Wednesday, August 20, 2008

Economic Evils: Capitalism and Profits

Provide Cheap Political Points

It seems odd that a capitalist country that has been as successful as the United States over recent decades would be home to anti-capitalist negativity. After all, we have watched in a relatively stable economic and social environment as socialist nations in Europe have struggled, and the communist economies of the former Soviet Union, have utterly failed. As Winston Churchill told us, “the inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” Despite its imperfections, capitalist America provides opportunity more equally than any nation in history.

In spite of our strength and success and the ability of our system to endure through the hard times, some Americans seem unable to resist the opportunity to shoot the golden goose, attacking the economic system that has made life so good in the United States.

Political campaigns provide fertile ground to grow anti-capitalism, as Republicans battle Democrats for choice elective offices. Republicans and conservatives tend to be capitalistic and pro-business, and Democrats and their socialist-leaning liberal wing attack business and promote anti-business measures to gain political advantage.

The current high gasoline and diesel fuel price situation couldn’t have happened at a more opportune time for those who profit from demonizing business, appealing to those primed and ready to believe that businesses are really out to get them.

Democrats and liberals promote new taxes on oil companies, legislation to force them to drill where oil reserves are highly uncertain instead of opening areas where oil is more certain, and eliminating tax breaks for oil companies in order to avenge the “obscene” profits these major corporations have made. This they do in the name of “fairness” to the middle class, “looking out for the little guy,” and other equally beside-the-point pronouncements. Wading through this swamp is daunting for most Americans, who may not follow politics closely, and are too busy with their own lives to dig the truth out of the mud.

Many people, perhaps most, don’t understand, for example, that lowering taxes on oil companies helps keep fuel prices down and that providing subsidies for alternative energy production encourages alternative energy development, and that the converse, raising taxes and eliminating the subsidies, pushes prices higher and retards alternative energy development.

Just like other business expenses, taxes are paid from company revenues, which come primarily from sales. The bigger the tax bill, the higher prices have to be to produce the revenue to pay the tax. While the oil companies may write the check, it is their customers that foot the bill. If Democrats raise taxes on oil companies, they will cost Americans money at the gas pump.

It is a little known fact that of the $135 billion of total investment in emerging alternative energy technologies in the years 2000 to 2005, oil and gas companies invested $98 billion, or 73 percent of the total, according to the Energy Information Administration. Other private companies invested $32 billion, or 23 percent, and government, which has proposed legislation to take subsidies for alternative energy development away from oil companies, invested a mere $5.2 billion, or four percent of the total. We are led to believe that government would use the subsidies taken from the oil companies to fund development of alternative energy technology, but wasn’t that why it gave the subsidies to the oil companies in the first place? And, weren’t the oil companies providing the lion’s share of the development being done?

It is a well accepted fact that every firm has to make a profit to survive very long. A bad year here and there can be overcome by a corresponding good year, but several consecutive years of losses spells trouble, if not doom. Despite what critics of business and capitalism say, profit is a good thing, a necessary thing.

Yet profitable businesses are targets in 21st century America, if only to enable anti-business political candidates to score cheap points to win votes.

No economic or social system is perfect, and capitalism is no exception. And, yes, some capitalists may be “greedy.” However, the wonders and good things the capitalist system produces far and away dwarf its problems. It is the personification of Adam Smith’s explanation of how rational self-interest and competition, adhering to moral obligations, can produce economic well-being and prosperity. “Contrary to the vulgar belief that men are motivated primarily by materialistic considerations,” as the philosopher Ayn Rand said, “we now see the capitalist system being discredited and destroyed all over the world, even though this system has given men the greatest material comforts.”

But perhaps Milton Friedman said the most significant thing when he stated that “history suggests that capitalism is a necessary condition for political freedom.” And yet in this important political year, one party is bent on attacking America’s success at its very foundation.

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