Politics & Policy

Obama’s Profit Problem

It’s really the Left’s free-enterprise problem.

It was an odd moment in the first debate. President Obama was talking about health care, and looked the American people right in the eye and told them that the profits of the health-insurance industry were driving up the cost of health care.

The implication was clear: If only we could get rid of all of those profits from all of those greedy companies, all those fat-cat executive salaries, and the infrastructure that supports the pursuit of profits in each of the private-insurance companies in America — including those expensive commercials — health care would be much more efficient. And much cheaper.

That’s right, folks. Our president actually believes that profits increase the cost of goods and services in this country. And decrease efficiency.

It isn’t just our president who harbors such strange notions. Walk down the hallways of academia and Congress and you’ll hear similar strains from the anti-profit pulpit. The “P” word comes out the mouths of most leftists and redistributionists as if it were a curse word. Or a disease.

#ad#Indeed, it is usually preceded by qualifiers such as “windfall” or “excess” or “unreasonable.” “Unreasonable profits,” you might be wondering if you own a small business: Is there such a thing? And how can reasonable people come up with such ideas?

It all started back when Kark Marx coined the term “surplus value” to describe profits. That’s what profits were to Marx, a surplus that belonged to someone else besides the actual business owner. That was his contribution to modern economic life.

The great Irish playwright and socialist George Bernard Shaw came up with a much niftier term to describe profit a few decades later; he called it “the overcharge.”

In the minds of many intellectuals and some politicians, profits are charges added to the real costs of production. The dream of many utopian socialists is to get rid of all of those private businesses, and have the government run them without all of that profit-taking by capitalists, passing along the savings to the workers and consumers.

Cut those greedy profit-seekers out of the equation, goes the logic. What do they do anyway?

But does our own president really think he can make our health-care system cheaper and more efficient by squeezing out the profits of private insurers?

A thought experiment: I want to transport President Obama’s logic about profits and efficiencies in health care to . . . potato chips.

Take a walk down the potato-chip aisle of any major supermarket. There, for all to see, is the miracle of modern free enterprise. There, dozens of brands boldly compete for customers. Choices, choices, and more choices, and all available for just a few bucks: Herr’s and Lay’s and Pringles and Kettle and Mrs. Vickers and Ruffles and Fritos and Old Vienna and Dirty Chips and Sun and Cape Cod and Jays and Tyrells and Wise and Zappo and North Fork, to name just a few brands. (And then there are the choices within the brands. Pringles alone has more potato-chip options than any one person can conjure: There’s the Original, Sour Cream and Onion, Cheddar Cheese, Barbeque, Jalapeno, Pizza, Ranch, Loaded Baked Potato, Salt and Vinegar, Honey Mustard, Blastin’ Buffalo Wings, and my personal favorite, Screamin’ Dill Pickle.) They are all shouting out to the customer: Pick me!

“All of that waste,” President Obama must be thinking as he walks down the aisle! “Ah, the efficiencies our government could bring to the potato-chip lovers of this world if only all of these businesses would get out of the way.”

#page#

Most of us get excited about all of that choice and competition. The not-so-well-educated masses intuitively know that all of those competitors, in their ruthless scramble for customers, create more efficiency and lower prices. But President Obama’s mind wanders farther:

If we could only squeeze out all of the profits from the big and not-so-big potato-chip companies, and all of those fat-cat executive salaries, and all of that marketing money each of the companies spends to attract customers, if only we could just get rid of all of that waste and redundancy and inefficiency, and have just one big government-run potato-chip company, we’d all be better off!

If his thinking is correct in health care, then why not pass the Affordable Potato Chip Act?

#ad#But does anyone believe the government would be better at potato chips than the private sector? Or more efficient? Of course not, because we all know what that potato-chip aisle would look like if the government ran it. There would be one brand — The National Potato Chip Company — and it would offer one flavor. The bag would be dull and boring like the chips themselves, and they’d more often than not be stale. And they’d be $10 a pop.

Does President Obama not understand why businesses form in the first place? Does he not understand that without profits, there is no business, and without profits, there are no jobs, and without profits, there is very little to tax, and without profits, there is very little left in anyone’s 401(k)?

