Pigs get fat, hogs get slaughtered

The traders' maxim that explains modern life

I’ve always liked traders. They are straightforward, and they work under maxims that make perfect sense. One of my favorites: pigs get fat, hogs get slaughtered.

A little greed is good. But too much, and your greed will destroy you. Economists would say that this is behavior that creates return over the cost of capital (the economic definition of profit), and that profit will be competed away as new entrants come into the market. It seems like we are way out of balance, too. A great example is what happened to the Hunger Games movies. The trio of books became a quartet of movies because the producers wanted to milk the fans. I saw the third movie, and it was so padded and dull that I skipped the fourth. So did a lot of people; the fourth movie grossed about 40% less than the first movie (Box Office Mojo link).

Likewise, Taylor Swift has released a lot of records. A lot! But the lastest double album with 31 songs doesn’t show off her talent, only her need for an editor.

Earlier this month, Washington Post columnist Heather Long wrote about how corporate executives are confused (Washington Post gift link). How could they help young people like capitalism again? They didn’t like her answer: treat workers better. For the last several decades, companies have done things that erode workers’ sense of security, like replacing defined benefit pensions with defined contribution plans or organizing layoffs whenever quarterly earnings are a penny or two light.

(The two are related, in a strange way: our shift to a defined-contribution retirement system makes us all overly dependent on the stock market doing well. We are operating under a lot of perverse incentives these days.)

We’re choking on greed.

On top of that, consumer packaged good companies have responded to very real inflation by increasing prices (either outright or through shrunken package sizes, link from Forbes) way beyond the rate of inflation. Bad for consumers, good for profits, excellent for promoting cynicism about capitalism. Also good for my health, because the huge increase in prices for diet coke is giving me an incentive to do something about my habit. Those around me might not realize it, but I am drinking about 20% diet coke these days.

Believe it or not!

Okay, maybe only about 10% less. But still: Less.

Companies that were once known for treating workers well, like Starbucks, started resting on their laurels, cutting benefits, and posting big profits. The logical response of workers is unionization, and former CEO Howard Schultz has his feelings hurt (New York Times link) about it. Something seems off. Why would being a great place to work 25 years ago be a selling point today? Why not be a great place to work today?

Whenever people suggest things that the US government could do to help workers and families, like expand Social Security, providing paid parental leave, or reducing college costs, the same corporate executives who are eroding worker security and raising prices complain about the possibility of paying more in taxes.

I’m not sure what the answer is. I only know that greed ruins traders, and maybe it ruins everything.

What do you think?