Sunday, September 20, 2009

Of Government and Men: Industry + Profit = Good

I intended this series to be about fundamentals. This week's post is no different. It's good for our country when business (both large and small) make money. To me this seems obvious, but to a number of politicians, I believe this may be a new concept. Because of that, if this sounds a little simple, I apologize ahead of time.

For the most part, we benefit as a nation and as a community when businesses make profits. When American oil companies make a profit, it's good for us. When pharmaceutical companies make a profit, also good. When Wal-Mart has a good year, it's very good. Remember, these companies do what they do because they are in the business to make money. You don't go to work expecting to donate your time to your employer. You expect to get paid. Why should the oil industry be any different?

Why is it good? When Wal-Mart makes money, their stock goes up and their stockholders make money. Typically, we think of stockholders as stuffy rich white guys who smoke cigars in their personal libraries at home. In some cases this is true. However, teachers unions often invest in successful companies. State Employees Unions do as well. As do many 401 k and retirement funds. Not to mention the employee that has worked at a store their entire career and has been able to purchase stock.

When companies make a profit, they are able to expand their businesses. These expansions create jobs. You might be tempted at this point to say, "Ah! But what if those jobs go overseas?!" Fair point. However, if they are going overseas for reasons we can change, then we should make changes to make the U.S. more appealing for business. For example, instead of punishing business through tax laws, why not make our tax system more appealing to business? If more businesses are here, that creates a larger tax base and higher employment.

When we talk about free health care or windfall profit taxes on any business, we are forgetting that these businesses exist to make a profit. Why are we punishing this? The American Dream has been to create a business, become successful at that business, and make money doing something you love. The government shouldn't punish this.

One last point. In most cases, businesses have a financial incentive to do what their customer's want. If their customers want more fuel efficient vehicles, auto manufacturers will make more fuel efficient vehicles. If their customers want it, they can sell more, and that is why they exist in the first place. The only time government needs to mandate something like this is when customers don't want it in the first place.

The government makes a number of laws that cut into business, stifle business, or just force companies to close up shop. There are only a few representatives who started out in business and understand what businesses go through. Many of these career politicians should spend some time understanding the businesses (especially in their district) before discussing topics like "windfall profit taxes".

Without business, where would we be? If we crush business by forbidding them from making a profit, who will stay in business?


Seattle Dave said...

Way too simplistic Andy.

I'll write more later, if i can put enough information into a few coherent sentences. However, you're making some giant sized assumptions, that in practice and theory would make sense, but in reality don't happen.

Andy D said...

Sometimes things are simple.

Donna said...

Andy, all I know is that the manufacturing sector of this nation is dying. I agree with you that "sometimes things are simple". Keep writing. Businesses, big and small, are suffering. In turn, people are losing their jobs...and SUFFERING!

Patrick said...


I've been doing a lot lately, so not as much reading and posting. But I'm back for now. I have just a couple of comments to make.

I think you should change the words, It's good for our country when business (both large and small) make money to when business (both large and small) make honest money.

When you simplify industry and profit to this level, you discount the fact that businesses will cut corners and evade good business practices (not always against the law) to make that money. It's true that all of our 401K's make money off of these companies, but at what cost?

We've just seen with the economic collapse just how easy it is for greed cloud your judgement. I just don't get why there are so many Americans for more freedom of industry when we've just seen the affects of lackluster regulation.

As for the growing of these large corporations, here's what I think. As McDonald's and pharmaceutical companies get larger, we as Americans are more prone to eat badly, and take a pill for every ache. We become dependent on that b/c of advertising and what we're ultimately told by our doctors who earn more money by giving up medications.

Now, I'm not even debating that the amount of food we eat at McDonald's is their fault, only that eating McDonald's over the course of your life is definitely not as healthy as other sit down restaurants. However, the more you eat at McDonald's, the more profit they make and the more locations they will build. Since mutual funds include McDonald's in some of their portfolio, they're ultimately making more profit on your declining health.

To say that what customers want will change the deliverable product that companies create is just not feasible with larger companies. That's why we have product placment, advertisement, etc. to shape people's wants. Companies pay a lot of money to research how your brain works to sell more products. So saying that a larger company, who's got a lot invested in its current operations, will change based on customer satisfaction may be a little far fetched. (See Cable company satisfaction ratings.)

Now about the tax laws. Even though you can ease our laws to create jobs over here, sometimes companies can still operate with less cost by stationing themselves in other countries. If the difference in cost of labor is just too great, then there may not be enough tax credits to keep the jobs here.

Windfall profits tax is debatable to me, as I've watched the oil prices rise and subside. It's very funny to me to listen to the reasons why the prices rise at an alarming rate, but fall ever so slightly. When gas was $4.00, the reason was supply and demand. When the demand fell sharply b/c no one could afford it and people actually starting changing their driving habits, the cost of oil went down by more than 1/2 and the price was still $3.00. The reason, supply and demand. Of course, the supply and demand curve changes every day, correct? So how can we ever call the experts setting the BS price if we don't have someone to put them in check? Also, OPEC made a conscious decision to slow production after that to keep the price higher. Automotive industry and oil industry have Americans by the sensitive area, and know it. We're dependent on all of their products and daily business would stop without them. Why not give taxpayers back some money for training them to become dependent our your product?

Now, with all of this said, I do believe we should let businesses operate without much daily interference. However, humanity has taught me that the more that money is allowed to control, the worse off we'll be. We do need the right people in our government to ensure the proper and current regulations are used.

