Congressional (knee) jerks

Z. has an interesting commentary about a recent proposal in Congress to give every taxpayer a check for $100 to help cope with the upswing in gas prices. The $100 rebate sounds like a typical Washington knee-jerk. Maybe they figure it’ll buy a few votes?
Another bit of knee-jerking is the congressional complaints about the oil industry’s "record profits." It’s somehow suddenly become evil for companies to make money selling something that people want. (Is it OK to make money selling something people don’t want? How do you do that? Aside, that is, from being elected to public office and making it illegal to not buy it.) The problem is, the "Record Profits" number is completely meaningless without a context.
One of my correspondents recently pointed out the difference between a profit and a profit margin. Simply put, a profit margin is profit expressed as a percentage of revenue.
So suppose you sell widgets for $100 apiece and it costs you $90 to make them. That means you have a profit of $10, which means you have a 10% profit margin.
Now suppose your costs double. It now costs you $180 to make your widgets, so you have to raise the price. To keep the math simple, you double the price you sell the widgets for to $200. You’ve now doubled your profit to $20, but that’s still only a 10% profit margin.
In either case, you make $10 for every $100 of income. Why is the second scenario "bad"?
So Congress is debating whether to penalize companies that make more money than they think is fair. The problem is, Government has a pretty dismal track record for legislating morality. (Does anyone still think Prohibition was a wild success?)
Penalizing corporations for conspiring to keep prices artificially high is the kind of thing a government can and should do. But deciding whether a company is making too much money? That’s the sort of thing government should leave to competition and markets to handle.
One final bit of knee-jerking. Did you notice how Congress wants to fix the "problem"? They want to tax it. How original.

One thought on “Congressional (knee) jerks”

  1. The worst part is, they’re not really serious about doing anything. If they do come up with something useful, they’ll add some unacceptable earmarks and unrelated amendments so the bill is sure to be tanked. Then, in their campaign ads, they’ll say something like, “My opponent voted down a bill that would have penalized price-fixing and given tax relief to middle-class citizens.” I hate election years.

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