Sunday, November 02, 2008

The Marginal Profit Red herring

When I read that America's GDP has fallen ( meaning we're producing less and selling less ) while ExxonMobil announces the highest corporate profits in history - any place, any time, throughout all history - the reichwing reaction is to reply that Big Oil's "margins" are really, really low.

As if that matters. It doesn't.

By "margin" they mean either the percentage of profits over sales, or the percentage profits over assets, or some combination thereof. Their exact definition varies, but it doesn't detract from the simple fact that Big Oil makes so much money that it threatens our democracy's survival. The "marginal profit" argument is nonsense, but it has the function of distracting from that reality.

The nonsense of the technical argument is clear when you compare Big Oil to the canonical penniless boy selling apples on the streetcorner. He buys apples on credit at a penny each and sells them for an nickel.

Thus his "margin" is gigantic: sales of 5cents on costs of 1cent is a margin of several hundred percent.

Or let's figure it on the basis of assets. He is by definition penniless; he has no assets. His profit margin, therefore, is infinite.

Thus the penniless appleseller on the streetcorner have a vastly higher margin (however you calculate it) than Big Oil. By reichwing logic, he is more successful than Big Oil!

P.S. the canonical streetcorner appleseller is a thing of the past but a very creative and useful replacement is Real Change, a newspaper that helps the homeless set up their own small business. The key (to me) is that this is not charity: the newspaper is a real paper, with real value. I buy it every week not out of charity (...although I do feel good about it...) but because it covers different stuff than the regular news. Look at their archives: It delivers good value for the money, which is smart and, I hope, a source of price. I highly recommend it:

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