Who Profits?

 

    

 

Years ago when I was in college I disliked business, businessmen, and profit making as much as any modern Democratic Socialist. 

Deep down I must have been jealous since I thought I had so little and they seemed to have so much. Somehow, it never occurred to me that my college education was being completely paid for by a scholarship from my father’s employer, the Bulova Watch Company.

It would take years of life experience for me to understand the value of profits and profit making. Here are some personal anecdotes.

I met my future wife Linda in my senior year at Fordham college. We dated throughout the next year while I took courses for a master’s degree in history at Columbia University, and she completed her last year for a BS degree in Nursing at Cornell’s nursing center in New York city.

By the time she graduated, we began to discuss marriage. I had been offered a job at Cardinal Hayes high school in the Bronx, and a nurse could seemingly get a job almost anywhere. To be Bonafide, I knew that I could not propose without a ring.

So, one day I cashed in the little savings account I had opened in grade school at St. Mary’s in Queens.  Over the years my regular nickel and dime deposits had grown to about $200. I took a subway to Manhattan’s diamond district on East 47^th Street, a street lined with jewelry shops manned by Jewish merchants. 

These guys were notorious and I expected to be overcharged or even cheated. They knew their business and I was totally ignorant.  But what could I do? So I put down my entire life savings to buy a decent looking ring with a small, flawed diamond. 

I suspect that the dealer made at least a 100% profit on the deal, but now I know that I was the one who profited most. Linda loved the ring, and accepted my proposal, and still wears it today, more than 60 years later. She knew instinctively that it was much more than metal or stone, but a sign of my love and commitment, just as I knew that her acceptance was a sign of hers.

We were engaged, but even though I had a job, I was broke. It never occurred to me that in order to leave our parents’ homes, we would need to furnish an apartment. Fortunately, presents from family members helped. In particular, my father offered to pay for a bedroom set.

One day Linda and I went to Mazur Brothers Furniture store, a long-established institution in White Plains not far from her home. A salesman, probably a Mazur, showed us a number of sets, and we settled on a sturdy cherry wood set that included a dresser with a large mirror, a bureau, and a bed with two end tables. I think the total cost was around $800, a large sum back in 1962. 

Once again, I suspected we were being overcharged but Linda liked the set, and that was that. Afterwards, she praised the salesman’s manner and presentation, but I grumbled that he was just out for a commission. Now I realize that while he and Mazur Brothers had profited from the sale, we profited infinitely more.

More than sixty years later, we still use it. The bed may show some wear, but the dresser, bureau, mirror, and end tables look new and still work perfectly. What a deal! Buyer and seller both profited. Even my father profited. He got rid of me and got six grandchildren in the bargain, all of whom loved him.

During our years of married life I can think of countless examples of how transactions turned out to be profitable for all parties concerned. The purchase of four homes profited not only sellers, but banks, insurance companies, real estate brokers, and movers, but we profited the most. That’s the American way, and I love it.

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Note: The image above is the Mazur Brothers storefront back in the 1960s. In searching for it, I came across a short obituary of Joseph G. Mazur, President of the company, who seems to have been quite a man. 

Where I'm From

Here's a guest post, a poem written by my granddaughter Maeve when she was still in Middle School. Now she is about to enter college where I think her observant eyes and writing skill should serve her well.

                  Where I‘m From

                            MHD

 

I’m from the scribbled drawings on the fridge

From the books in piles on the coffee table.

The feeling of their creased spines on my fingertips.

I’m from my grandmother’s kitchen

(Small, homey, it smelled like focaccia)

I am from the constellations,

The Moon,

Like a pearl in a black sea,

Lighting up the night,

I’m from ivory paper and fountain pens,

Their jet black ink dancing across the pages of my notebooks.

I’m from Elvera and Antoinette,

From the “I love you's".

From “Mangia” and “Salute”

I am from playing cards at the kitchen table,

Marking points on a stray notepad.

I’m from Ucci and Gardella,

From ripe cherry tomatoes and steaming chamomile tea

From the ship my great-great grandmother took from Serracapriola to New York

 I’m from the child she lost on the journey,

From the money she saved to get to America.

I am from the letters saved in a box beneath my bed.

Covered in nearly illegible handwriting I had to ask my mother to decipher.

I’m from the words of my relatives,

Whose stories helped me connect with my late family members.

I am from the spirits of my ancestors,

Who suffered for their children to live a better life.

I am from the good and the bad,

The ups and downs of living.

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Profit Motive

 

                                             

Despite the fact that business ranks as one of the top college majors, it is true that many college graduates today would prefer to work for a non-profit organization than a profit making one.  There would appear to be a stigma attached to working for personal gain.  To many working for profit is ignoble, even crass. 

This attitude is not just found in the young but in all levels of our society.  It helps to explain the contempt we see directed today at words like Capitalism and Capitalist, both of which are terms of opprobrium in progressive and Democratic Socialist circles. Indeed, popular fiction and movies have ingrained in us a cardboard stereotype of the money-grubbing, overweight, usually lecherous business tycoon.

