Writing in the WSJ
last week, economics professor Paul Rubin "takes the community organizer-in-chief to task for his dismissive comments about profit maximization" (ht/E. Frank Stephenson
"In justifying his attacks on Bain Capital, President Obama argues
that "profit maximization" might be an appropriate goal for a
private-equity firm, but not for more general public policy. This
argument ignores one of the most basic premises of economics.
We economists assume that firms always maximize profits, and that
profit maximization by firms (all firms, not just private-equity ones)
is a very good thing. But this is not because profits are in themselves
good. Rather, profit maximization is good because it leads directly to
maximum benefits for consumers. Profits provide the incentive for firms
to do what consumers want.
Consider the converse: What if a business does not maximize profits?
Then it is either not making the products that consumers want the most,
or it is not producing its products at the lowest cost. In either case,
consumers are harmed. Any argument against "profit maximization" is an
argument against consumer welfare.
Maximizing consumer welfare is the ultimate justification for an
economy. Consumers are of course also workers and voters. Contrary to
President Obama's claim, skill at profit maximization does translate
directly into skill at governing the economy. Failure to understand this
simplest and most basic point is probably itself enough to disqualify
someone from the presidency when economic issues are paramount."
MP: Another good time to invoke the sagacious words of Frederic Bastiat below:
all economic questions from the viewpoint of the consumer, for the
interests of the consumer are the interests of the human race."
HT: Warren Smith