Profits Part I
One of the constant complaints from the left for over a century has to do with the whole notion of profits and it shows no signs of letting up. Be it the Big Oil companies gouging consumers at the pump, Big Pharma gouging people for drugs they need to keep them alive, or Big Insurance denying health care to the patients who need it so that they can pocket huge profits, a consistent theme from the left is the denunciation of profits.
While “Big Oil” does currently make billions in profits, profit is not a standalone concept. For example, a one million dollar profit may seem large, what if this profit came on an investment of one billion dollars and after many years of losses? Then there is number of people who get the profit. While one million might fine for one owner, what it must be spread among 100 stockholders or a thousand or more? Then there is the whole concept of reinvestment.
Yes, oil companies do make a lot of money; they also invest a lot of money, do all the work, bare all the risk, and yet make significantly less on a gallon of gas than does government. Whereas oil companies earn about 10 cents per gallon, the Federal Government gets 18.4 cents and then there are the state taxes and sales taxes on top of that. Then there is the income tax on the profits that they do make. What is left after taxes, they then either reinvest back into the business or pay out to their stockholders. When President Obama put his “boot on the throat” of BP and successfully pressured them into not paying dividend following the Gulf oil spill, it was not the fat cats who suffered but millions of average workers and retirees in Britain.
As for the Health Insurance companies, there are two facts that are often ignored. One is that a number of health insurance companies are already Not-For-Profit, and those that are For-Profit, their profits, according to a report on ABC News, “represent a miniscule percentage of the $2.5 trillion Americans spend every year on health care.”
As for Big Pharma’s profits, normally the focus is on the cost to manufacture drugs, which is often a fraction of the sale price. What is often ignored is the literally billions spent to develop these drugs, a large part of which come from their profits from previous drugs. If the companies were really raking in the huge profits critics claim, then their stock prices should be sky high. Yet they aren’t. Investors in Pfizer, for example, have lost 25% over the last 10 years.
In fact, rather than making too much, pharmaceutical companies may be making too little. This is a real concern for while recently developed drugs are quite expense, it is the profits from these drugs that fund the current research into new drugs. If those complaining about high drug profits had gotten their way in the past, then we would not have the problem of the high cost of the medicine, simply because the medicine would never have been developed. With all the attacks on drug company profits, it is probably not too surprising that the “drug pipelines are thinning.”
While the left may see profits as wasteful at best and perhaps even evil, they are what drive the economic system that has brought the highest standard of living in human history. Removing the profit motive will not make things better; they will make things worse, and probably a lot worse. More on that in Part II.
