Obscene Profits

At what point do profits become obscene? What is the limit that one person should be allowed to make? Should there be a limit? Who should be allowed to say? Is ANY level of profit “obscene”?

I was listening to the radio and the DJ started complaining about “oil company profits”. Gas prices are more than $3/gallon and the oil companies make billions in profits. “It’s just not fair,” she said. So I decided to look into the breakdown of who gets the money from a $3 gallon of gas.

1. Gas stations get about 7¢, but that’s not all profit. From that they have to pay rent, wages and expenses.

2. Taxes take 40¢; 18¢ fed and 22¢state.

3. Transportation costs about 25¢.

4. Another 25¢ goes to refineries.

5. The biggest piece, just over $2 goes to crude production: exploration, development, royalties. Payments vary widely from country to country.

http://money.cnn.com/2008/03/13/news/economy/gas_gallon/index.htm

After all the costs involved are totaled, profit margins are very slim and vary widely based on where the oil comes from. Deep water drilling is more expensive than land based. Foreign, with royalties, is more expensive than domestic. Oil companies make a lot of money because they sell a lot of gas.

But what happens when you tell an oil company that they can’t keep any profits? If I’m in charge, I fire everyone, close my doors and retire to the Caribbean. What happens to your price at the pump when my portion of the supply is no longer available?

“But they make billions in profits. It’s just not fair.” you say. I reply, “It’s none of your business or my business how much they make or what they do with it.” Maybe they research new wells or cheaper methods of development or take a cruise. That’s their business. It’s their money, to do with as they choose.

Let me ask a question. Do you own a computer? Is it a bulky, slow, machine with vacuum tubes and punch cards that takes up a whole room and costs tens of thousands of dollars? Maybe it’s a desktop model that is text only and requires a college degree in programming to make basic functions operate. No? You have a laptop with the latest GUI interface and a floppy drive and dial-up Internet?

Of course not. You have the newest Ipad or Iphone or Android phone. Your desktop computer runs the latest version of Windows or Apple with the fastest internet you can afford. All for around $1000 more or less. Why? Because the profit motive encouraged competition between computer and software companies to develop better, faster, smaller, easier computers. If at any time in this development process profits had been limited, the incentive to improve the technology would have been halted.

Is $1000 a fair price for a computer? What about $5000, $10,000, more? What’s the limit? The market sets the limit. If my price is higher than my most equal competitor, you’ll buy from him instead. There is no limit. Let me tell you about an item that originally sold for 10 cents and now regularly sells over $1 million.

“What?” You say? “A 10 cent item selling for over a million dollars? That’s obscene!”

Do a google search, on that fast computer, for Action Comics #1. It’s the 1^st appearance of Superman and a highly prized collectible that routinely sells for $1 million…$2 million…more? If I find one at a garage sale for pennies, am I being obscene to sell it for it’s value? If someone will pay it, it’s fair.

“That’s different,” you say. “If you find a Rembrandt, of course you’d sell it for what it’s worth.” I say that doesn’t just apply to antiques and collectibles but to every product sold. It’s value is whatever the free market will pay. That’s what it’s worth. I have one more example. This is a modern product that has almost no production costs.

If you have a Kindle, ebook or an itunes account, you’ve probably purchased and downloaded books or music. The price of that download was probably comparable, maybe a little less than purchasing the physical book or CD. However, the production costs are not the same.

Printing a book requires paper, ink, printing press, etc. A music CD has similar costs: discs, plastic cases, printed covers…etc. By far the biggest cost is the time and effort that the author or artist put into the writing. That effort has value and must be rewarded. Digital, however, has none of the material costs. It’s a file stored on a server. The only cost is what the server host charges. I don’t know all the details, but the purchase involves simply making a copy of that file to your device.

So how do they justify charging the same price? The free market justifies it. Is it a book you want to read? Music you want to listen to? You pay for the convenience. No searching through the book shelves or cd bins. No checkout lines. You can buy it while sitting at home on your computer and have it instantly delivered to you. If the price is too high, you won’t pay it. If no one will pay it, the author may decide digital isn’t worth it. He wants his value for his work.

Profit is a good thing. The only true advances that are ever made happen because someone had an idea for something new or an improvement for something old and thought he could make a buck selling it. Without that incentive, who would even bother to try?

 

The Unemployment Game

If you want more of something, reward it. If you want less, punish it. Pretty basic concepts, in my opinion. So the question I have is, “If you want more people employed, why would you pay them to not work?” Am I heartless? Maybe, but I prefer to call it tough love. Before you jump to the conclusion that I want to end unemployment protection and starve children lets look at how the current system works.

