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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Democratic Socialists and American Prosperity

Back in 2019, Alexandra Ocasio Cortez (AOC), the now famous Democratic Representative from New York City, claimed that an entire generation "came of age and never saw American prosperity." I suppose that she and other Democratic Socialists still believe that they have not prospered in America. 

She only has to look in a mirror to disprove such a preposterous claim. The image at the left shows her in a designer gown that she wore to a fancy dress gala at New York's Metropolitan Museum of Art that was packed with other successful people like herself. Her clothes, jewelry and make up probably cost more than most ordinary people pay for food. Didn't she grow up in Westchester county, one of the most prosperous areas in the country? Before she entered politics weren't the drinks she served as a barista signs of prosperity?

She also should look at the end of her arm and behold the ever-present mobile phone in her hand. How can the generation that has never seen American prosperity own these expensive phones with their equally pricy monthly plans? What about the laptops and other devices that are owned by practically everyone? They have the world's best libraries in the palm of their hands.

Moreover, every day these mobile phones and laptops have to be plugged into the electric grid so that their batteries can be recharged. Electricity is one of our basic human needs in the modern world but it is remarkably cheap compared to other things we buy. People hate their electric bills but most probably spend less on this vital resource than they pay on beer and coffee. Speaking of coffee, the ubiquitous Starbucks, where so many young people like to meet and hang out and pay exorbitant prices for a latte are certainly a sign of prosperity. 

AOC's words made me think of my own generation and compare it with the prosperity of her generation. Let's look at housing first.

I was 21 in 1960, and about to enter my Senior year at Fordham University. I had lived at home with my grandparents in the borough of Queens ever since my mother had died 10 years before. They owned a three family house on busy 69th Street, and we lived on the first floor. There were only two bedrooms and one bathroom. I did not have my own room but slept in the rarely used dining room adjoining the small kitchen. The bathroom had a tub with a makeshift shower attached.There were no countertops, granite or otherwise, in the bathroom or in the kitchen, Food was prepared on the kitchen table or on the stove. We never ate out. It was unthinkable for my grandparents to eat at a restaurant.

My father, stepmother and two brothers lived next door above a deli. Their apartment also only had two bedrooms and an even more primitive bathroom. At the same time, my future wife lived on the first floor of a two story home in White Plains, NY. with her parents and four siblings. Their apartment had only two bedrooms and one bathroom, as well as a tiny kitchen with no countertops. She and her two younger sisters shared the same bedroom.

 

What about communications? Cell phones had not yet been invented and I don't remember that my grandparents even had a landline by 1960. They communicated with neighbors and family on the front steps or in the back yard under the grapevine. To call a girl for a date I had to walk a couple of blocks to a payphone.

Like most families we only had one car. My grandparents never learned to drive, and my father, who dreamed of owning a Cadillac, had to settle for used Chevys. I only got my driver's license after graduating from college. Transportation by bus oe subway was the norm, although we did walk a lot. I never even rode a bike. Motor bikes and scooters were unheard of. Unlike my grandchildren, I never thought of traveling abroad, although by 1960 attending high school in Manhattan had opened my eyes to the wonders of NYC.

Although I never thought of it, I guess even with our modest lifestyles we were sharing in American prosperity. By 1960 my father and grandparents had converted their homes from coal to oil heat. No more backbreaking shoveling coal every morning. By then there was only one TV in the living room but with no remote. There was no gigantic flat screen color TV in every room. I had one pair of shoes and one pair of sneakers for sports. Everyone wore Keds back in 1960. There were no designer sneakers.

In 1960 I was about to enter my Senior year at Fordham University.  My father certainly could not afford the tuition but I had won a scholarship from his employer, the Bulova Watch Company. As the first in my family to ever attend college, It never occurred to me to live on campus, and so I had to take a bus and subway ride of over an hour each day just to get to campus.  It turned out to be a blessing in disguise as NY City with its libraries, museums, theaters, and movies became my campus.

In 1960 I had $250 in a small savings account, and no prospects for the future. If I had ever thought of it, I might have complained that I had not shared in American prosperity. But in the next year I graduated from Fordham with a fine education and no debt, won a NY State Teaching scholarship to attend Columbia University, and met the young nurse who would still be my wife today. 

I don't think my story is unusual for any generation. 

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Democratic Socialism

 

Zohran Mamdani, the newly elected Mayor of New York City, is a self-proclaimed Democratic Socialist. Detractors call him a Socialist, or even a Communist because of his stated intention to take over the means  of production in the city. All three of these labels have at least one thing in common: a belief that private enterprise, or profit making business, is inherently inferior to government or public run production.

