American Elephants

How Much Profit Do You Think The Average Business Makes? The Answer Might Surprise You. by The Elephant's Child

A random sample of American adults were asked the question: “Just as a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” For the Reason-Rupe poll in May 2013 — the average response was 36%. That response was very close to historical results for a poll from ORC for a similar but slightly different question.

How do the public’s estimates of business profit margins compare to reality? According to a Yahoo!Finance database for 212 different industries the average profit margin for the most recent quarter was 7.5% and the median profit margin was 6.3%. There was not a single industry out of 212 that had a profit margin as high as 36%.

That bit of misinformation drives a lot of bad legislation, for example, the effort to make $15 the minimum wage. If Walmart made $36 profit on every $100 of earnings, then they should certainly be able to pay their workers a little more. But Walmart’s profit margin in the most recent quarter was 3.1% — and a completely different story. For every $100 in sales for Walmart, the state and local governments  get an average of $6.88 in sales taxes ( and as much as $9.44 in Tennessee, $9.16 in Arizona). Did you notice that Walmart is closing a lot of stores?

But what about Big Oil?  Major integrated Oil and Gas make big profits don’t they? Nope. A below average profit margin of 5.1%. If people realized that their estimates of profit margins were five times too high — would it help to understand why their wages weren’t higher for beginning workers? Would it help to understand how government regulation that imposes big costs on a business puts a damper on business growth and expansion? Or why our economy is not growing as it should?

Government does not make money. It just spends other people’s money, and not often wisely.  A growing economy comes from encouraging business to grow and prosper. It’s pretty easy for a business to move from a 6% profit margin down to barely breaking even if sales drop. And that 6% profit margin depends on a lot of correct decisions and correct executions of the decisions.

When the big new thing that you thought would be a huge success just isn’t — there you go. For small business the difficulties are even greater, and the reason so many small businesses have closed up shop. And the failure of the administration to understand these basics is why the business startup rate is in the tank. Who needs to take an enormous risk when tomorrows regulation may destroy the whole thing?

pm(source: Carpe Diem blog by Mark Perry at AEI)


Obama’s Latest Bright Idea: A “Secretary of Business” by The Elephant's Child

Eight days before the election President Obama turned up on “Morning Joe” to propose creating a new cabinet post: a “Secretary of Business.” Well, that’s not particularly surprising.

The campaign is close, and Mitt Romney is out at event after event saying that his sterling experience in business gives him the knowledge of how to help business to recover and start hiring.

Obama’s understanding of business ranges from infinitesimal to non-existent, as he has demonstrated effectively for four years. So why isn’t the answer a new department consolidating stuff like the Small Business Administration and placed in the hands of a genuine expert, like maybe somebody from a business school, to help business to develop entrepreneurs, helping with exports, trade policies. Should be a winner, shouldn’t it?

commerce (kom′ ars) n. The buying and selling of goods, especially on a large scale, as between cities or nations. business; trade.

The U.S. Secretary of Commerce was Gary Locke,  who was appointed Ambassador to China, who was followed by John E. Bryson, who resigned for medical reasons, and the current Acting Secretary of Commerce is Rebecca Blank.

Wikipedia says the U.S. Department of Commerce is the Cabinet department of the U.S. government concerned with promoting economic growth. The mission of the department  is to “promote job creation and improved living standards… It has 43,880 employees (2011). Texas Gov. Rick Perry recommended eliminating it along with Education and Energy. Wikipedia has a long sector on “Reorganization proposals.” As economic growth keeps declining, perhaps the federal government does not possess the expertise they think they do.

No one seems to know what the agency does, but the problems that afflict U.S. business are not the result of the absence of a Department of Business, but rather the presence of too much government interference, too much government regulation, too much government taxation, uncertainty over the mandates of ObamaCare, new environmental regulations, new overcriminalization, and the simple fact that government just keeps getting bigger and more interfering.

Administration actions to force public acceptance of alternate fuels have raised the cost of energy sharply, which means everything costs more.  And our corporate taxes are the highest in the industrial world. Obama seems not to have noticed. The president does not understand profit, and seems in general to be opposed to it, as are many in his administration. The burden that ObamaCare places on business seems to be little-understood, and the resulting low growth and high unemployment  are not understood as natural consequences of that burden.

Perhaps we should enlist someone who actually does understand the needs of business.

The President Who Gave Us a Failed Stimulus, Doubled Unemployment, Now Wants to Guide the Economy. by The Elephant's Child

President Obama spoke yesterday to the Business Roundtable.  Businesses could use a pep talk.  Janet Yellen, President of the San Francisco Fed, speaks of a jobless recovery with no economic recovery until 2013.

The Wall Street Journal’s Daniel Henninger notes that:

…instead of giving a speech about reviving business confidence in the economy, Mr. Obama gave a speech about reviving business confidence in him.

The previous evening, Mr. Obama held a small dinner for some CEOs from really big business, such as AT&T, Xerox, State Farm, Verizon, PepsiCo, and GE.  The White House has concluded that it is wrongly seen as antibusinessHenninger says:

I agree.  This White House is pro-business.  In fact , it’s so pro-business it’s proposing a virtual merger with the private sector.  Ladies and gentlemen of the business community, meet your new partner — Uncle Sam.

Answers, Mr. Henninger says, hark back to Obama’s first budget statement— “A New Era of Responsibility.”

“A New Era of Responsibility” describes the years before Mr. Obama as “an era of profound irresponsibility that engulfed both private and public institutions.” From this emerged the two core themes of the Obama presidency.

The first is that “government,” which Mr. Obama identifies as “we,” must “transform our economy for the 21st Century.” Thus, the now-familiar initiatives on carbon auctions, a green-jobs economy, and health care. “At this particular moment,” Mr. Obama said a year ago, “government must lead the way.” This isn’t just an antirecession patch, but something new and permanent. …

He is proposing that the U.S. government both guide the economy (“the right balance between the private and public sectors,” he said yesterday) and do so with a new, aggressively redistributive tax policy, which was made explicit in his just-released budget. Guide and redistribute.

Charles Krauthammer explained today that Obama “believes ideologically in this deeply.  Obama sees himself as a world-historical figure, not just as the first African-American president, but, like Reagan, a man who changed history.  He wants to be the father of national health care.”

Obama said today: “I am an ardent believer in the free market.”  Uh huh.

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