Nevertheless, because of the bad connotation of the word Capitalist, I prefer to think of myself as an advocate of a free-market economy based on private property rights. By law and tradition in America, we all have the right to profit from our education, our knowledge, our experience, and our labor. It is the key to our success.

Countless examples could be provided to demonstrate the success of a free market economy versus a government controlled socialist model. Here is one example that shows that modern China’s economic success is due more to the profit motive than Socialist ideology. 

A few years ago, I read an op-ed in the Wall Street journal by Michael Meyer in which he noted a truly revolutionary development in a Chinese village over 40 years ago.  After taking power in China in 1949 Chairman Mao and the Communist party had effectively abolished private land ownership. Villages were organized into communes “crippled by production quotas that seized most of what they grew for redistribution.” 

The result was a disaster just as it had been in Communist Russia decades earlier. Meyer tells the story of the village of Xiaogang where by 1978 the villagers could no longer meet their quota because they were starving. They were eating roots, leaves, and tree bark. Driven to desperation the farmers decided to defy the authorities.

They signed a pledge to divide the village land into family plots whose produce could be kept by each family once it had paid the required quota or tax. The results were revolutionary. Next year saw a record harvest that led the local political boss to complain that the farmers “had dug up the cornerstone of socialism.” 

Inevitably, the news and the practice spread until the popular land reform that defied communist orthodoxy became officially adopted after Mao’s death. Deng Xiaoping, his successor, urged the Chinese to ignore political dogma and instead “seek truth from facts.”

Interestingly, this same revolution had an antecedent in early American history. After two years of near starvation, the Pilgrim fathers at Plymouth colony abandoned their experiment with communal farming and divided the land into family plots worked by all members of the family. The colony never starved again. 

Why should it be so hard for people today to understand the value of the profit motive? Not only do the companies in my investment portfolio turn a decent profit, but also they provide invaluable goods and services for millions of people. They light and heat our homes as well as enable us to communicate easily with one another. 

The little revolution in Xiaogang not only fed the people of that village but it also has enabled China’s population to eat and prosper as never before. Democratic Socialists may think that Communism succeeded in China but it was really private property and free enterprise that made China an industrial giant. 

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Medicare for All

 

 

One of the planks in the Democratic Socialist platform is Medicare for All. Senator Bernie Sanders of Vermont and other leading Democratic Socialists never fail to include it in their demands.The influence of the DSA is growing within the Progressive wing of the Democratic party, and it looks like Medicare for All will be a big issue in the upcoming mid-term elections.

 

However, we already have Medicare for all. Most of us are enrolled in Medicare in the same way we are enrolled in Social Security. Anyone with taxable income must contribute to Medicare in the same way they contribute to Social Security. All employees must contribute 1.45% of each paycheck to their Medicare account. Employers are required to match that contribution so that the total amount comes to 2.9% of pay. For most workers the Medicare tax goes largely unnoticed since it is a payroll deduction.

 

The tax is more visible to self-employed individuals since they must pay the whole 2.9% themselves and actually cut a check for the amount on a quarterly basis.

 

Unlike the Social Security tax which only applies to the first $185,000 of income, there is no limit on the amount of income subject to the Medicare tax. Let’s take a look at some examples.

 

Someone working at the minimum wage of $15.00 per hour for 2000 hours a year would have an annual income of $30,000. To make it easy let’s round off the Medicare tax rate of 2.9% to 3%. The worker’s Medicare tax would be $900 a year. We can call it the annual premium for Medicare insurance which will begin to pay off at age 65.

 

In our next example, the worker’s annual income is $200,000. That number is significant because over that amount, the employer is no longer required to match, and the employee must pay the whole 2.9%. In fact, on income over $200,000, there is a surcharge of 1% bringing the total to 3.9%. To keep it simple for now, this worker’s Medicare tax would be 3% of $200,000 or about $6,000 per year. In other words, his Medicare insurance premium is $6000 per year for the same plan that costs the minimum wage employee $900 per year. 

 

Finally, let’s look at really high earners like movie and rock stars, professional athletes, and even CEOs who have incomes of $20 Million per year. Since there is no limit on the amount of income subject to the Medicare tax, and since there is a 1% surcharge, their effective tax rate of 4% means that their Medicare tax would be 4% of $20,000,000 or $800,000 per year. That's right, $800,000! Remember, even though their Medicare insurance premium is huge, they still get the same coverage as anyone else. Actually, these wealthy people don't even need Medicare. It’s really amazing that Democratic Socialists want to eliminate the billionaires who fund Medicare.

 

Of course, people with little or no taxable income would currently be eligible for Medicaid but Progressives and Democratic Socialists really want free Medicare for all at any age. But do they?

 

Does Medicare for All mean that Senator Sanders and other politicians would give up their current gold-plated government plans for Medicare or Medicaid? I don’t think so. When Obamacare was passed, members of Congress were supposed to join that plan and give up their Federal medical insurance but that never happened. I doubt that any federal, state, or municipal employee would want to give up their current medical insurance for Medicare.

 

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Quote of the day: All animals are equal, but some are more equal than others. George Orwell, Animal Farm.

 

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