Thursday, October 1, 2015

Free Market Capitalism & The Profit Motive

Free Market Capitalism is under attack.  Of course, those that promote Socialism and Communism have always hated Free Market Capitalism because they believe in government control and redistribution of wealth, rather than individual control of wealth.  The only problem is that wherever these ideologies have been practiced in world history, Socialism and Communism have resulted in poverty, misery and in same cases even murder.  The reality is that Free Market Capitalism, with all its warts and boom and bust cycles, has created more wealth for more people than any other economic system in the world. In addition, Free Market Capitalism has done more to eliminate poverty than all the government programs that have ever been conceived.

Today, we hear about income inequality with the assumption that the poor are poor because the rich are rich.  Nothing could be further from the truth.  The poor are poor because they very often lack fortitude, job skills and education.  And, many of the poor live in dysfunctional families, impacted by substance abuse that makes getting out of poverty even harder.    The best thing that can happen for the poor is economic development that comes from lower taxes and less regulations to create jobs.  There is no poverty program better than a job.

We hear people attack the Profit Motive as though making money is bad.  The fact is that without Profit, there are no government tax revenues,  or money to invest in new businesses.  Pre-Tax Profit is the difference between Revenue and Expenses.  In most cases, employee compensation and benefits make up 70% or more of a company's expense line.   So of the revenues generated for a product, or service, 70% is often going to pay employees. Companies are very lucky if they have a 5 - 15% Pre-Tax Profit, which then is taxed by state and federal governments.  What is left can be used to make additional investments to create jobs and or to pay dividends to shareholders, the owners of a company. 

Finally, successful people today are often under attack being referred to as selfish or even greedy, which is ridiculous.  Successful people, particularly if they are self made, work very hard for years and often make incredible sacrifices to achieve success and presumably wealth.  This CEO knows many wealthy people that support the arts and numerous charities; not to mention being the job creators in our country.  No one ever got a job from a poor person.  I don't know any of these "selfish and greedy" rich people that are often vilified by those that hate Free Market Capitalism and the Profit Motive.  All the rich people I know give back to the communities they live in and way beyond. 

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