Profits - Who Gets to Make Them?

Brokerage powerhouse Goldman-Sachs reported a surge in profits in the second quarter. I bring this up because no one seems to have been bothered about this news - there were no calls for congressional hearings, Justice Department investigations, or a special windfall-profits tax - the way everyone was up in arms over the recent surge in oil company profits. And that's funny because what oil companies do - taking crude oil and delivering it to consumers in the form of usable petroleum products - is a helluva lot more critical to the well-being of Americans than what brokerage firms do. Anger at the $400 million dollar retirement package given to Exxon-Mobil's retiring CEO is one thing. But why would we want to deny big profits to the single most important industry in the modern economy?

Capitalism surely won its century-long war with socialism - won it in a rout. Outside of Cuba and North Korea private ownership of capital is generally the norm. The reason capitalism won out is due to two powerful mechanisms that socialism completely lacks. The first of these is profit, which provides an incentive for talented people to produce things. The second is free-market pricing, which communicates the relative supply and demand for goods and services.

Both these mechanisms right now appear to be working exactly as we'd want them to in the petroleum market. The high price of gasoline tells everyone that supplies are relatively tight but that people still need it. The ability of the oil industry to turn these high prices into big profits means they're going to keep supplying it. Mess with either the price or the profits and we will have one big mess on our hands, for sure.