So, I caught snippets of Obama's press conference last night pushing his health care plan. Obviously, something about it got me thinking and this isn't going to be a post about health care law and reform. When the President made a comment about how insurance premiums are rising at the same time as the insurance companies are making "record profits" I thought about the complaints of a year ago about oil companies posting record sales and profit numbers. So, I have to ask of those who think that the companies are making too much money: what is too much profit?
I'm serious. What do people mean by saying that someone is making too much money? What makes it evil to be making money during a down economy? At what amount do you decide that someone is making more money than is fair? I rarely hear anyone make the argument that people should be paid the same amount for a job that requires a lot of training and skill as for a job that requires far less training or is involved with less risky situations. For example, I don't think I know anyone who will say that I should be paid as well as a heart surgeon.
I think the idea that someone is making "more than their fair share" comes from one of two things, or a combination of them. First, their is the common mistake that the economy is a zero-sum game. If they are making that much money, there must be less money left for me, the argument goes. While budgets are (or should be, in my opinion) operated on finite amounts, the economy as a whole is much more flexible due to lending and commodities trading and more. Second, is envy. It's a simplistic explanation, but true whether we want to admit it or not. Those who cannot see how to elevate themselves are quick to think that others must be doing something wrong or unethical to have such gains in their own lives. Therefore, the playing field must be leveled, that way there is a more equitable division of assets. As I've said before, leveling the playing field only leads to lowering everyone to a common denominator, rather than raising the masses up.
Another issue I have with complaining about company profits, especially true in the case of complaints leveled against the oil companies, is that no one seems to care if the company is also at record levels of expenditures. Costs go up to the consumer, profits go up at the company, obviously the company is just pocketing the whole enchilada. Wrong. If a company is making a constant 7% on the sale price of a commodity, do you think people will complain about how much money the company is making? 7 cents on the dollar is still 7 cents, whether that's coming from a $4 gallon of gas or a $2 gallon of gas. Of course they are making twice the profit on the $4 gallon, but they are also spending twice the money to make it. Let's check my math: 28 cents from the 4 dollar gallon leaves $3.72 and 14 cents from the 2 dollar gallon leaves $1.86. Yep, twice the cost and twice the profit and still a 7% margin.
The discussion on the economic repercussions of profit/salary caps and punitive taxation on production and innovation will be left for another day. I think most readers can figure out what my opinion on that will be. So, I leave you to think about my initial question, in a rephrased format: at what point will you claim that you are making too much money?