Profits II
In part I, I addressed the left’s attack on the profits of ‘Big’ business. Yet the left has a far more fundamental objection to profits, even profits that would otherwise be considered reasonable. Profits result when the amount paid is greater than the cost. Thus from the left’s perspective, they are always inherently wasteful at best.
This is what is behind the push for single payer health care. Since government does not need to earn a profit, it should be able to deliver better health care for a lower cost. If everything were static, this would be true. Government could just do whatever a for-profit company was doing, and the money that was being earned in profits could be used by government to reduce costs, or to provide better health care. This is what is behind the complaint that it is wrong to profit off of other peoples’ illnesses. (Ignoring, of course, that Doctors, Nurses, and many other profit, i.e., get paid, in the process.)
The problem, however, is that the economy is not static, or at least it better not be, otherwise we would have a recession, or worse. A strong economy is a dynamic economy and the driving force for the dynamism is profit.
A clear example of this can be seen in the history of John D Rockefeller. While he is best known as the man behind Standard Oil, Rockefeller was a rich and successful man before he even got into the oil business. In fact, he would have met the left’s definition of someone who had all the money he needed. Thankfully, however, when someone at his church approached him with an idea about investing in the then emerging oil business, he did not say “why would I need any more money?” but instead decided to invest.
Rockefeller approached the oil business, as a businessman seeking to make a profit. He did not just ask, ‘how can we do this?’ he asked ‘how we can do this better?’ While all businesses exist to make a profit, it is the paradox of business that if profit is a business’ sole goal, it will not be in business long. This is because customers want goods and services, not for the business to make a profit. Thus to make a profit, a business must provide goods and/or services that customers wants to purchase, at a price they can afford, and still have money left over for profit, all while doing a better job than the competition.
This is not an easy task, and it is why most businesses fail. More importantly, it is a never ending task. Even if a business succeeds, what they are doing that makes them successful will soon be copied by others and perhaps even improved upon. Thus to remain profitable, businesses must constantly be searching for new and better ways to deliver their goods and services at a cheaper cost. Those that don’t will begin to lose market share, and may even go out of business. This is why some business giants of the past are no longer around.
So when Rockefeller entered into the oil market, his goal was to provide the best product he could at the lowest price. He built better refineries and developed his own delivery system. He also spent money on research to discover what to do with all the gunk left over from the refining process. As a result, he developed over 300 by-products from what used to be thrown away or dumped into rivers.
Today we mainly know the results of his effort in that he became one of the richest men in America. But he did not become rich because people just wanted to make him rich. He became rich because of the vast improvement his work and investment brought about. For example, prior to the changes he brought to the oil business, only the rich could afford to light their homes at night. When Rockefeller drove down the cost of oil “from 58 cents to eight cents a gallon” suddenly millions could afford the new luxury of having light at night.
This is the dynamism that the profit motive brings to the economy; a dynamism government simply cannot match. Government does not innovate, it regulates, and regulation kills innovation. While the profit motive drives businesses to deliver ‘the best at the lowest cost,’ government had little concern for cost.
In fact, the driving force for government is in the opposite direction. Government agencies that do seek to drive down costs are ‘punished’ with lower budgets, because “they did not need the money.” It is the rare bureaucrat that wants to see their budget cut. On the other hand, agencies that are inefficient and wasteful often have their inefficiency rewarded with increased budgets.
The profit margin is vital for creating a dynamic and growing economy, an economy that is constantly seeking innovations that will deliver the best goods and services at the lowest price.
Attacks on the profit motive are nothing less than attacks on the very thing that has so vastly improved our standard of living.
A Proposal
Considerable turmoil had emerged in Wisconsin over the cuts and changes Governor Walker has proposed for union state workers. At the core is the belief that unionized public employees have created an unsustainable situation. While most people understand the problems that business monopolies cause, they fail to realize that a union is really nothing more than a monopoly for labor.
For capitalism to work effectively there must be choice and competition. This is what spurs the innovation and creativity that bring about the best value for the consumer. Unions have, for the most part, failed in the private sector because they restrict this innovation and creativity. Instead of looking to increased productivity, unions restrict choice for the employers so they can use threats and intimidation to force increases in paid and benefits. As such, they ultimately priced themselves, and their companies, out of business.
This is bad enough when used with private businesses, but even here the market’s ability to self-correct can work. Unlike private companies, however, governments cannot go out of business. In addition, unions in places like Wisconsin can force people to join, and then use the money they collect to become a strong political force. In short, they can work to put those who are politically obligated to the union, in a position to negotiate with the union. When this happens who represents the people who have to pay the bills?
The result is that whereas government employees once were paid less that the private sector, but were compensated with somewhat better benefits and security, now both their pay and benefits far exceed the private sector. According to the US Bureau of Labor statistics report, public sector workers get paid a third more than private sector workers, while getting over two thirds more in benefits.
Those defending the status quo, claim the study was not a fair comparison and while they make a few good points there are some serious problems with their claims. One problem, for example, is that while government employees tend to be better educated than the private sector is this because they need more education to do their job, or is this yet another way to inflate their salaries? It also ignores the productivity of the private sector vs. the public.