Whatever the label, Mamdani brings to mind a character in a novel by the great Russian writer Alexander Solzhenitsyn.   

Solzhenitsyn, arguably the greatest and most influential author of the twentieth century, did as much to shake the foundations of Communism in Russia as anything or anyone else. He began writing while a prisoner in Soviet labor camps for almost a decade. After serving his term, he was released into exile in central Asia. 

While in exile, he developed a cancerous tumor and was allowed to return to civilization for treatment. His famous novel, Cancer Ward, is a fictionalized version of his experience in the hospital. He is obviously the main character but he describes the doctors, nurses, and other patients with great sympathy and understanding. * 

However, he had little sympathy for Pavel Nikolayevich Rusanov, the only Communist party member in the cancer ward. Rusanov was a party official who only consented to enter this remote facility until his wife could manage to pull strings and find an opening in Moscow. “But Pavel Nikolayevich was tormented no less than by the disease itself, by having to enter the clinic as an ordinary person. He could hardly remember when last he had been in a public hospital.” Rusanov looked down on the other cancer patients as riff-raff, non-Russian Asiatics, or even criminals. 

Solzhenitsyn uses Rusanov and his wife, Kapitolivna Marveyevna, as examples of how Socialist champions of the People can morph into privileged bureaucrats. We must remember that Communists in Russia, like Democratic Socialists in New York, were a small privileged minority despite their rhetoric..  

The Rusanovs loved the People, their great People. They served the People and were ready to give their lives for the People.

But as the years went by they found themselves less and less able to tolerate actual human beings, those obstinate creatures who were always resistant, refusing to do what they were told and, besides, demanding something for themselves.

The Rusanovs had an aversion to “teeming human beings, or jostling crowds.” They found travel on public transportation “disgusting” with loud, pushing, dirty workers struggling to get in. The worst thing was the “familiarity” of these people who would clap you on the shoulder and ask you to pass a ticket or some change along the car.

Eventually, the Rusanovs acquired an automobile of their own and avoided public transportation altogether. On railroads, they would only travel first-class on reserved compartments to avoid mixing with people “crammed in, wearing sheepskin coats and carrying buckets and sacks.”

Rusanov was a bureaucrat who had done very well in the Soviet system. He had a wife and two children, a car and a nice apartment as well as a small country place. It is true that he had never actually been a worker. He had never built anything, made anything, or designed anything. He had not even served in the military during the great patriotic war. His job had been to gather evidence and information that could be used to send enemies of the state to the labor camps.

Even though he loved Stalin, he was aware of the many shortcomings in his country. However, he blamed all Russia’s problems on speculation or what we would call private enterprise. 

Over the years Rusanov had become more and more unshakably convinced that all our mistakes, shortcomings, imperfections and inadequacies were the result of speculation. Spring onions, radishes and flowers were sold on the street by dubious types, milk and eggs were sold by peasant women in the market, and yoghurt, woolen socks, even fried fish at the railway stations. There was large-scale speculation too. Lorries were being driven off “on the side” from State warehouses. If these two kinds of speculation could be torn up by the roots, everything in our country could be put right quickly and our successes would be even more striking. There was nothing wrong in a man strengthening his material position with the help of a good salary from the State and a good pension… Such a man had earned his car, his cottage in the country, and a small house in town to himself. But a car of the same make from the same factory, or a country-cottage of the same standard type, acquired a completely different criminal character if they had been bought through speculation. Rusanov dreamed, literally dreamed, of introducing public executions for speculators. Public executions would speedily bring complete health to our society. (162)

Socialism did not bring equality to the Soviet Union or to any other Communist/Soocialist country. Supporters of Socialism have always blamed others for its failures, and claimed that they could make it succeed. Progressives in our country, like Rusanov, blame capitalism and private enterprise for our problems. They want heads to roll, figuratively, or maybe literally. In the Soviet Union the only true equality was found in the cancer ward. Cancer was the great equalizer and treated rich and poor alike.

Everyone knows that Zohran Mamdani's background is not that of an oppressed worker or downtrodden peasant. Like other Democratic Socialists, his parents were well off, he went to the best schools, and never held down a real job. He is a member of a privileged elite who has somehow managed to capture the support of the Democratic party in New York City.

*Alexander Solzhenitsyn: Cancer Ward, 1968. Penguin books, 1971.

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Today's Quote: The urge to save humanity is almost always a face for the urge to rule it. H.L. Mencken