It’s kind of ironic to me that a lot of myths are still taught in the classroom that spill over to conventional wisdom.
For instance, it’s still put forth that human beings make rational decisions that are considered to be in their best interest long term. Actually, behavioral economics shows us that people almost never do this. Our decision-making systems are unpredictable, inconsistent and often wrong.
Just take a look at the last two years of politics as a prime example. The fact is, we’re for the most part, easily distracted, and even more easily conned. Every time we assume that people are independent, rational actors, we’ve made a mistake.
Our way of life in general only works because it has boundaries, rules and methods of enforcement, and those have been stretched to the breaking point, again over the last two years.
The value of anything is created by increasing the flow of information and working to have as many of us contributing as possible. Making a profit is a great way to measure short-term imbalances that are not necessarily of value, especially in the long-term.
For example, a caring nurse in the pediatric oncology ward adds more value than a well-paid cosmetic plastic surgeon doing augmentations. People with more money might pay more, but that doesn’t equate to value. It might in the eyes of the person having the surgery because there’s no point of reference for the patient in the oncology ward.
The best way to measure value created is to just measure the value itself. If the purpose of anything becomes to maximize profit rather than value, and we can consider that profit may not be the best measure of value created, then I think we can agree that it does create inconsistency at best.
Things like a living wage, sustainability, fairness and their meanings matter even more. When we consider how to advance our culture, the last question we should be asking is ‘Will it hurt profits?’ The first question we should be asking is ‘Will it make a difference in the quality of our lives for everyone affected?’
There’s very little correlation with how the analysts value a company in the market and how much value that company actually creates. Is the only purpose of a company to maximize long-term shareholder value? Is the only purpose of your career to maximize lifetime income?
If a company is the collective work of humans, we ought to measure the value that those humans seek to create.
Truth be told, just because there’s a number (like profit) that’s easy to read, easy to manipulate, and easy to keep track of, doesn’t mean it’s the only relevant measure!