So given this, here is one proposal. As long as public sector employees are making more on average than private sector employees, ban any further net increases to wages and benefits, including cost of living increases. This would then over time bring public sector payrolls back into line with the people who must pay the bills. This calculation should put productivity into the mix. That way if federal workers were more productive, then their higher pay would be warranted. It would also give the public sector much more of a stake in the health of the private sector that must pay the bills.
This is not meant as a total solution, but it would be an important step in bringing the runaway and stifling cost of government under control. After all, it boils down to a simple question: why should public sector employees get more than those who must pay the bill?
Economic Laws are not Optional
As Republicans struggled last week to make even modest cuts and Obama proposes a $3.73 trillion Federal budget with a record high deficit of $1.65 trillion, one point often gets ignored. Many politicians delude themselves into thinking that the only pain that they really need to concern themselves with is the pain that will come from cutting. What they ignore is that economics laws are not merely abstract concepts nor are they optional. Economic actions have real economic consequences and simply ignoring them does not make them go away.
Currently the national debt as a percentage of GDP is rapidly approaching Greek levels, while the deficit, the amount of new debt we add each year, is ten times larger than just three years ago. Getting this budget under control will likely cause considerable pain, particularly for those federal employees whose jobs are cut and for those who depend on programs that are reduced or eliminated. But the failure to get the budget under control not only might be worse; it will be worse, considerably worse.
Politicians, the treasury and the Federal Reserve can play games that might mask the problems for a period of time, but they cannot do it forever, and in the end these games have their own negative consequences. An individual can mask financial problems for a period of time by borrowing money, but eventually the bills come due and when they do the situation only gets worse. The longer they mask the real problem, the worse things will be when time, and credit, runs out. Eventually they get to the point that they are not even masking the problems, they are simply borrowing more money to keep previous commitments, till finally they cannot even do that and it all comes crashing down.
Over the last three years the government has borrowed trillions, increased the annual deficit 10 fold, and doubled the money supply by simply printing vast amounts of money, all in an effort to mask the financial problems of the country. The best they can say for it is that the stock market is rising, but serious questions exist as to whether the rise is real, or if it is being artificially inflated by the Fed’s QE2 policy, i.e., is it just more masking.
All these actions will have economic consequences, and potentially drastic ones. At the very least, the money must be paid back, and that will burden future generations, because of our folly. But severe consequences may be much closer. It has been called, “a slow train wreck coming and we all know it’s going to happen.”
If Congress and the President cannot get the debt under control, market forces will take hold and the debt will be effectively reduced by inflation, and potentially hyper-inflation like this country has never seen. Inflation is already growing faster than expected, and fears of high inflation, resulting from all these government actions, continues to mount. If we go through a period of even high-inflation, much less hyper-inflation, the last three year could come to look like good times. And yet, looking at a record $1.65 trillion budget deficit for this year alone, Republicans are having trouble making significant cuts, and Obama wants to cut even less.
If they do not act soon enough, then market forces will “solve” this for them as they lose control of the economy. Currently the U.S. dollar is the reserve currency for the world, and that has allowed us some additional flexibility in dealing with these problems, but because of our debt there are growing calls from other nations to change this.
How long do we have? That is the scary part–no one knows. It could be a few years like some are predicting, or it could be already too late. At the rate politicians are going, it currently looks far more likely that their efforts will be too little too late. In short the politicans are playing a very dangerous game of economic chicken, and as usual the American people may be the big losers.
Self-Centered Bias
In an otherwise good article at Politico on How President Obama plays media like a fiddle authors John Harris and Jim Vandehei attempt to refute the notion that “the vast majority of reporters at mainstream news organization are liberals.” After creating a straw man of the conservative belief, they go on to claim that instead being liberal, “the majority of political writers might more accurately be accused of centrist bias.” To their great credit, Harris and Vandehei go on to define what they mean by centrist saying that,
the majority of political writers… believe broadly in government activism, but are instinctually skeptical of anything that smacks of ideological zealotry and are quick to see the public interest as being distorted by excessive partisanship. Governance, in the Washington media’s ideal, should be a tidier and more rational process than it is.
I have no doubt that this is what they really believe; yet it is a very revealing definition. Let’s start with the last part, that governance should be tidier and more rational. While no doubt true, how relevant is it? Is there anyone who believes that it should be messier and less rational? Yet the authors include this in their definition as if it somehow distinguishes them from those on the left and the right; as if only centrists want tidier and more rational government.
This is a great example of self-centered bias; a bias that views and judges everything through the self. They believe that they look at things objectively, rationally, and therefore, since others disagree, those others must not be looking at things as objectively or as rationally.
Much the same can be said about their middle claim of being skeptical of “ideological zealotry” and how this hurts the public interest. Again there is a self-centered bias here. What they want is in the public interest, so those who disagree must be pushing ideology. As a conservative, I have no doubt that Harris and Vandehei would classify much of what I write as ideological zealotry. But what makes what I believe, or for that matter, what a counterpart on the left believes, ideological zealotry, yet what political writers believe in the public interest and somehow not ideological zealotry?
