The Book!

Tuesday, June 28, 2016

Fat Capitalists and the Evils of Profit



The guys who actually run big businesses are generally bureaucrats. They love lots of government and regulation. Keeps out competition.

Profits are always higher in the public sector.

The evil p- word is commonly used as a justification for having government run something: it should be cheaper, because we eliminate provate profits.

This is touchingly naive. A free market, as exists in the private sector, serves to keep profits low. Anyone else prepared to provide the same product or service at a lower profit puts you out of business. Greed is self-defeating.

It is in the public sector that profits can grow unchecked. Bureaucrats do not run for re-election. They face no competition. So long as they do not publicly embarrass their political masters, and perhaps even then, they can more or less write their own ticket. They can take out their profits as pay, or as pension. They negotiate these with other public servants, who benefit just as they do. According to a recent story in the Daily Caller, federal employees make, when both pay and pensions are considered, not much less than double what private sector workers make.

And, on top of these higher profits, there is, unlike the private sector, no incentive to be efficient. Indeed, work too hard, and you are only likely to alienate your colleagues. With whom you are probably stuck for life. Moreover, becoming more efficient runs a natural risk of making your job, or those of your co-workers, redundant. All the incentives, in other words, work towards greater costs and inefficiency.

Now, the next argument no doubt is that at least, in the public sector, the profits are not going to fat capitalists, guys who are already rich and do not need the money.

Wrong again. Most equity in publicly-traded corporations is held by pension funds. Much of what is not held by pension funds is still somebody's nest egg for their children's education or for their retirement. They might not be the poorest of the poor, but you are taking profits away from relatively ordinary retirees, folks who might be struggling to keep food on the table, and not rotund middle-aged men in pinstripes, spats, and stovepipe hats. Those exist only in Soviet propaganda and in aging, yellowed cartoons.

Civil servants, on the other hand, the guys you are handing it to instead, are probably still able-bodied, able if they wish to hold down an honest job, and sometimes even quite rich. Try buying house in the high-rent districts of Washington, DC. Richest suburbs in America.



No comments: