Friday, July 31, 2009

Profits aren't evil; they are necessary and beneficial.

Last week at his press conference, President Obama said that taking the profit motive out of health care would incentivize the private sector and "be a good thing."

Uh, if you take the profit motive out, then no one will want to provide health care. Profit motive is what runs the world; it is why businesses exist; it is why I go to work in the morning. And profits have all sorts of beneficial results. Indeed, Stephen Carter, a Yale law professor, had a great editorial on this subject yesterday in the Washington Post. The key portion (in my opinion):

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.

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. To the country, profit is a benefit. Record profit means record taxes paid. But put that aside. When profits are high, firms are able to reinvest, expand and hire. And profits accrue to the benefit of those who own stocks: overwhelmingly, pension funds and mutual funds. In other words, high corporate profits today signal better retirements tomorrow.

As they say, read the whole thing.

1 comment:

  1. Hey Greg - love the blog. Isn't profit one of the reasons people endure 13+ years of schooling to become a doctor??