A Paean to Profits!

Ronald Bailey | July 30, 2009

Yale University law professor Stephen Carter has a fantabulous op/ed in praise of profits in today's Washington Post. Here are some really good bits:

A specter is haunting America: the specter of profit. We have become fearful that somewhere, somehow, an evil corporation has found a way to make lots of money.

Flash back three years. In 2006, Exxon Mobil announced the highest profit in the history of American corporate enterprise. Politicians and pundits stumbled over each other to call for an investigation and for some sort of confiscatory tax on the money the company earned. Profit, it seemed, was an evil, but large profit was even worse.

Today, the debate on the overhaul of the health-care system sparks a shiver of deja vu. The leitmotif of the conversation about the coming shape of health insurance is that the villain is the system of private insurance. "For-profit" firms come under constant attack from activists and members of Congress.

Thus, a recent news release from the AFL-CIO began with this evidently alarming fact: "Profits at 10 of the country's largest publicly traded health insurance companies rose 428 percent from 2000 to 2007." Even had the figures been correct -- they weren't -- we are seeing the same circus. Profit is the enemy. America could be made pure, if only profit could be purged.

This attitude was wrong in 2006. It is wrong now. High profits are excellent news. When corporate earnings reach record levels, we should be celebrating. The only way a firm can make money is to sell people what they want at a price they are willing to pay. If a firm makes lots of money, lots of people are getting what they want....

Consider the bills in Congress that seek to limit the freedom of federally aided automakers to close dealerships or to build the cars that buyers want. Preserving local jobs and building greener cars are admirable objectives, but a firm that is forced to sacrifice profitability to attain them is unlikely to be competitive over the long haul. Indeed, one reason the "public option" health insurance program under debate may turn out to be more expensive than advocates suggest is that here, unlike in Europe, we are unlikely to put up with government restrictions on what sorts of care will be available, especially for seniors. A board of experts might decide to limit access to hip replacements, for instance, but there is little chance Congress will let them get away with it.

Private insurers, by contrast, will cut whatever they can. This puts them at constant war with regulators and patients, but beneath this tension is a certain useful discipline. We want health care to be cheaper, and the for-profit health-care industry has every incentive to make it so. Supporters of the public option tout Medicare's cost advantages over private insurance, but those are largely obtained by setting below-market reimbursement rates for medical services (meaning that private patients subsidize Medicare patients). Moreover, the costs of compliance with the hundreds of pages of Medicare regulations are also transferred to the providers, and thus, again, to private patients.

Enjoy reading the whole op/ed here. 

Comments

Brandon|7.30.09 @ 10:07AM|#

If you want the fantabulous enjoyment to last, don't read the comments on the WaPo site. I need an icepick.

"It's quite evident that you didn't take an ethics or morals class, I assume by your article that God does not play a role in your life. Most Americans on any given day praise God, you praise money as your sole savior!"

"When unseemly profits are associated with items that we must have to function in the modern world, they are not desirable, and may be immoral."

kilroy|7.30.09 @ 10:25AM|#

Fairly good article overall but then he has to go and spout some placating bullshit in the last paragraph:

Those who have good jobs should be helping out, and carping about it is uncharitable, especially now.

I should be allowed to "help out" with my "charity" where I decide to place it. When the state takes my "charitable" dollars and spends them for me it is not at all "uncharitable" for me to "carp" about it.

Fuck him.

Steve Horwitz|7.30.09 @ 10:33AM|#

One of my all-time favorite quotes is from the great South African economist William H. Hutt, who once wrote: "Profits are proof of social service."

That said, defenders of markets should be very careful to note that not ALL profits are good. There are plenty of firms who profit from their ability to manipulate markets in their favor thanks to their relationship with the state. Halliburton's profits are not good.

To that extent, we can agree with critics of profits if we are talking about profits made through corporatist and other state-distorted processes.

|7.30.09 @ 10:34AM|#

"The only way a firm can make money is to sell people what they want at a price they are willing to pay. If a firm makes lots of money, lots of people are getting what they want...."

Perhaps the problem is that insurance companies and oil companies are now trying to sell people what they want at a price they are UNWILLING to pay, and the only way to maintain their unseemly profits is by buying congessional support ($1.4 million per day lobbying) and blitzing the public with an avalanche of false and misleading advertising.

The current system is unsustainable and everyone knows it.

Would a public option destroy private insurance? I doubt it, judging by the huge market for supplemental plans sold to seniors.
An affordable public option remains the only viable way to stem the rising tide of uninsured as more and more companies drop their coverage of employees and insurance companies find more inventive ways to deny coverage to anyone who really needs it.

|7.30.09 @ 10:39AM|#

"I can't find anyone to sell me full coverage auto insurance on the car I've already totaled. We need a public option!"

JB|7.30.09 @ 10:42AM|#

Not making a profit is immoral. Not making enough of a profit is immoral. They are a waste of capital that could be better used elsewhere.

Anyone who works for a non-profit or the government is immoral.

