George Rebane
[This is the transcript of my regular KVMR commentary broadcast on 30 March 2012.]
The modern liberal finds little fault with the continuing stream of cost increasing mandates that flow out of the country’s bureaucratic regulation mills. Every such mandate is welcomed by the left as unquestionably promoting health, safety, the environment, equality, justice, or social fairness. With such government diktats, what’s there not to like?
Moreover, many ostensibly capitalistic corporations willingly accept such cost increases while other companies face financial disaster. Why such different responses? Before considering that, we recall that the good part of capitalism is that it always games the system of which it is a part, and that is also the bad part of capitalism. Another hard to understand truth is that corporations don’t pay taxes, their customers pay them because a corporation’s tax expense is directly factored into the price of what it sells.
To keep it simple, profit dollars are what’s left over or owed when total costs are subtracted from total revenues. And profit rate is the percentage obtained from dividing profit dollars by revenue dollars.
For businesses, government mandates come in flavors that are risky or essentially risk-free. For industries dealing in necessities – products or services that we must buy because they are basic to living – industry wide government mandates cause everyone’s costs to go up. In response, every such company reacts by appropriately increasing prices to maintain its profit rate, while happily enjoying the resulting increase in profit dollars it then collects and disburses. However, that is not the case for suppliers of discretionary goods and services. If in response to the risk laden mandate they increase prices, they will definitely lose customers and receive lower revenues that reduce both the rate and the amount of profits.
That is why companies dealing in energy, food, healthcare, etc are essentially immune to the next set of cost increasing regulations that come down from above. They just factor the cost of compliance into their overall costs, and all of us pay the price while only some of us understand the source of the added pain in our wallets.
Big corporations in cahoots with government may even put up a little public opposition to a new mandate to soothe their customer base, but they really don’t care. And the smaller companies delivering discretionary stuff are shoved closer to or over the brink of bankruptcy. Meanwhile, every added regulation increases the barrier to entry for new businesses seeking to compete with better or cheaper products. In this corporate/government game, all of the established players win while the public loses.
Most of us don’t understand that our reward for all this is an economy with higher prices, fewer jobs, fewer market choices, higher taxes and fees, and less government services. I hope that at least by now everyone in California has noticed that our taxes are now among the highest in the nation, and that government services at all levels have reached new lows with the bottom still not in sight.
Let me be absolutely clear here – such riskless mandates uniformly boost the profit dollars collected by established companies supplying the necessities of life like groceries and gasoline. The mandated regulations only hurt the consumer who remains convinced that government is somehow making life better in the face of evidence that points the other way. And all of this is kept going by people who are overwhelmingly ignorant of how businesses make business decisions, while voters continue to elect politicians who promote and prey on this ignorance.
Unfortunately it is mainly our friends on the left who keep buying the claptrap of the politician who promises to make the corporations ‘pay their fair share’. Especially in today’s economy, a moment’s thought should convince people that most of government induced costs on businesses is just a vote-buying ruse to convince the mentally inert that forcing businesses to pay such ‘fair share’ will create more jobs, lower consumer costs, and generally improve the quality of life for everyone, when the realworld effects are just the opposite.
My name is Rebane, and I also expand on these and other themes in my Union columns, and on georgerebane.com where this transcript appears. These opinions are not necessarily shared by KVMR. Thank you for listening.
rebanesruminations.com 
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