Those Fat Cats on Wall Street....
When times get tough and the public turns its eye towards
conservation and finding targets of blame; the common lament of "those fat cats" bubbles its way the top
of the noise heap.
But is it really wrong for business and entrepreneur's to grow profits as high as possible? Is the image of the greedy Corporate Machine as was characterized in "its a wonderful life" really accurate?
To answer that question, consider the role of profit and loss in business:
Collectively, business employing capital determine the course of production of services and goods. In their performance of this function they're entirely subjugated to the buying public - consumers. Fail to produce in the best and cheapest way that satisfies the needs of consumer demand, and they'll be eliminated as producers. In their place, other business will rise to meet the need and take their turn at meeting the consumer demand. Of course, in this discussion, its presumed the businesses in question are scrupulous and conforming to legal requirements. In every exchange environment there will also be those who try to mislead or cheat their way to profitability - but eventually they're removed from the market scene.
Show Me The Money:
Contrary to popular belief, businesses operate under the effects of capital scarcity. Money isn't in limitless supply, and just like you do with your monthly budget, business have to decide where to invest their capital. Entrepreneurs and leaders have to choose the most feasible projects that satisfy the most urgent needs of the public. Projects that require too much money simply can't be done unless the business wishes to cease operating. Visionaries and activist groups will always demand products and conditions that aren't fiscally feasible. They'll groan at the "injustice" of businesses that choose sound capital management over their particular desires. But in the end, dictators and visionaries can't determine the outcome of capital employment and expect to live in a free world.
The public determines preference without regard to what "should be" the best choice. Crying televangelists, grumblers, foreign governments, or social reformers cant tell the public what satisfies them the best. In the end the public decides with its dollars what it wants - and rewards those businesses that provide it in the most cost effective and speedy manner.
Whose Choice?:
Thus, profits are a reflection of consumer demand and urgency. Its been argued that profits only appear when there is a 'maladjustment' between current production and production as it should be utilizing the full extent of materials and mental power to satisfy consumer urgency. Those businesses that are able to remove the maladjustment create profits. Over time, as more businesses emulate the optimization profits are reduced - the consumer urgency wanes due to abundance of product. Eventually when the gap between actual production and optimal production is achieved, profits disappear.
This cycle of finding gaps, improving upon the process of production to create profits, and eventually moving onto new area's of optimization what drives a market economy. Ongoing improvement. And because it requires vision and the ability to predict future needs, profit divides out as a product of intellect. Those businesses that best employ available capital in the most efficient and speedy manner are rewarded by gaining consumer votes - in the form of money. Again, consumers vote as they are, not how some wish them to be.
Life, The Universe, Everything:
To believe "Fat-Cats" have excessive profits is to argue against the public choice. Its the belief that all future desires and costs are known in advance, without any consideration for ingenuity or risk. Its to believe that everything is known, desires are met magically without effort, that the universe produces a thing without changing or removing another. In short, its envy and minority dissatisfaction. Its not market physics that creates outcry.
Given that profits reflect choice, efforts to intervene with that choice are disastrous. When governments and committees intervene in the form of price controls, forced choices, bailouts or subsidies they distort market power. In essence its a shift of control from the consumer to the state.
The market will continue to exert its influence by attempting to remove those factors. Witness capital removal from poorly managed financial institutions or automotive companies. The market recognizes inefficiencies and an under-met production (e.g., over priced under performing goods) and removes its monetary votes. The governmental attempts to fill the gap with false capital (e.g., bailout funds generated through taxes or foreign loans) undermining the markets ability to choose.
In this way, those that feel disgust in Fat Cats and their profits - are rightly reacting to misalignment of their choices with real outcome. But the target of their frustration shouldn't be the businesses
- it should be aimed at forces that are preventing the coalescence of their will.