Karl Marx|7.30.09 @ 10:58AM|#

"If a firm makes lots of money, lots of people are getting what they want...."

At the expense of many more who aren't getting what they need.

|7.30.09 @ 11:01AM|#

SugarFree

When I 'wrecked my car' I had insurance that I have carried for 40 years (not counting the years under my parents'coverage). Now, if I change jobs or they price coverage out of reach, they don't want to pay. It's not as though I've waited to get coverage until after the wreck.

charlie|7.30.09 @ 11:03AM|#

"The only way a firm can make money is to sell people what they want at a price they are willing to pay."

Really? What about corporations using the state to secure their profits through "intellectual property", regulations aimed at driving out their competitors, etc.? Or are we to believe the status quo represents the free market?

And . . . Haliburton?

|7.30.09 @ 11:09AM|#

As a general rule, large profits indicate to me a shortage of genuine competition.

|7.30.09 @ 11:14AM|#

rm2muv,

The government tied insurance to employment, not libertarians. And they did it to solve a wage control crisis that they cause in the first place.

And somehow you expect the government to fix it this time around. Finally have the "right" people in charge, do we?

Mad Max|7.30.09 @ 11:26AM|#

A WaPo commenter on Prof. Carter's article instructs him:

'It's quite evident that you didn't take an ethics or morals class, I assume by your article that God does not play a role in your life. Most Americans on any given day praise God, you praise money as your sole savior!'

Prof. Carter is the author of The Culture of Disbelief, which is accurately summarized as follows in Library Journal: 'Carter, a professor of law at Yale University and author of the acclaimed Reflections of an Affirmative Action Baby ( LJ 9/15/91), advances the thesis that American law and politics "trivialize" religion by forcing the religiously faithful to subordinate their personal views to a public faith largely devoid of religion. Carter argues that religious faith can and must be a significant element of our public life, even as we affirm the importance of the separation of church and state. He accepts the place of prayer in education and in developing family values, and he questions accepted public policy in matters such as abortion, euthanasia, and capital punishment. As with Carter's earlier book, which questioned the utility of racial preferences, this book can be used in helping us examine accepted views.'

Simply because Prof. Carter emphasizes the role of profits as an incentive for efficiency, just as St. Thomas Aquinas defended private property itself on similar grounds, doesn't make him a money-worshipper.

Nor can the commenter clear himself from the charge of money-worship simply because he wants the government to have more money - money taken at gunpoint from the evil profit-makers. (Perhaps the commenter is a libertarian who personally eschews wealth, but I'm guessing otherwise).

Stephen Carter is a moderate, like many Americans, with a position between the so-called 'extremes' of politics. Unlike most moderates, however, Prof. Carter seems to base his views on *principled centrism* - a philosophical examination of the issues, leading to middle-ground conclusions.

Most 'moderates' get that way by being buffeted by the political winds or trying to get as many votes as possible from many people.

(I am not endorsing principled centrism, because they often take moderation to extremes - eg, seeking a middle ground between abortion and life. I am speaking of the principled centrists versus the standard-issue 'moderate.')

Enyap|7.30.09 @ 11:30AM|#

Brandon, that WaPo comment reminds me of my local populist rag, which has a nightmarish combination of religious nutballs, union supporters, nanny staters, and obama fellators in the opionion section.

|7.30.09 @ 11:43AM|#

The whole OP/ED is burning straw.

People aren't upset with profits, and no thinks turning a profit (why even many of those lefty marxist in the US actually run business for profit).

People are upset when they see huge profits for and growth for companies, yet wages stay flat. Or when, in order to please investors demanding growth (which isn't the same as profit) organizations decide to simply slash workforces to show growth, and make their remaining workers take on a higher work load for the same wages (and treat them like they should be thankful they weren't laid off).

And let's not ignore the rent seeking and the government lobbying that are used to either artificially inflate the market/prices for their wares/services or how they use government to reduce minimize competition.

People don't get bothered by a company turning a profit, but they do get bothered when for example my cable company, who has a fucking monopoly raise their prices because they can without adding any real value to the product I am buying.

They also get bothered when they shell out big bucks for items only to have them break down soon after buying and having to pull teeth or jump through hoops to get warranty services performed or to get a replacement product for the shoddy one you were sold.

The only way a firm can make money is to sell people what they want at a price they are willing to pay

Right, like cell phone companies. No one is happy with their prices or the quality of their customer service or the dropped calls or the dead zones or the hidden charges they hit you with every chance they get. They don't like the business practices (like disabling hardware features on their networks so they can force you to pay more for it). But what are you gonna do? All 5 providers basically offer the same prices and offer the same quality of services. There isn't a real difference.


The whole article is an attack on a caricature. Very few people in America are anti-profit. It's they these profits are being "earned" in many cases. Usually not by being a better company or providing superior service, but by cutting corners and making it so difficult to deal with the company to get what the customer deserves that he customer eventually gives up. (There's a reason sites like consumerist.com exist and every major newspaper has some sort of "let us fix it for you" column.)

|7.30.09 @ 11:44AM|#

Damn it -- should have previewed...


