I know. I know. I’ve just posted on this. But this “Evil Corporate Greed is Causing Inflation” bullshit going on on Twitter is driving me crazy. How can you be so simple, single minded?
Hey, I’m not a big corporation fan. I worked for one for over thirty years and my thanks was a layoff and a severance that went straight to paying my bills. But the idea that Corporate Greed is the cause of inflation is just so one-celled thinking that I can’t stand keeping quiet about.
So, for a moment, let’s just pretend there is no such thing as the “Evil Corporations.” Heck, let’s just pretend we are back in 1890 and every business is individually owned. All we have are bars, general mercantile stores, and livery stables. You go into your favorite bar and you order a shot of whiskey. You’ve been paying 25 cents for that shot of whiskey for as long as you’ve been coming to that bar. But guess what, today whiskey is 50 cents a shot. Can’t blame it on evil corporations, they don’t exist in our imagined world. Well, it’s just that damned old bar owner trying to get rich. Aren’t we all?
But that bar owner just found out that the guys he used to have bringing in the whiskey on their wagon got attacked by a group of outlaws. In fact, those outlaws have hit ten wagons in the last two weeks. So, the shipping company had to hire extra security to ride along and protect your order. So that cost them extra, and now it costs the bar owner extra, and it also costs you extra. On top of that, the distillery that makes the whiskey usually gets its corn and rye from a group of farmers in Kentucky but due to a flood along the Tug River, their fields all washed out. So now the distillery has to pay for corn and rye to be shipped from the other side of the state. That’s costing them more. So, you guessed it – it’s gonna cost the bar owner more and therefore it’s gonna cost you more. Hey, just be thankful the price of malted barely didn’t go up as well.
So, when the price of that whiskey almost doubled in price, you figured that bar owner is just getting greedy. However, the thing is that bar owner was making about 20% profit on his whiskey when he was selling it at 25 cents. After the rise in cost, he’s still making 20% percent profit, but you don’t like it because it’s costing you more. There’s another bar down the street. They don’t have the whiskey you were drinking, but they do have beer and it’s cheaper. You decide you can get your alcohol somewhere else for a cheaper price, so you take your business on down the road. That’ll teach him. Now he has the same cost, but lower revenue because you weren’t the only customer who decide to take their business elsewhere. After a while, the bar owner decides he can’t make it on the profit he’s charging and no one will pay more, so he closes down.
The some folks in town decide that the guy who owns the beer joint doesn’t have any competition, so he must be getting rich. But the truth is that the cost of hops went up. However, instead of passing the increased cost of hops on to his customers, the beer joint guy absorbed it since he was doing more business. After all, with the added customers, he was still making the same 25% profit he was before the whiskey bar closed. The town board determines to raise the tax on beer because the beer bar owner needs to pay his fair share. The tax goes to 10 cents a pint and the guy selling the beer still needs to make the profit margin he was in order to stay in business and feed his family. So, he raised the price of beer from 30 cents a pint to 40 cents a pint. Who’s greedy?
The truth is if you are in business – whether you are a sole proprietor, a little company or a big corporation — you have to make a profit margin which supports your business. You didn’t get into business just to barely break even. You did it to make a profit, and if you’re a smart business owner, you’re setting some of that profit aside so that when a fight breaks out in your bar and a bunch of tables get broke or when a storm tears off your roof, you have the money to make the repairs without raising your prices.
Whether it is an increase in supplies, payroll, building rent, or property tax that begins to eat into your profit, you have to pass those expenses of doing business on to the customer in order to continue to pull the kind of profit margin which makes being in business worth the hassle. No business wants to charge more if they are making a decent profit already. Charging more could easily upset their customer base and cause them to go looking elsewhere. Having customers tell other customers how reasonable your prices are helps your business.
The idea that we can tax corporate America without harming middle America is ludicrous. It’s pie in the sky thinking. Just like hearing a politician tell you that spending more money actually helps pay down the debt. It may be considered good theory by some, but in the real world it just doesn’t make sense.
