulations and have survived through them (thus not seeing the entry of new companies into that industry), but if the returns are great enough, then I believe that investment will accept the relevant barriers and continue to flow into the industry.

One thing we must be aware of, classical textbook economics generally do not work in the real world as they do on paper.

All things being equal (employment policy, forecasting and speculative influences), I believe that returns will weigh more heavily than regulatory restrictions. If the returns are high enough, the money will flow into even the most highly regulated industry. Granted, it may be from fewer sources, but sources with vast financial backing. If the small fry investor can get in on it later, they will.

Just my 2 cents, but don't hold me to it.

Answer 2

I am sorry but I got distracted by your avitar and I am having a hard time thinking.

I will attempt an answer but my mind is not really on the question.

I think that perhaps there is. The distortion that I believe might exist is due to mutual funds and their investments. Most mutual funds manage very large amounts of assets, in the billions. In essences they are the stock market today. If you have to invest billions, you are going to have to invest it where you are able. Large cap stocks. To me that skews markets towards large cap stocks but on the other hand large cap stocks have under performed the market in general during many years now. That was due in part to the 2000 bubble that kicked the rug out from under the large cap tech stocks. It is also due to the availablity of more value in small cap stocks where most mutual funds are locked out, but not all. There are mutual funds that specialize in small cap stocks. But most money still gravitates toward large cap stocks.

Another example of the distortion is within hot markets. Hot markets attract hot capital which then distorts prices irrationally. The India markets are a prime example. They went up geometrically earlier this year and suddenly collapsed in May as the hot money decided to exit the market. However, that probably falls within your category of speculative influences.

There is some historical evidence suggesting that mutual funds lead to the 1929 market collapse. During 1928 and 1929 billions of dollars flowed into mutual funds. And a billion then was a whole lot more than a billion today. Not only that but market capitalization was much much much less than today. There were very few stocks that traded 100,000 shares a day. And those were the stocks that the mutual funds had to throw their billions into. RCA, USSteel, GM, and a few others. Then during the summer of 1929 mutual fund returns started to slow down and also new investments in mutual funds. In effect the mutual fund support for the markets deteriorated and guess what the markets deteriorated. Then every one ran for the exits as they received margin calls. The brokers were so busy trying to liquidate accounts to cover margin deficiencies that they could not be bothered to handle buy orders. They did not even answer the phones. Sound familiar. Remember 1987.

Answer 3

I could be way off and miss read one word ^_^ haha

I would assume investment is used in the fashion as hiring people, also taking context from your title. So this instability might be considered cases where people were hired who didnt deserve the position they were given. So liable to occur are future such as people in position they dont earn being responsible to produce on there hollow qualifications. Speculative influence I would image would be employment would be beneficial in employing someone who would not be qualified but would be beneficial, case in point minority employment.

Yes there are many times were people were employed who didnt deserve the position however I believe the governments mishandling of positions has only amplified the feelings. I've seen my share of poor employment choices however I believe things haven't changed that much. Yes people who don't deserve there job will botch things up and get fired and there no way to screen out everyone. I believe business revolves around speculating and employment is no different.

Answer 4

Obviously, less competitors are attracted to industries where the barriers to entry are high. Thus, if ARTIFICIAL barriers to entry are imposed, you lessen the amount of competition in that industry. In terms of classical economic theory, this promotes stagnation in the industry as it is harder for innovators to replace established competitors.

In terms of employment policy, it means (1) less jobs are lost, but (2) less jobs are created, and (3) the industry probably employs fewer people than it otherwise would. Such barriers probably make the industry easier to forecast because it suppresses innovation, and therefore suppresses change and growth. It would also reduce speculation in the industry, but also any other sort of investment in it. The pattern of investment would indeed be distorted.

I hope you find this a useful answer.

Answer 5

You use a lot of words to really not say a whole lot. Please try to restate your question. I read thru some of your other questions and responses and found them to be very insightful, interesting, and thought provoking. This one I simply found confusing. Are you referring to the investment necessary to start a business? What are you referring to when you mention,"the general instability that employment policy is designed to control"?
I'm not the smartest guy but I'm typically pretty quick to understand questions that are asked of me. I hope that I don't offend you. That is not my intention.

Answer 6

This query looks like a semantic mightmare or perhaps a hurricane of words meant to drive you nuts. However your snap (if it is you) is GREAT, a dream even.

Answer 7

Too long winded for me, but your picture is hot!

Answer 8

but the avatar isn't Blondie