You lose your job through no fault of your own. You didn’t get fired for misconduct or quit, so you can now file for unemployment. In order to be eligible you must be ready and able to work, apply for work, and call in each week to file a claim. When you accept a job offer your unemployment benefits end.

Benefits vary from state to state ranging from approximately $250 to nearly $1000 per week based on your wages when you were working. Duration of eligibility also varies from 6 months to nearly 2 years. Some states require registration with a job service agency and weekly job applications.

You do not have to look for or accept work that is not suitable. Work is not suitable if:

• The work is not in line with your training and experience. (After a period of time, any job you are qualified to do may become suitable work.)
• You must join or resign from a labor union.
• The hours or working conditions are not as favorable as most other jobs in your occupation in your area.
• The work is farther than the usual commuting distance for people in your occupation in your area.
• The wages offered are lower than the wages common for that occupation in your area.
• The work is unreasonably dangerous.
• You cannot physically do the work.
• The work would offend your religious beliefs or moral conscience.

http://www.esd.wa.gov/uibenefits/faq/faq-ui.php

Seriously? No wonder so many stay on unemployment for so long then beg for extensions. Why work when you can sit home and collect a check? There are only a couple of those that I can agree with, but why would you apply for a job you know you can’t do?

So what’s the alternative? If you lose your job, your company downsizes or closes a department, how do you pay your bills and feed your family while seeking new employment? The answer, like every other emergency is preparation and private insurance.

What? Privatize unemployment insurance? Yes! When you are hired, you already buy health, life, and supplemental insurance policies. I would add an unemployment policy. A private company, with a bottom line to meet, only makes money when you are working. It is in their interest to get you working again as soon as possible and at the highest level for your skills.

As a private business trying to make a profit, they set the rules of what applications qualify and what jobs can be refused. It would be in their interest to help your search with departments dedicated to aptitude testing, resume building, interview practice, self employment consultation, etc.

If we expect people to work, we must stop rewarding unemployment. Incentive is the key. Get the government out of the way so the private sector has the incentive to step in. Insurance companies will compete for your unemployment policy dollars by offering the best services and the best results at the best price.

 

Trickle Down

I was watching NFL Football last weekend and it reminded me of an idea I’ve been toying with to explain “trickle down economics,” or more accurately “trickle down incentive.”

Professional sports is probably the most competitive activity in the country. There are a limited number of high paid, playing positions available, so only the best and most promising will be given the high dollar contracts.

But what about the layers below the top? For everyone playing, there are at least 2 sitting on the bench waiting for a slot to open. The competition is fierce. The players struggle to hold their slots. The backups strive to outperform them and earn those slots. Layer after layer from professional to backup to college to high school to kids in punt, pass, and kick competitions. Just watching those at the top and seeing, not only the monetary achievements, but also the skill sets of the experts, encourages every level to “up their game.”

Competition is the key. By forcing individuals to compete, they must excel or innovate to achieve success. Golf if a great example. Power is not the key to winning. Finesse, accuracy, and fine tuning are far more important. Young players watch the pros and imitate their style. Imitations are not always accurate and new styles develop. Some work, some do not. The successful will progress and be copied, etc, etc, etc.

The same is true in business. When those at the bottom see those at the top succeed and prosper, they are encouraged to try. But that isn’t what’s happening today. Not only are those at the top, the most successful, being vilified and attacked, but the attacks are even being dealt to the bottom. The most basic form of business, lemonade stands, are being shut down because they don’t have proper permits. When the authorities tell you, a child, that you have to shut down your lemonade stand will you, later in life, be more or less willing to start a business? What’s next? Garage sales? Craigslist? Ebay?

Competition must be allowed. Most start up businesses fail. Some will learn from their mistakes and try again…and again…and succeed. Watching the success of others is the only way to get people to try.

Science of Socialism

First, an introduction. My name is Jim. I was born in the early 60’s, married in the late 80’s, raised 3 daughters, and divorced in the early 2010’s. I am a proud constitutional conservative. I believe in the power of the individual. I was schooled by Rush Limbaugh, Jan Mickelson(a local talk show host), Glenn Beck, and several others. Probably a better education than most universities. Call me a Limbaugh mind numbed robot or a Beck zombie. I’ll wear it as a badge of honor.

I am also a classic geek. I love comics, science, and sci-fi. My thoughts on right and wrong were developed by reading Superman, Batman, Spider-man, X-men, Daredevil, etc. Do what’s right because it’s the right thing to do. My sci-fi addictions include Star Trek, Star Wars, Doctor Who, Farscape, Firefly, etc, etc, etc. My guilty pleasures are the dancing shows, So You Think You Can Dance and Dancing With the Stars. The way those people move their bodies absolutely amazes me.

