Excerpt from GPWN 2010
A hint of the glaring systemic flaw in Contemporary Economics [neoclassical economics] (CE) can be identified by the term used to describe surpluses greater than total cost. CE refers to them as Abnormal Profits, as they disturb the market equilibrium (cause the wobble effect) and are quickly wiped out by the System through ‘new entrants’ into an industry.
Contemporary Economics (CE) refers to profitable gains above average total cost as abnormal or supernormal. Normal profits are gained where a businesses earns just enough to stay in an industry in the long run; basically close to zero profits.
When have businesses ever regarded profits as abnormal apart from when they were not anticipated for a particular period? When was the last time a business earned high profits or tripled them and its CEO made an announcement to reassure shareholders on CNN or in the Wall Street Journal or the Financial Times that –
“Ladies and gentlemen our company has done something it is not supposed to this quarter, it has gained profits, this is utterly abnormal, next quarter we must strive to drive the business back as close to zero profits as is possible for our earnings to return to normal. If we cannot do this ourselves we must allow the market to do this naturally for us. For the good of the shareholders we cannot afford to be an abnormal company and I urge all employees to make it less profitable in the next quarter.”
This doesn’t happen as it defies logic. It may sound amusing, but it isn’t. Simple incongruities such as this that exist between Contemporary Economics (CE) and Business Administration and the motives associated with the paradigms each discipline follows hint that there is an inherent and fundamental conflict between the market condition inherent in an economy and the objective of businesses.
The next heading explains how this flaw creates a conflict that hinders businesses and growth.
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