Companies Maximize Profits—Period

Matt YglesiasMatt Yglesias is a curious fellow. Yesterday he wrote, Post-Ballmer Microsoft Announces Plan To Become Much Lamer. By “lamer” he means that instead of doing something interesting with its cash flow, Microsoft is doing a stock buyback and paying more dividends. Instead, he thinks that Microsoft should find a way to “elbow into new markets.” He admits that this has not worked out all that well for the company over the past few years, but that it has been really good for the industry and for the world.

This is an argument that Yglesias has to make every couple of weeks. I think it’s like Tourette syndrome or something, because it doesn’t make sense. Capitalism doesn’t work by having companies do what is best for everyone. The idea instead is that everyone tries to do what is best for themselves and given time, it will end up that everyone does better. It is ridiculous to call for companies to do anything but look out for their own best interests. And Yglesias must know this.

I get into this argument a lot, especially with conservatives. Most liberals understand that companies are not going to, for example, pay higher wages out of the goodness of their hearts, even though it might be better for the economy as a whole. This goes right along with liberal thinking about the need for rules and regulations in the market. Conservatives, on the other hand, are generally more outraged when they see companies taking advantage of employees or exploiting loopholes. And strangely, this allows conservatives to maintain their belief in not regulating businesses. The idea is that businesses will do what’s right if government just “gets out of the way.” But that is not how capitalism works nor is it the way we should want it to work.

Now, Matt Yglesias is not a conservative. But he does have a distinctly pro-market bias. Of course, so do I! So I don’t really understand where he’s coming for. When he was earlier saying that Apple ought to reduce its huge profit margin on the iPhone, at least he had a business strategy. He claimed that Apple could destroy the smartphone competition. But in the case of Microsoft, he admits that doing what is best for the consumer market has not been good for Microsoft. So why should they do it? Microsoft is not in the business of making the lives of people better; it is in the business of making money.

Over thousands of years, we have seen that expecting businesses to do what is best for the society at large is a vain hope. And I think loose talk by people like Yglesias is quite harmful. It perpetuates the myth that businesses do something other than relentlessly pursue profits. And that gives people all kinds of strange ideas like “trickle down” economics. “Once the companies are profitable enough, they will raise wages!” No, not really. Have the incredible profit margins that Apple makes caused them to move production to the United States? Have they caused them to invest more money in R&D? Have they done anything other than allow the company to pile up more and more money? No. No. No.

We need to manage the economy so it works better for the society at large. Markets really are helpful in distributing the resources of an economy. But left to itself, the economy doesn’t function well even for the richest people. We must get past the notion that businesses are going to do what’s right by the people. They won’t and we should expect them to.

This entry was posted in Uncategorized by Frank Moraes. Bookmark the permalink.

About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

0 thoughts on “Companies Maximize Profits—Period

  1. I never watch "The Daily Show" — I don’t have cable. But a friend sent me this clip of guest host John Oliver demolishing conservative talking points against striking restaurant workers:

    It was a spin on the Fox talking points about how minimum wage should be kept low. My favorite part was the Oliver’s "that’s how capitalism works. Companies always pass on higher profits to their workers. That’s a fact!"

    Incidentally this clip keeps getting taken down and reposted, so it’s probably illegal to share the link, but it’s well worth watching.

  2. @JMF – Both DS and CR are available online. That’s where I watch them. They annoy me a lot. I mostly watch them so that I can talk to Andrea about politics, since that’s the only form of politics that don’t make her angry.

    I saw the episode you linked to. It was good.

Leave a Reply