I recently had the opportunity to spend some time with my brother discussing politics and political systems. The conversation turned to socialism and pushed ALL my buttons. My brother is blind. He lost his sight gradually after high school due to retinitis pigmentosa, a degenerative disease of the retina. He is intelligent, independent, and well read. He also collects a government check and is medically covered under Title 19. He caught me off guard with a statement, “Socialism could work in America.” I understand he has a vested interest in this, but I really thought he was smarter than that. Let me try to explain why he’s wrong.

Sir Isaac Newton was a physicist in the 17th century. He is best know for his discovery of the 3 laws of motion for matter. I believe these laws also apply to politics and social systems.

The 1^st law, “An object will maintain it’s state of motion unless acted on by an outside force.” For over 100 years the prevailing system in America was rugged individualism. Take care of yourself and your family. Keep the fruits of your labors. Don’t make your neighbors or your kids pay for your lifestyle. Government, with a few small exceptions, held to constitutional limitations. America thrived.

But then an outside “force” began to be applied. Progressive polices were gradually implemented. An attitude of, “we need to help people who can’t help themselves” started to develop. All well intentioned of course. Who would have a problem with providing assistance for the handicapped, the mentally disabled, the old? The problem? It doesn’t stop there. The definition of who needs help keeps changing. Who would deny a family left destitute by a financial depression? Or a mother abandoned by her irresponsible husband. With each addition, the next one becomes easier.

The 2^nd law, “Force equals Mass times Acceleration or F=MA.” In this case we’re not talking about a physical object but a metaphorical one. The changes happened gradually in incremental steps. Imagine in the 1950’s and 1960’s telling people there’s no smoking allowed in a open air ball park. You’d be called insane. So instead, you tell them you just want a small section of a restaurant or an airplane that’s smoke free. That’s not unreasonable. But once that is in place, you progress to the whole restaurant, then entire airlines, then bars, etc, etc. A little at a time until smoking isn’t allowed anywhere.

The 3rd law, “For every action there is an equal but opposite reaction.” How do they pay for all this “help” they’re providing. In order to redistribute wealth they first must take it from those who produce it. This is done through taxation. I’m not talking about taxes used for the legitimate functions of government. I’m talking about taxing producers in order to provide welfare for non-producers. I call this theft through taxation.

The action is stealing wealth. The reaction is hide that wealth. When your income is stolen, you limit your income. Business owners take little or no salary, reinvest profits back into the company and hire accountants and tax lawyers to find loopholes and shelters.

It becomes clear very soon that there isn’t enough money for all the people who “need” help. The language starts to change. We hear calls for wealth redistribution. It’s not “fair” that some are very rich while others are very poor. This is the beginnings of socialism.

The progression from there is an avalanche. With more takers, more money will be needed. Income tax won’t be enough so assets will be taxed. Takers will become addicted to the handout and will demand more. Taxes won’t be enough so they will progress to confiscation. That will be the end of private property. If I have one dollar more than you, you will be entitled to half of.

Business owners will react by closing theirs doors and joining the ranks of the takers. When producers are punished they will stop producing. The limited resources will require rationing. It then becomes a game of who has a greater need. Who’s more in need? A blind man? A deaf man? A wheelchair bound man? Who decides? Ayn Rand described this eloquently in the story of Starnesville in Atlas Shrugged.

What’s the solution? The only successful system that is sustainable is principled capitalism and constitutionally limited government. Each individual competing in the open market and being allowed to keep the fruits of his labors. With low taxes and severely limited regulations some will get wealthy. Some will get VERY wealthy. Many will fail but in failure discover what went wrong and try again. Some will be unable, for whatever reason, mental illness, handicap, disability, to survive on their own. That’s where the principled part comes in. Churches and local charities are best able to distribute voluntarily donated assistance to those who really need it and deny those who don’t. As a last resort, state funded assistance should be available for extreme emergencies, but never from the Federal government.

I don’t really believe my brother is a socialist. I think he just has a vested interest in an unsustainable system. We’re heading down the wrong path. It’s fixable but we have to move now. Look back at Newton’s 2nd law. The bigger it gets the harder it will be to stop. When people get addicted to their welfare checks, they will fight violently to keep getting them. They will elect the politicians who promise the biggest benefits and will riot in the streets when the money inevitably runs out. It’s not too late, but it soon will be.