Does he know how hard it is to generate profits, and how ephemeral they are? That the moment a company begins to make a profit, competitors soon come crawling out of every crack and crevice trying to get a share of those profits? And that this pursuit of profit — and all of the messiness it engenders — makes for the remarkable choices American consumers have at their disposal?

It is the hope for profit, and the threat of losses, that actually forces owners in the free-market economy to produce at the lowest possible cost. Too many on the left simply can’t wrap their heads around a simple idea: Walmart makes big profits because it delivers such low prices.

Back in January, House liberals were not happy with gas prices and set about to lower them. Did they roll out a plan to dramatically increase supply? Nope; that sounds like something a capitalist might do. They instead rolled out the “Gas Price Spike Act” to go after profits they deemed were not reasonable. And who should define “reasonable” profits?” A newly created Reasonable Profits Board.

But drill down even an inch deep on this notion of “reasonable profits” and the whole idea collapses. Exxon Mobil made $30 billion in 2010, a mountain of money. But Exxon’s profit margin was 8.6 percent. That’s about 36 cents per gallon — which is less than the nearly 50 cents the federal government took in on every gallon.

But back to that “reasonable profits” board. It turns out that Coca-Cola had an almost 34 percent rate of return last year. Microsoft’s rate of return was 30 percent, Google’s 29 percent, and Apple’s 21.5 percent. Most Americans see profit margins like that, and think, “I’d love to own that company!” And they call up their broker and buy a few shares. But liberals see big profits, and think, “Let’s form a commission and figure out a way to tax those profits. Or squeeze them out through some kind of regulatory regime so that money can be put to more productive use.”

The fact is, statist politicians and academics may not like profits, or the profit motive that is the driving force of our free-enterprise system, but they are dependent on those profits to fund their fancy ideas. The balancing act for them, always, involves choices on how much they can skim — in the form of rent seeking, taxes, and regulations — from the free-enterprise system without causing it to crumble.

This is the real-life paradox new-age socialists have to live with every day. The very people who decry profits and free markets can least afford to live without either. And the more they win, the more America’s economy loses. That’s what the 2012 election, and the next few elections, are all about.

— Lee Habeeb is the vice president of content at Salem Radio Network, which syndicates Bill Bennett, Mike Gallagher, Dennis Prager, Michael Medved, and Hugh Hewitt. Mike Leven is president and chief operating officer of the Las Vegas Sands Corporation and a member of the Job Creators Alliance.

 

Lee Habeeb — Lee Habeeb is an American talk-radio executive and producer. He has written columns for USA Today and the Washington Examiner, and is a columnist for Townhall.com and National Review.

Most Popular

Sports

The Dominant-Sport Theory of American Politics

I think it’s safe to assert that President Trump has an unfortunate tendency to do and say (and tweet) embarrassing things. When he does, we all join in the condemnation, and often it’s not so much for the substance as for the style. The president of the United States should be dignified, measured, slow to ... Read More
World

Why Does Russia Build So Many Doomsday Weapons?

While America’s ruling and chattering classes were chasing Moose and Squirrel, back on planet Earth the Russians have been busy building a doomsday bomb. As Vladimir Putin alluded to in his March 1 address to the Federal Assembly, the Russians have developed, among other “superweapons,” a Doomsday ... Read More
World

Enoch Powell’s Immigration Speech, 50 Years Later

The 20th of this month marks a significant anniversary in Britain. For it is the 50th anniversary of what is probably the most famous -- and certainly the most notorious -- speech by any mainstream politician since the war. On April 20, 1968, Enoch Powell gave a speech to the Conservative Political Centre in ... Read More
Economy & Business

A Trump Trade and Economic Doctrine

If the Treasury Department’s recent semiannual report is any guide, the Trump administration still doesn’t quite get it when it comes to trade imbalances. “The US government has all the tools it needs to achieve balanced trade without risking a trade war,” writes Joseph Gagnon for the Peterson Institute ... Read More
Politics & Policy

The Comey–Trump Dance

I never thought the Comey book would make much news for the simple reason that it would be outrageous if it did. If Comey knew something relevant and important about the Russia investigation that we didn’t already know, he couldn’t possibly put it in his book. Let’s say he did have something big on the ... Read More