Granted that excessive partisanship, i.e., putting the interest of one’s party ahead of the public interest can be a problem, but I believe it is vastly overrated. Conservatives oppose Obama, not because he is a Democratic, but because they disagree with his policies. Even when party concern is apparent, they are often backed up by more long term concerns. Thus while some on the far left are unhappy with some of Obama’s policies, they still support him, not because he is a Democrat, but because they believe the policies pushed by a Republican president would be worse. Again it is not ideological zealotry or partisanship, for most people it is simply who, given the limited choices, will come closest to what they want. This is the same, left, right and center. Yet Harris and Vandehei see the views of political writers as being somehow different and better.
This brings us to their first and most revealing statement; that political writers, “believe broadly in government activism.” One of the key distinguishing differences between liberals and conservatives is over the role of government. Conservatives for a number of reasons push for limited government, and seek solution in a market place governed by choice and competition. Liberals, for a number of reasons, push to control the market place and seek solutions in government. As such, Harris’ and Vandehei’s claim that “the majority of political writers… believe broadly in government activism” would place them solidly on the liberal side of the spectrum.
So how can they label this centrist? Because a self-centered bias would naturally place one in the center, being neither left nor right, but looking objectively at the evidence; as if those on the left and the right somehow do not seek to look objectively at the evidence. This self-centered bias is reinforced by the size of the political spectrum and the number of people in the United States. Except possibly for the most extreme of the extremes, those on the left can find plenty of people who are further left than they are, and those on the right can find those further right. So to some extent virtually everyone has some claim to being “in the center.”
When we look at the current political make up, the Democratic Party is generally on the left and the party of Government activism, while the Republican Party is generally on the right and is the party of limited government. So if Harris and Vandehei are correct, and “the majority of political writers… believe broadly in government activism” is it really any surprise that conservatives see the major Media as tilted toward the Democratic Party; especially given that they label this as centrist? Yet Harris and Vandehei wrote this to refute claims of a liberal bias.
So Obama may be playing them like a fiddle, but the simple fact is that they are more than ready to be played, and will remain so at least until they open their eyes to their own bias.
Judicial Activism?
In a lawsuit brought by 26 states, a Florida judge ruled President Obama’s health care law unconstitutional. A post by Stephanie Cutter, Assistant to the President and Deputy Senior Advisor, quickly labeled the ruling an act of “judicial activism.” For many conservatives, this sounds very strange, yet this is a perfect example of the difference between liberals and conservatives when it comes to the courts and the Constitution.
The Constitution is the basis for the federal government. It defines the structure of the federal government and enumerates what it can do. The tenth amendment states that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” In other words, if the Constitution does not delegate a power to the Federal government, the Federal government does not have that power.
At the core of this discussion is the key provision of ObamaCare that requires individuals to purchase health insurance. Article 1, Section 8, Clause 3 says that Congress has the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” So the question really boils down to: does the power to regulate interstate commerce include the power to force individuals to purchase Health Insurance?
On the face of it, this would seem pretty clear cut. No. How can someone not doing something, i.e., not purchasing health insurance, be deemed to be engaging in interstate commerce? This is particularly true in that currently you cannot even purchase health insurance across state lines. So if you cannot purchase health insurance interstate, how can failing to purchase health insurance be deemed to be interstate commerce? The mandate falls on everyone living in the United States, but in what way is simply living in the United States a form of interstate commerce?
If looked at another way, if the government can pass a law making it illegal not to purchase health insurance, then would there be any limit on what they could do? There wouldn’t? Why not pass a federal law making it illegal not to purchase a place to live, or requiring everyone to purchase a gun or purchase anything the current government wants you to purchase?
At its core, this issue comes down to the question: Do Constitutional limits on the federal government have any real meaning? In short, do they actually limit anything? Conservatives say yes. The Constitution is the governing document and must be followed, or, if need be, changed. Liberals effectively say no. They see the Constitution as a “Living Document” that needs to be understood in a fashion that conforms to the current needs of society. Of course, whatever they want to do is automatically seen as the current need of society that can supersede Constitution.
As a result, liberals and conservatives have different definitions of ‘judicial activism.’ To the conservative the job of a judge is to rule based on what the Constitution says. Judges who ignore the Constitution and rule based on what they think the Constitution should say are activist judges. To the liberal the job of a judge is to adapt the Constitution to their understanding of the needs of society. Judges who ignore their understanding of the current needs, and rule based on what the Constitution actually says are activist judges.
Thus, the White House blog critical of the ruling does not claim that it conflicts with what the Constitution says, but rather “decades of Supreme Court precedent.” The claim is at best questionable, but either way, the White House does not point to the commerce clause itself, but rather court rulings that have expanded the notion of interstate commerce into new areas, that hitherto and not been considered either interstate or commerce.
So the bottom line for this question is do Constitutional limits on the federal government actually limit anything, or can they be ignored at will? Sadly, until this is decided by the Supreme Court, we won’t really know, but that is a different problem.