People aren't upset with profits, and no thinks turning a profit (why even many of those lefty marxist in the US actually run business for profit).

Shoudl be


People aren't upset with profits, and no one thinks turning a profit is bad (why even many of those lefty marxist in the US actually run business for profit).

kilroy|7.30.09 @ 11:44AM|#

"Perhaps the commenter is a libertarian who personally eschews wealth"

Any of THOSE libertarians on this board? If so I can give you an address to send your money to. No really, I'll be glad to help.

|7.30.09 @ 11:45AM|#

I'm confused by the people who say when they change jobs they can't get insurance with the new employer. Why can't they? A pre-existing condition is usually transferable from one carrier to the other, at least it is in NY and should be everywhere. The only reason to deny coverage for pre-existing conditions is that if they did not, everyone would wait until they got sick to buy insurance and it would be meaningless. I think the advocates for the current government solution on pre-existing grounds, don't understand what they are talking about.

|7.30.09 @ 11:53AM|#

ChicagoTom,

Why shouldn't the remaining workers be glad they still have a job? I'm sure one of their colleagues who got laid off would trade with them if they want to bitch.

I'll agree with you about the monoplies and rent-seeking but you have a very victim-like attitude to being a consumer. How about this? Don't use a cell phone if you don't get good service from the choices available to you. Problem solved. It's not like you are forced to own a cell phone. And there are more options than 5 but those are the biggies so they must be in collusion to screw us, right?

Rhywun|7.30.09 @ 11:53AM|#

not ALL profits are good

But if you point out examples of bad profiting, you get tarred and feathered by the likes of this writer and many folks on this board.

I.E. what Chicago just said.

ChrisO|7.30.09 @ 12:01PM|#

Really? What about corporations using the state to secure their profits through "intellectual property", regulations aimed at driving out their competitors, etc.? Or are we to believe the status quo represents the free market?

And . . . Haliburton?

Those aren't profits, but welfare in disguise.

|7.30.09 @ 12:32PM|#

Why shouldn't the remaining workers be glad they still have a job? I'm sure one of their colleagues who got laid off would trade with them if they want to bitch.

If my coworkers get laid off not because business goes south but to make the next 10Q look better and had I to pick up more work (and put in more hours) why should I be happy about that? Just because you can do something doesn't mean it's appropriate or good to do.


How about this? Don't use a cell phone if you don't get good service from the choices available to you. Problem solved.

You won't get an argument from me about that. But the doesn't mean that it's unfair to criticize/resent their business practices and the way they make their money.

And there are more options than 5 but those are the biggies so they must be in collusion to screw us, right?

Did I say collusion? There's just a lack of real competition. They aren't afraid of any new upstart companies trying to compete or alter the industry because the barriers to entry are too high. Even the prepaid wireless providers (the few that aren't owned by the big 5) have to pay to use the big 5's networks. So they can't compete on price.

They have no real incentive to innovate, and in fact are anti-consumer when it comes to hardware (forcing hardware manufacturers to lock features or forcing exclusivity agreements). Look at Cingular and Apple -- even if I buy an unsubsidized iPhone it's against the DMCA for be to jailbreak that phone to use on TMobile's network and Apple is lobbying the government to not allow an exception by arguing that it could lead to terrorism:

The company's filing explained that jailbreaking could allow hackers to altering the iPhone's BBP - the "baseband processor" software, which enables a connection to cell phone towers.

By tinkering with this code, "a local or international hacker could potentially initiate commands (such as a denial of service attack) that could crash the tower software, rendering the tower entirely inoperable to process calls or transmit data," Apple wrote the government. "Taking control of the BBP software would be much the equivalent of getting inside the firewall of a corporate computer - to potentially catastrophic result.

but you have a very victim-like attitude to being a consumer.

Maybe because too many companies have decided it's profitable to victimize their consumers. Too many companies are doing everything they can to not stand behind their products.

Look at the music industry and their repeated attempts to not only prevent me from legally using their products they way consumers want but their crusade against digital media and innovation/new teechnology in general. Look at what they did to ReplayTV, and the crusade against Satellite Radios that can record music.

When a company decides that it's more profitable to behave badly, is it fair to blame the consumers for being pissed at the way the company is making their profits? Consumers want real choices and real competition and real free markets, not bullshit that's going on now. Consumers aren't against profits, but they resent the anti-consumer ways that many companies (especially the larger ones) makes those profits. By giving people less of what they want at a higher price.

Ben Kenobi|7.30.09 @ 12:41PM|#

ChicagoTom slightly shorter:

Profits aren't bad and no one says that, they are just bad when they are TOO BIG and undeserved. And we know when this is cause you can just tell when you see it.

And because my cell phone service is not technoligically perfect and doesn't work in every nook and cranny of this country, and because I just feel they charge me too much, cell phone companies are EVIL!!!1!1!

|7.30.09 @ 1:28PM|#

Shorter Ben Kenobi:

My reading comprehension sucks, and people should stop criticizing companies. They can do no wrong.