March 30, 1979

Let's Cheer For Profit

Business profits were up for the last quarter of 1978 says the U.S. Commerce Department, and that should be cheering news for a troubled economy.

Why, then, the sudden cries of doom and gloom over an event that was earnestly sought just five months ago?

After-tax profits for the year end quarter averaged 9.6 percent of investment.  This is less than the "more than 10 percent" which President Jimmy Carter cited as an accomplishment in his January economic message to Congress.

Yet White House spokesman Jody Powell last week expressed "concern" for the profit increase.  Carter promises to publicly "expose" companies that make too much profit.

Perhaps the reversal of administration attitude is merely jaw-boning - to pacify labor union bosses who are preparing to blast the president's wage guidelines during contract negotiations now at hand.

What ever.

One easily remembers Oct.  15, 1978, when Congress passed an historic tax cut bill that was widely hailed as "the death of the New Deal," and "the re-birth of private enterprise."  It was, of course, neither.  But such expressions did indicate a certain enthusiasm for formation of investment capital.

The tax cut was a wise and long-over-due enlistment of the only mechanism that ultimately will whip inflation.  Corporate income taxes were reduced a modest two points, from 48 to 46 percent; a 10-percent investment tax credit was made permanent; and the capital gains tax was slashed from 49 to 28 percent.

The idea was to allow business to accumulate money for new plants and new equipment from which new jobs and new production would flow.  In the year previous business profit had declined, productivity had stopped, and inflation had climbed alarmingly.

The upshot of these improvements in commerce was a surge in business activity that surprised those Congressmen and liberal economists who had endorsed the private enterprise measures only in desperation.

The recession predicted by pessimists failed to materialize.  It has been postponed if not sidestepped.

George Meany, president of the AFL-CIO, is furious with the success of such rampant capitalism.  He calls the fourth-quarter profits "the grossest demonstration of profit gouging since the opening days of the Korean War."

John White, chairman of the Democratic National Committee, said he was "dismayed" by the profit improvement.  He calls for an "excess profits" tax.

The truly dismaying aspect of the rise in profits is the opposition that has sprung up to kill the one thing we have going for us in our war against inflation.

The one lesson of economics that should be carved over the doors of every plant, store, bank and school in the country is: EXPANSION COMES ONLY FROM PROFIT.

Meany would have us believe that profits are squeezed from the sweat of exploited workers to be spent in frivolous luxury by robber barons.

In reality, however, the government requires that the cost of all new buildings and machinery will be taken out of profits - or by sale of stocks and bonds pledged by possible future profits.

Robber barons are few and far between these days.  The overwhelming majority of investors are middle class working people.  They either buy stocks and bonds directly, or put their savings into banks and insurance companies which buy securities.

Corporation managers constantly attempt to balance the immediate interests of employees, investors and customers against their mutual, future benefit resulting from expansion.  In the long run, the most important call on profits is expansion.  The nation, as well as the corporate principals, prosper.

The anti-business attitude of recent years - which kept profits low, and these over-taxed/stifled expansion.  We pay for this short-sighted "golden egg" syndrome with inflation.

For once, a government program - for formation of investment capital - is doing what it was meant to do.

It has been in place only five months but already is having a beneficial effect on our economy.  When those machine tool orders become working equipment we can expect still further improvement.

The only thing wrong with present profits is their meager proportions.

Some of the increase was an inflation illusion.  Some was panic buying to rebuild depleted inventories.  Some came from early price hikes in expectation of guideline averages by labor and fear of a price freeze.

Still, some of the increased profit was genuine progress.  That portion apparently is being channeled many times over into the $30,000 of new capital investment needed to provide job tools for each new worker.

Unions should turn cart wheels down the assembly line.  White House denizens should break out the champagne.  All of us should loose a few hurrahs.

What everyone needs is less government interference with the capitalist system, and a cheering section for bigger profits.

Business responded to the tax cuts.  Depleted inventories were replaced.  Orders for machine tools increased an astounding 50 percent.  The two-percent saving in income taxes was passed ailing to investors as dividends.  Encouraged, the stock market rallied.

Author: Lindsey Williams