Thursday, May 24, 2012

Maximizing Profits Should Be an Important Part of the President's Job

President Obama recently said that maximizing profits isn't part of the President's job.  I beg to differ.

Here's the plain and simple truth. Profits are the cost of staying in business. Without profits there will be no business and no jobs.

Loss making businesses destroy jobs. Profit making businesses create jobs. But to create jobs, first the profits must come. To maintain those jobs and create more jobs, profits must keep on coming.

Accordingly, profitable companies are an absolute necessity in a market based economy. As a matter of fact, those profits and resulting jobs generated in the private sector are the financial lifeline of the public sector's jobs and spending, too.

To see how this "ideas to profits to jobs" combination of magic all works, let's look at Hewlett-Packard and Wal-Mart, two companies in the news.


If something new and perceived by potential customers to be of considerable value is created, such as a computer, and several people want to buy it, there will be a surge of interest due to its scarcity value.

Since there's only one computer to sell, it will be sold at auction to the highest bidder. That won't meet the total demand, so more computers will need to be produced.  To do that, jobs will be created as people are hired to produce them and satisfy demand. Then the next one will be sold to the then highest bidder and so on.

Eventually scarcity will disappear and there will be lots of computers sold to satisfy the aggregate demand. Other people will start making computers, prices will come down  and the initial high profits per computer will come down, if not disappear. Think TVs.

Hewlett-Packard began in a one car garage in 1939 by entrepreneurs Bill Hewlett and David Packard. After a storybook history of growth and success, H-P today is the world's largest PC company.  However, the success story has ended, at least for now.

H-P is having difficulty making acceptable profits for its shareholders. Yesterday CEO Meg Whitman announced that 27,000 jobs would be eliminated. That will still leave ~250,000 jobs at Hewlett Packard. See H-P Shows Age With Layoffs.

From 2 entrepreneurs to ~300,000 employees and now on its way down to 250,000 employees. Marketplace competition at work.  Consumer choice in action. Proof again that success is never final and that failure need not be fatal. The customer is king.


Another example of "ideas to profits to jobs" would be the story of Sam Walton and Wal-Mart. His basic idea was to bring low prices to small towns by offering every day low prices. He avoided expensive advertising costs related to periodic off price sales, and he also revolutionized logistics and the use of information. Wal-Mart from its inception has focused on driving waste from its operations and reducing its costs consistently. That's how it is able to remain the low price leader as well as a highly profitable company.

Wal-Mart is now the world's largest retailer. Its relentless efforts to eliminate waste, reduce costs and offer low prices to consumers have created hundreds of thousands jobs by satisfying consumers with its every day low price offerings.

Discussion, Analysis and Summary

Profits create jobs in a market based economy. People with ideas create companies and thereby often become wealthy as a result of the valuable goods and services they bring to the consumer free choice driven marketplace.

There are no profits in the public sector. Only costs. The jobs in the public sector are created by redistributing the effects of private sector profits. Without profits, there will be no jobs.

And unless there are jobs, there will be no government tax receipts to take from the private sector profit makers and redistribute to the public sector profit takers.

Ideas turn into companies which create valuable goods and services as perceived by customers. If people buy what the entrepreneurial company is selling, jobs result.

The more the company sells, the more new jobs that are created, both for that company, its many suppliers and the local communities in which it operates, too. That's the invisible hand of free markets at work.

In simple terms, in business nothing lasting happens until there's a sale. And when there's a sale, profits can be generated, jobs can be created, profits can be made, taxes can be paid and the public sector can be grown, and so on.

A Personal Message to President Obama

What's so hard about understanding that, Mr. President? You should be working 24/7 to create the conditions to enable profit making entrepreneurs to maximize private sector economic growth---and generate the millions of new jobs that will accompany that growth.

That's the only legitimate and sustainable way to "save the middle class," and "figure out how everybody in the country has a fair shot."

Your homework assignment is to read the essay posted Tuesday May 22 on "The Blessings of Liberty ....."

Just thought I'd try to help you figure it out.

Your fellow citizen and patriot. Bob.

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