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Show GUEST EDITORIAL Profits -the Proper Perspective Taken From the United States Chamber of Commerce Publication "Nation's Business There is a great new furor over profits. Profits, the critics cry, are too high. Not so, answers business, opnce again appalled at the lack of public understanding of profits, particularly real profits in an economy gripped by double-digit inflation. The average American, whose budget is being ravaged by inflation, is not inclined to look beyond the headlines. His impression is that the big companies are making money while his paycheck shrinks. However, the "higher" profits that have become such a scapegoat are actually not high at all when adjustments ad-justments are made to account lor ( 1 ) higher taxes, (2) the increasing cost of materials used to make products, and (3) the difference between the original cost of factory equipment and the cost of replacing it at inflated prices. Many people don't want lo be bothered with these details, which are the key. to understanding Ihe true causes of inflation. For example, because of lower profits from production and higher effective tax rates, capital stock --modern --modern machines and buildings - per employee has declined since 1975 and is expected lo remain low for Ihe foreseeable future. Consequently, growth of output per hour worked -productivity - has slowed, in sharp contrast lo productivity during previous business expansions. The slower growth of productivity means that the average American household will get $2,500 less during 1979 than it would have received if productivity growth had been maintained. In large part, slower productivity growth has been caused by low investment growth, which, in turn, was caused by declining real profits from current production. As a result, says the Economic Forecast Center of the Chamber of Commerce of the United States, slower productivity growth alone has added up to two percent to the annual inflation, which results in a lower standard of living for Americans at every income level. Americans can readily comprehend the kind of fac ts that explain what is really happening to take-home pay. To find out those facts, Americans must delve into the true significance of profits, ignoring the superficial labels of "excess" and "windfall" bandied about by some politicans and the media. In an economic system based on profit and loss, with profits being the reward lor efficiency and risk-taking and loss being the result of inefficiency inef-ficiency and risk-avoidance, profits are essential in keeping the economy healthy. Inflation, not profits, makes the economy unhealthy. And the real causes of inflation are not profits, but a host of things such as deficit government spending, overregulation, and a tax system that inhibits capital formation. More Americans must realize that profits arc not the problem - they are the solution. |