Seattle Dave said...

Business is never simple, Andy.

If we lived in a Utopian society, you could say that. However, we don't.

Kevin said...

Patrick I'll take your cable satisfaction ratings comment and use it against you.
Cable companies are regulated by the government. In Smyrna I can get Charter or Comcast. In unincorporated Cobb County I could only get Comcast and it was awful. How much better do you think Comcast would be in this area if they had to compete with somebody else. With Charter I have had great customer service. However, my wife got awful customer service by Charter when she lived in Athens, which only allowed Charter.

Andy I do think you did simplify this a little too much but I also think that too many people think companies are evil and in a conspiracy to screw the American people out of money at all costs.

Think about it. Windfall taxation will not give tax payers back more money. It will just raise the price of the product because companies will still make the same profit (their goal as a company). Look at MLB and the New York Yankees. The Yankees have a payroll over a certain amount so they have to pay a tax on that. That money gets spread around to all the other teams in hope of making them better. The Yankees are still good, they still make a huge profit, people still buy their product. However, look at how much it costs to go to a ball game at Yankee Stadium. $30 tickets for the same seats that you could get at a Braves game for $12. And look the Yankees are in the playoffs again and the Royals are not. Take from the rich and give to the poor does not so much work.
Windfall taxation is greed. It is you make too much money and I don't so you have to give it to me.

Is it really McDonald's fault people eat their food? If people want money back from McDonald's because they make too much perhaps those people SHOULD NOT SPEND THEIR MONEY THERE IN THE FIRST PLACE. If people spend $1 at McDonald's for the $0.25 hamburger, profit of $0.75, and get back $0.001 from the tax refunds who is losing out? Oh and plus now the dollar menu is going to the dollar and a penny menu.

Punishing companies for making money off of people making dumb decisions (smoking, fast food) is stupid. How would you feel if with your promotion at work the government came and took extra money away from you because you were too good at what you do?

Finally, in this current economic collapse laying blame at the feet of companies for their greed only is incorrect. A lot of people made a lot of bad decisions as well, also based on greed.

Andy D said...

Wow, you all have given a lot of great comments on this piece. Let me try to weigh in on a few things.

To the charge that this post was a little oversimplified, I plead guilty. I was working with a personal constraint of 1,000 words and I wanted this to be very broad.

Donna, you are correct. In this current climate, there are a lot of people suffering. Unemployement is at levels that we haven't been willing to accept in a long time. In some states, it is truly bad. I think Oregon is at 18% or so. I think there are a number of things we could do to help this, but neither Obama nor the Congress seem interested in actually fixing our economy until after they get all of their pet projects passed into law.

Patrick, it's ok. I have been so busy lately I have struggled to keep up myself. I also agree with your suggestion to add the word "honest" in. I don't support business breaking the law. Even dumb laws, they shouldn't break but should work to get changed.

I also have to agree with Kevin on a number of points. First, if McDonald's makes a fatty hamburger that tastes like Nirvana, but could lead to a heart attack, you have a decision to make. Some people would perfer to enjoy their life and take their chances. Others want to play it safe. A musical once said, "I won't say whose wrong, whose right," and neither will I. I will say that government shouldn't legislate that choice for us. As an adult, you have to make adult decisions, and deal with adult repercussions.

I have written here why I think windfall profit taxes are particularly evil. I think they represent everything this nation was founded against. Let me know if you would like to see an updated post on this. In a nut shell, windfall profit taxes punish success. That may be an oversimplification, but it is an accurate one.

Keep the comments coming. I have enjoyed the comments on this post more than any of this series I think.

Patrick said...


I'm only going to talk about the Cable Company comment in this post. I have a good bit of knowledge in this realm, so bear with me. I understand what you're saying about the government, however, in your case I would say that those communities are probably the reason that there are Federal changes in policy stemming from customers not having cable choices. You can research the recently passed regulations involving multi-family dwellings, and current reformations happening. The lack of choice is the reason for making these changes, which the individual communites would be violating Federal policy when those changes come into affect. I believe some of them have already passed.

Also, with condominium associations and unincorporated communities, you have to understand that cable companies made offers to install their wiring systems free of charge and would maintain them free of charge in exchange for exclusivity of the area. That is the reason for having no choices in those areas. Otherwise, you would have to pay out of pocket to upgrade your system every time a new box or wiring system needed to be upgraded. It's a decision many have made and are happy with. But, as with any decision, not everyone affected will have the same great experiences.

So, some areas offer to give up their choices to alleviate the cost of maintenance. As a result, customer satisfaction may hurt knowing that the cable provider has exclusivity. With choices, you may still have crappy customer service, b/c it's the industry norm at this point. You can't blame that on regulation, it's just the industry that needs to change.

Patrick said...


This is a comment post dedicated to the McDonald's comment you posted.

Is it really McDonald's fault people eat their food? If people want money back from McDonald's because they make too much perhaps those people SHOULD NOT SPEND THEIR MONEY THERE IN THE FIRST PLACE. If people spend $1 at McDonald's for the $0.25 hamburger, profit of $0.75, and get back $0.001 from the tax refunds who is losing out? Oh and plus now the dollar menu is going to the dollar and a penny menu.

If you go back to my older post, I wasn't debating whose fault it was that people eat too much McDonald's. I was only stating the Catch-22 that profit and health face when dealing with a large company such as McDonald's. If someone wants to contribute as much to McDonald's bottom line as possible at the expense of their health, then there are lots of mutual funds that will benefit.