In defense of freely earned corporate profits

IN the Democratic presidential primary, Donald Trump is Public Enemy No. 1. Competing for second are Barack Obama and corporate profits.

The newfound Democrat disdain for Obama and his signature legislative accomplishment, Obamacare, is hilarious to watch. The rhetorical attacks on the very idea of a company making a profit are more concerning.

At the last Democratic debate, 10 of the 20 candidates spoke negatively about a private enterprise earning money. That included every top-tier candidate, except Joe Biden. Sen. Elizabeth Warren, D-mass., typified how these candidates viewed corporate profits.

“These insurance companies do not have a God-given right to make $23 billion in profits and suck it out of our health care system,” Warren said.

In a free market, profits aren’t sucked out of the system. Profits are the reward a company earns for best

meeting consumer demand. Consider a company that paints houses.

You want your house painted, but you don’t want to do it yourself. You decide to hire a company to do it for you. Why is an entrepreneur willing to paint your house? No, you weren’t able to fool them with a Tom-sawyeresque mind trick. A private business will paint your home in exchange for money. It needs money to pay for supplies and its employees, but without collecting enough money to make a profit, it’s a nonprofit, not a business.

This is an example of a voluntary exchange. You’ve traded your money for a freshly painted house. The company traded supplies and its employee’s time to earn a profit. It’s a win-win. Each party is better off than it started, which has created economic value. This is why — in a free market — someone else’s wealth doesn’t diminish how much others have. The amount of economic value in the world isn’t fixed. It increases as people complete voluntary transactions.

Profit serves two important purposes. First, the opportunity for profit encourages companies or investors to make capital investments. Imagine it takes three people a week to paint a house with roller brushes. But for $1,000, a company can buy a paint sprayer that would allow one person to paint a home in a single day. The company will spend the money only if it believes it will be allowed to keep the profits.

That’s a simplistic example. Consider the $3 billion investors are putting into the Drew Las Vegas, which used to be the Fontainebleau. That doesn’t happen if they don’t think they’ll be able to make a profit.

Profit’s second vital function is as a signal. High profits tell other companies that consumers want more of a certain product or service. As more companies move in to meet demand, prices — and profits — will drop.

All profits aren’t equal. Sometimes government will give a company a subsidy or limit its competition through regulation. Those profits deserve condemnation because they stem from coercion rather than a series of consensual transactions. But the way to eliminate cronyism is less government — not giving government more sway in the economy, as Democrats propose.

Profits aren’t evil. It’s how a company obtains them that matters.

Victor Joecks’ column appears in the Opinion section each Sunday, Wednesday and Friday. Contact him at vjoecks@ reviewjournal.com or 702-383-4698. Follow @ victorjoecks on Twitter.