In praise of profits

By Tom Quiner

I had a Priority envelope that I really needed to get in the mail. But I needed to buy postage. I was rushing to get to the Post Office on time. It closes at 5PM, you know. I screeched into the parking lot and ran to the door.

The time was five PM plus eighteen seconds.

They were closed. The postal worker looked at me through the door and walked away without expression, without even a comment like “I’m sorry.”

***

I had a deposit I really needed to get into my bank account. My bank closes at 6PM, but they always hang around for an extra five minutes. I was really running late, so I called them and let them know I was on my way, but wouldn’t be there until ten after.

Guess what? They waited. They took my deposit with a smile.

Guess what? They’ve done that for me (and others) on many occasions.

What’s the difference between my bank and the post office? Profits.

I mention these two stories because the cry of the Occupy Wall Street Crowd is “people before profits.” And yet it is profits that put people first.

I’m not out to bash the Post Office or any government workers, so many of whom are dedicated public servants. But the notion that profits are bad for people is ludicrous.

Companies need profits. Economist Walter Williams defines profits this way:

“Profits represent the residual claim earned by entrepreneurs. They’re what are left after other production costs — such as wages, rent and interest — have been paid. Profits are the payment for risk taking, innovation and decision-making. As such, they are a cost of business just as are wages, rent and interest. If those payments are not made, labor, land and capital will not offer their services.”

The need for profits, their very necessity for the continuation of a business, forces businesses to be accountable to their customers. If they are not, customers can take their business elsewhere.

We’re hearing a lot of heated rhetoric castigating corporations. Do you know who these corporations are? You. Me. Middle America.

Take the oil giant, Exxon. Three of their biggest stockholders are Vanguard, Barclays, and State Street, mutual fund and index fund providers. They’re investing the pension funds and 401Ks of school teachers, firemen, and small business owners into corporations like Exxon. It is Exxon profits that produce a rate of return for these funds to sustain Middle Americans during their retirement.

The Gallup poll reveals that 54% of Americans own stock in U.S. corporations, down from 67% in 2007. So when you hear all this talk about the 99%, that’s not quite accurate. Perhaps we should call them the 46%, since the majority of Americans have a stake in the profitability of corporations.

You’ll hear the term “obscene” profits bandied about from protesters from time to time. And yet corporate profits typically range from 5% to 8% while wages account for over half of each dollar.

Like so many, I decry the “crony capitalism” practiced by both political parties. The most recent example, Solyndra, took tax payer money and gave it to a pet cause of the president, “green energy.” It pitted tax payers against the competitors of Solyndra, creating a market distortion that will be felt for years.

This raises a question: do you trust the president to invest your money more … or do you trust a private mutual fund company like Vanguard that is investing in Exxon?

Vanguard, the mutual fund company to whom I referred above, has to produce long term results for their customers or they’ll take their money elsewhere. The president doesn’t. We have no choice, because we are required by law to pay taxes. He’s playing with our money without our permission.

Profits make corporations accountable. The need for profits forces them to put people first.