[Senator Charles] Grassley [R-IA] has apparently decided that free enterprise no longer works for America. (The truth here is that Grassley discovered that free enterprise doesn’t serve the goal of empowering politicians.) It is Grassley’s view that American businesses must now seek the favor of the imperial federal government of the United States as to just how business profits must be disbursed. No longer, in Grassley’s economic world, will corporate boards decide on the distribution of profits. No longer will the private businessman be the captain of his entrepreneurial ship. Grassley apparently wants the government to have a de facto seat on every corporate board and a share of control in the spending decisions of every private business.
He also provides a clear and concise definition of fascism:
Sheldon Richman writes in “The Concise Encyclopedia of Economics” that fascist thought acknowledge(s) the roles of private property and the profit motive as legitimate incentives for productivity—provided that they did not conflict with the interests of the state.” In other words, state approval must be sought before important business decisions can be implemented. I think I can simplify Richman’s definition of fascism so that even Americans educated in state schools can understand: Free enterprise (capitalism) is private ownership and control of the means of production. Socialism is government ownership and control of the means of production. Fascism is private ownership of the means of production, with government control. Private ownership with government control? There’s a somewhat familiar ring to that, isn’t there?
He follows it up with some additional commentary in today's Nuze:
Now ... here I am to expand on one train of thought presented in that column. If this Republican senator thinks that it is the role of government to tell privately owned businesses just how they must distribute their profits, here are a few suggestions:
- Automobile manufacturers could be required to spend a portion of their profits on public transit projects.
- Broadcasters, who, after all, are government regulated businesses, should donate a portion of their profits to buy radios for poor people so that they can get the information they need to prepare for disasters like hurricanes .... as if the poor were actually going to prepare.
- Homebuilders could be required to donate profits to low income housing projects.
- Pfizer could be required to donate profits from the sale of Viagra to fertility clinics for the poor. Just what we need, more pregnant poor people.
- Financial institutions could be required to donate profits to a federally subsidized loan program for low-income Americans with bad credit.
- Food processors and manufacturers could be required to donate profits to community food banks.
Ahhh .. the list is endless. Once we establish the concept of the government telling businesses how their profits must be spent and invested .. the way is clear for our political class to further consolidate it's power.
In another section of today's Nuze, Neal links to this article at Townhall.com by Alan Reynolds who tears apart radio talk-show host Bill O'Reilly's recent blasting of the oil industry:
When the unsurprising news came out that big oil companies had big profits, Bill O'Reilly of Fox TV concluded: "My contention is the oil companies don't have to double their profits. They can maybe make them two-fifths (40 percent). Take a little less for the good of the nation."
Exxon-Mobil's recent profit margin was up to nearly 9 percent of sales. Suppose they tried to cut that to a nickel out of every dollar by offering to sell crude oil for $3 a barrel less than the going price on the Chicago mercantile exchange. Refiners around the world would instantly commit to buying every drop. By the next day, the world price of crude would be same as before.
Suppose the Big Five oil companies got together and agreed to cut retail gasoline prices at their company-owned stations by 20 cents a gallon. Motorists would soon drain those stations dry, leaving the much larger number of independent gas stations in a position to charge even more. Meanwhile, independent station owners would file a complaint with the antitrust division of the Department of Justice accusing the majors of collusive predatory pricing to drive them out of business.
He also provides a good explanation of "inventory profits":
If you sell your house for much more than you paid for it, you will receive a "windfall profit." When you take that windfall from selling your old home and go out shopping for a new one, however, you'll discover prices of replacement homes have gone up, too. That may explain why the Senate has not yet contemplated imposing an extra "windfall profits tax" on windfalls homeowners receive when selling their homes. Since 1997, in fact, couples can pocket half a million dollars of such windfalls tax-free.
Aside from the tax break on homes, something very similar happens in any business whenever the price goes up for something bought earlier at a lower price. Businesses that process raw materials hold inventories of those materials, for example, and those inventories may have been purchased for much less than the current price. When the book value of those inventories is adjusted to reflect today's higher price, accountants add that difference to the firm's profits. But this is called "inventory profit," because those paper gains will soon be needed to replace the raw materials at the new, higher price. Then they vanish.
So what do you think? I'm of the opinion that this is merely the market at work, that it's not as simple as most people think, and that messing with the industry like Senator Grassley is calling for may make us all feel good in the short term, but it will have unintended consequences in the long term that far outweigh that. Sure, it would be nice if oil companies voluntarily donated to a fund to help poor and low-income folks afford the fuel to keep warm but the government taking it by force is just another form of income redistribution, and would be another step toward socialism or, yes, even fascism.
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