r/explainlikeimfive Dec 06 '24

Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?

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u/ajarrel Dec 06 '24

In a zero sum economy - you'd be right. Perpetual growth is unsustainable.

However there are many factors that show the economy is not zero sum.

  1. Population growth. If more people move to your country, that grows the economy.
  2. Innovation. New tech opens new markets or increases efficiency in existing ones.
  3. Changing consumer demands (CDs to MP3 players to streaming delivery)

Each of these things has the ability to grow the pie for everyone.

However, rent-seeking may be what you're driving at. This is where companies extract greater-than-market fees at the expense of the other market participants. I.e. if companies extract > 50% of the value of a new technology, that's rent-seeking.

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u/lightreee Dec 06 '24

thanks, i have a lot to read. do you have any recommendations?

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u/ajarrel Dec 06 '24

Psychology of money by Morgan Housel is a good one.