Monday, November 10, 2008

The Profit Crunch

As one of the nation's newest--and foremost--economic experts, I would like to inform you all of the main problem with the corporate structure as it exists:

Profits from boom years are not retained to cover losses during bust years. They are instead distributed to investors and spent on ridiculous executive salaries, increased advertising budgets, corporate retreats, useless conferences, and dubious R & D, which mostly just concerns a redesign of packaging and a cheaper, more-dangerous ingredient list.

Therefore, unless the boom continues without end, there will always be a decline in profits, which decreases the stock price--since the stock price was already based on certain unmet sales expectations--and leaves the company scrambling for cash.

What are the first things that a company does in such a situation?

1. Raises the price of their product slightly, yet again, so that only penny-pinchers and super-observant people notice.

2. Cuts the salaries of all non-management employees.

3. Cuts benefits of all non-management employees--especially pricey things like health care and retirement payments--despite previous promises of lifelong care.

4. Replace all real-world ingredients with cheaper, similarly-flavored chemicals.

5. If this doesn't work, appeal to the government for help, since your industry is 'crucial' to the existence of the world as we know it.

Now, let's think of a few real-world examples:

1. Hostess. How long have the good people at Hostess been making, as David Foster Wallace once called them, "shadow snacks*?" Forever. Have the ingredients stayed the same over the years? No way! You know how expensive real sugar is? Real butter? Shit--if they can save $0.001 per cupcake by using some sort of experimental cancer-causing 'butter-like agent,' they will. They have. Had a cupcake recently? They taste like SHIT. So, as the price of their ingredients plummets, as the real wages of their employees likewise plummet, as benefits for said employees disappear...the price has gone steadily UP--outpacing inflation, outpacing increasing fuel costs. Why has it gone up? Because they need to feed the monkey, man! God forbid they were content with selling 50 billion cupcakes a year and making a mint. They had to get greedy--"what if we can find a way to sell 100 billion cupcakes a year! Yes! Let's do it! Let's sell ourself off to Interstate Baking Corporation (share price $0.04, btw) and turn our bakery into a money machine! Oink! Oink!"

2. General Motors. Formerly the World's Largest Automaker (title now belongs to Toyota, as of 2007, fyi), they have famously been hit by 'hard times' every single year of my life. Or so it seems. Laying off employees, eliminating health benefits, spending the pension fund...all to strip down, become leaner and meaner, to more-agilely continue the pursuit of their long-term goal--total self-destruction by an INCREASED reliance on gas-guzzling trucks and SUVs. So let's see...a dinosaur has no idea what it takes to compete in the marketplace, can't even see into the past, much less one year into the future...we can't let this company go under! We must bail it out with taxpayer money! What would we do without its lack of foresight and gross inefficiency? It is America! If we all have to start driving around in Toyotas and Hondas and BMWs it would just be so...nice...

3. AIG. The biggest insurance company in the world--by far. Imagine if AIG had in its bank accounts the $5000 trillion dollars it has probably collected in insurance payments over the last...15 years. Now, being an insurance company that, like them all, thrives on the small print, they probably only paid out...$5 trillion dollars over the same period. Where, then, is the other $4995 trillion? Is it in the bank? Can they use it to bail themselves out of this 'disastrous predicament' that they brought on themselves by being greedy, short-sighted, and stupid? No. It has already been paid out to wealthy stockholders and executives. It has been spent on lavish executive washrooms with marble toilets and single-use silk toilet paper. It has been spent on pointless annual conferences in Las Vegas, Thailand, the Cayman Islands, Dubai--anywhere there's gambling, booze, and a bottomless supply of hookers. It has been spent to hire friends of friends to redundant positions, just to keep management fun, to spread around the bottomless money, to have enough guys onboard to play polo against Morgan Stanley over the weekend. It has been spent on mailing every house and apartment in America an unwanted pile of steaming junk mail every week. It has been spent on hiring expensive consultants to do the jobs of people on-staff who would rather not actually do their jobs. It has been spent buying up enormous amounts of questionable, risky, derivative securities that they didn't even fully understand. The list could go on indefinitely...

Don't even get me started on the banks--if they have proven to be incapable of managing money...why are we giving them more of it?

Which brings me to my main point:

Whatever happened to the beautiful, self-refining, social-Darwinistic side of market capitalism? Why are we not just letting the firms that did not make mistakes fill the void left by those that did? Isn't deregulation what they all wanted in the first place? Careful what you wish for, assholes!

*A 'shadow snack' is a food product that is desirable not because it is healthy, but because it is delightfully bad for you, an indulgence, which runs counter to the recent, general trend toward healthy foods.


1 comment:

LiteralDan said...

I agree with every word of this, and it makes me more angry, sad, and frustrated to read someone else saying the same thing.