How Things Really Work

 

                                         Real world Econ 101:

        If you use your own initiative and intelligence to put an idea into practice which involves selling something at fair value for a fair price, that isn’t price gouging. If you raise the price in time of need, simply because you can and it makes more money for you, that is.

        If you have the personal drive and initiative to create a business plan which calls for expansion beyond the capability of the current economic structure of that business, you have several options. 1: Don’t expand.   2: Borrow from commercial banks.  3: Incorporate and offer (sell) stock to others for a share of the business.

        Many American entrepreneurs have chosen option three rather than enrich Commercial banks. This is a risk/reward situation, as the business may prosper or may eventually fail and go bankrupt, in which case the shareholders will see the value of their stock plummet.

         This isn’t new; The Virginia Company of London was a joint-stock company (the first) chartered by King James I in 1606 to establish a colony in North America. Jamestown, the first English permanent colony in North America was only moderately successful until John Rolfe became tobacco “pusher” to the old world. Others were not so fortunate.

         The “South Sea Company” (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of the Fishery) was a British joint-stock company founded in January 1711, created as a public-private partnership to consolidate and reduce the cost of the national debt. To generate income, in 1713 the company was granted a monopoly (the Asiento de Negros) to supply African slaves to the islands in the "South Seas" and South America. When the company was created, Britain was involved in the War of the Spanish Succession and Spain and Portugal controlled most of South America. There was thus no realistic prospect that trade would take place, and as it turned out, the Company never realized any significant profit from its monopoly. However, Company stock rose greatly in value as it expanded its operations dealing in government debt and peaked in 1720 before suddenly collapsing to little above its original flotation price. The notorious economic “bubble”` thus created, which ruined thousands of investors, became known as the South Sea Bubble.

        In current times, such Government/private concerns are seldom seen, with private investment the basis of funding for most startups or expansions. Private investors take the risk and either reap the rewards if the corporation prospers or take the loss if it fails.

        So what? So, if individuals choose to endorse a business plan by investing and accepting the risk as well as the potential reward, again, that isn’t “profiteering” or “price gouging.”

        When a product(s) is/are involved, then the consumer, whose choice it is to purchase said offering, is really a primary determinate of the success of such a venture. Usually, any merchant who provides a decent product at a fair price should expect to see the corporation prosper and the value of the company increase.

         I have been generally referring to tangible products, offered for purchase in a free competition. In such a market, consumers are the winners. If every grocer has bananas, bananas are cheap. In the former Soviet regime in what is now the Czech Republic, patrons stood in line for the opportunity to purchase 1 kilo of bananas when they were available. We don’t know that kind of shortage or quantity control except under extreme crisis conditions. (toilet paper anyone?)

        Corporations such as Microsoft, Amazon, and others have prospered (as have their shareholders) not from monopoly, price controls or limits in competition, but because they provided products the public demanded and bought at reasonable prices in a free market. In cases where they (Microsoft) stepped close to the line (briefly forcing Windows users to use a Microsoft browser), appropriate government regulation pushed back.

        Other sorts of non-tangible retail have been far more monopolistic and predatory, yet have faced far less criticism for their success than Microsoft Amazon, et al.  The National Football League, as a prime example, benefitted, until this year from “special” non-taxed status as had MLB and the NBA and NHL before it. The NCAA has, for decades, enjoyed what is essentially a self-created monopoly on control of major college athletics.

        I know, I know. Again, “so what?” Well, let’s look at actual compensation for those folks who deal in entertainment, not tangible products, with a special lens. That reality check is to acknowledge that if an individual has great personal worth because the company they created has prospered and the stock value of their shares has increased proportionally, that “wealth” only exists to the extent that they must sell those shares to extract that value, at which time they must pay a capital gains tax on the proceeds. This means that for billionaires, like Bill Gates or Jeff Bezos, both of whom, got that way (wealthy) due to their own initiatives and risk, you can subtract about a fifth of the number for taxes, unless they give it away which both generously do. On the other hand, Elon Musk’s Space-X is a privately held (at this point) concern, funded in large extent, by the success of Tesla which went public in 2012.

        I said all that to say this: When a Bernie Sanders, whose real estate investments’ appreciation (you know, just like stocks?) have made him a millionaire, bitches about tech companies making money during the pandemic he is a world class hypocrite.  If he wishes to posit that they should pay higher corporate tax rates, then he is welcome to do so. He may well be right. That is, of course, up to the point that it crashes the economy, when everyone suffers.

         Complaining about Jeff Bezos’ net worth increase because Amazon was/is a lifeline to hundreds of millions of Americans during the pandemic demonstrates one of two things, neither admirable in a US Senator: 1: Ignorance of economics, or 2: hypocrisy. Take your pick. Note: I am not speaking here of what Bezos takes in annual salary, but remember, his Amazon stock only becomes cash if sold. What I will say is that many in the top US salaried earners provide no tangible product whatsoever, yet……. (see for yourself:

Individual:       Position:                   Annual salary:

Jeff Bezos         Amazon CEO         $81,000

Joseph Biden    POTUS                   $400,000

Bernie Sanders US Senator             $174,000

Dirk McMahon Pres. United Healthcare)  $18.9 million

Mark Emmert       Pres. NCAA       $2.7 million

Roger Goodell     (NFL Comish)    $32 million

Nick Saban          football Coach    $9.3 million

Lebron James      NBA Hoopster   $39.22 million

Trevor Bauer       MLB pitcher      $40 million 

If I add 2020 charitable contributions to that above list, Jeff Bezos contributed, in 2020 alone, 70 times more than the others’ combined salaries. If the above individuals pooled their annual salaries, they’d have to work 350 years to earn the amount of  charitable giving (to date) of the Bill and Melinda Gates Foundation. And on a final note, the heads of various US commercial banks whose principal raison d’etre is using other people’s money to make money at little or no risk to themselves, all make multi millions annually. Wanna hate on someone? Those are the guys who were complicit in the housing bubble disaster of 2008-9 and were, in several instances, bailed out with your money. Remember when Bill Gates or Jeff Bezos asked for a government bailout? Me neither.