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This was the headline in today’s AP Wire story on the new Fortune 500 rankings.

This article commits two common errors. First, as mentioned above, it assumes that there is some economic significance to being the biggest or top 10 biggest publicly traded firms in the world. Why should that be? Is an individual that lives in New York City more important than an individual that lives in Rochester because NYC has a population over 10 times as large? Even if we grant that company size is of some importance, why is it that Fortune assumes that gross revenues are an important measure of the size of a company? Aren’t profits more important? Or average wages? Or donations? Or stock market value? Or asset value? Why does the media continue to discuss economic activities in terms of races or competition? If another firm sells more than I do today, how does that make me worse off (particularly if they are in another industry and I am increasing my sales as well)?

Second, and more irritating, is the innuendo in this article that somehow these high revenues received by oil companies are undeserved or are indicitive of “abnormally high” profits. Why should we believe that large companies enjoy excess profits? Perhaps it’s due to the Folk Marxist belief that capitalist economies eventually fall prey to monopolies which will exploit all of its citizens (still hasn’t happened). Perhaps it’s due to the Folk Marxist belief that wealth is fixed and that if Exxon is making more money, it must be coming at the expense of other individuals and companies (again, untrue – just look at the amazing record of wealth creation in the world since the industrial revolution). Perhaps it’s simply due to an inability to interpret data and understand facts. The aforementioned article states that:

“In general, 2005 treated the top U.S. companies to big revenues and profits. The 500 brought in a combined $9.1 trillion in revenue, a 10.2 percent increase over last year, and $610 billion in profits, record numbers on both accounts.”

So, the average profit margin at the 500 largest companies in America is only 6.7%! Go take a look at what the return on fixed income securities has been over time. Go take a look at what the average annual stock market return has been over time. Now tell me how outrageous that 6.7% is.

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