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Thus said the Lord. Have many people stopped to consider exactly what that phrase means? What is the purpose of running a business? To generate profits for the owners. And we know the best way to do that over the long haul is to treat both your customers and your employees well. Even if the goal of a company was not to maximize profits, but just to have “fair profits” where do we think these profits come from?

All profits, unless the result of special privilege bestowed by the wizards in Congress, must come “at the expense” of American consumers. What does “at the expense” actually mean? Does it mean that consumers are forced to purchase the products of some firms? That would be illegal. The only people able to do that to you are the enlightened leaders of your government (try electing your “public option” to not pay school taxes because you wish to send your child to Catholic school and see what happens). So it can’t mean that. What else could it mean? Could it mean that customers were paying “fair” prices, but sold products that were faulty or dangerous? Maybe. But then again, that is illegal and criminal, and obvious. So what the heck could we mean by “at the expense of …”?

Maybe what the politicos mean is that, “corporations are keeping too much of the gains from trade, and not sharing it with their customers and workers.” That is most probably what they mean. So, does this mean that in any transaction, it is only acceptable for sellers to be indifferent and for all of the gains to be had by the consumers? You might believe it, but then be consistent. Remember that in “factor markets” (i.e. the markets for inputs into a “production” process) typically it is the firms that are consumers. So if you wish to hold the view that consumers should enjoy the larger portion of the surplus generated from a transaction, then you must also believe that workers should be paid the minimum amount that they would possibly accept in order to take a job, the “savings” get to be “kept” by the firms. Why are the consumer benefits so important only when it is the product market we are talking about? It’s not clear to me – unless you simply have an aversion to the existence of firms (which would be ironic, no, after all, what is government but one gigantic firm with lots of guns?).

But how would we know how much the gains from exchanges are equally shared? There simply is no way. Do consumers generally broadcast the maximum amount they would be willing to pay for a service? No. So any time a consumer purchases something, like a cup of coffee from Tim Hortons priced at $1.53, they are recognizing a gain, known only to them. If I was willing to pay at most $2.27 for that coffee, then the purchase leaves me with a “gain” of 74 cents. Tim Horton’s gain? Well, it depends on what it cost them to make that last cup of coffee. Maybe it was 10 cents? If so, they gain $1.43 from the transaction. Maybe it was $1.40. If so, they would have gained 13 cents from my trade with them. Whether that number is small or large, their “profits were maximized at my expense.” And does it matter from a fairness standpoint whether their “profit” was 13 cents or 143 cents? In either case, me, the consumer gains 74 cents.  And are those gains to me not also to be considered my “profit”? That profit came at the expense of the workers and owners of Tim Hortons. I tried to get the best deal I could. I was in the process of maximizing this amount. If I could have earned the equivalent of 85 cents of “profit” by buying Tea from Wegmans, I would have done that. Again, think about who is gaining at who’s expense here?

But profits can only come because consumers are willing and able to purchase the goods or services being hawked by sellers – even big, greedy financial firms. The consumers are as much to “blame” for the maximized profits as much as anyone. And there is no such thing as too much profit. There is no way to tell in a world of uncertainty what that is. In fact, if there were “too many” profits being made, that would be a pretty powerful incentive for someone else to get a piece of that action.

And give me a break, since when does Congress and the President give a damn about American consumers? If they did, you would never see nonsense like this, or this, or this, or …

4 Responses to ““They maximized their profits at the expense of American consumers””

  1. Speedmaster says:

    >> “They maximized their profits at the expense of American consumers …”

    Of course you know this, but I have to say it anyway. If it was that easy, why can’t anyone just take any current business, and start doubling their prices tomorrow, making the owners quite rich, quite fast?

  2. Harry says:

    Bastiat had it right about the government favoring producers over consumers, and favoring itself above all. The Old Negative Railroad.

    You made many great points, and tonight I wish I were in your class.

    One book you should somehow provide a link to: Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity, by Brian Domitrovic (ISI). I’m going to order it from the Montgomery County Socialist Library, so they have to purchase it.

    The review I read was in National Review, and it told of how Samuelson vilified Art Laffer to nuke Laffer’s professional career, but, more imortantly to preserve Keynsean and liberal orthodoxy.

    It also tells of the meeting between Robert Bartley, Art Laffer, and Jude Wanniski.

    Speedmaster and you should order the book through the public library and the university, respectively.

    Until I read it, I will hold my recommendation for its inclusion in Rochester’s Econ 103.

    Wintercow, I’ve lost your current e-mail addy. Please update me. The one in my address book is the .edu one. Thanks.

  3. Harry says:

    Profit has a bad name, because many think of it as winning a bet on a horse race, which is zero-sum. That’s not to say that there is not legitimate profit in providing entertainment — it’s just that I disagree that profit comes from the same sort of idle luck.

    While driving in my car by Seven-Eleven, I was wondering why after all of the great giveaways in Africa, Asia, and South America, with all of their land reform has kept them poor. (The argument of the socialists is that the U.S. is rich because it is lucky to have abundant natural resources.)

    I then thought of the folks running the Seven-Eleven, who work all the time, and have saved to buy the inventory in their store and at their gas pumps. They came to Pennsburg because they thought our country was a better gamble than Africa, Asia, or South America.

    I look on “profits” differently. Profit comes from creating something of value, not only for yourself, but rather for yourself and someone else. When you do that, you trade the excess with someone else who has managed to produce something extra.

    The community grows. Hunters produce many pelts, fishers find many oysters, and toolmakers provide them the knives to skin the game and shuck the oysters. Then some ogre comes in and says he will kill some of you unless you give him two fingers of pelts, six and six fingers of oysters, half of your tools, but because he is nice, he will protect you from the wolves and the tigers, as long as you till the fields and are happy with your portion.

    Everyone ceases to hunt or fish.

    One becomes a shaman, who explains what has happened. He says that the ogre should have taken more pelts and oysters. The shaman becomes the first economic advisor to the ogre.

  4. Michael says:

    Well they better not lower their prices; that would be unfair competition. But they can’t raise the either, because that’s price gouging. And if they keep them the same, it’s collaboration and illegal.

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