As most of my readers know, I am not a fan of the "Occupy Wall Street" movement. In fact, I've been quite critical of these people. But I do have to agree with OWS on one thing: Executive compensation has gotten out of hand. The latest evidence comes from Nabors Industries, which has just named a new CEO. What happens to 81-year old Eugene Isenberg, the former CEO and Chairman? Well, he's not exactly going away. He will remain Chairman. But since one of his titles is being taken away, he will get $100 million to help soothe his sorrows. Nice gig if you can get it. OWS would be right to be irate about this. I just wish those protestors felt the same way about overpaid athletes and entertainers, too.
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Monday, October 31, 2011
Friday, October 07, 2011
Obama Goes After Starbucks
Rising commodity prices are taking their toll on all kinds of manufacturers, but the latest news that Starbucks will be raising prices anywhere from five cents to a quarter per cup of "joe" has customers really worked up.
Some coffee lovers are even asking for a consumer coffee protection agency to prevent this kind of predatory pricing. They want the government to act right now. One latte lover who asked not be identified said, "I can't live without my coffee. It is completely unfair for Starbucks or any other coffee shop to just raise prices whenever they want to."
President Obama even got into the fray. While clutching a caramel macchiato with both hands, he said, "Starbucks doesn't have some inherent right just to get a certain amount of profit." He urged Congress to immediately pass legislation that would require fully transparent coffee pricing and limit by how much any coffee brewer could increase prices. He said consumers need to know exactly how much money they are paying for their coffee.
Starbucks CEO Howard Schultz defended his company. He insisted that Starbucks is already very transparent in its pricing. He said, "Every purchase is rung up on a state-of-the-art cash register. Each customer is told exactly how much he or she must fork over for our coffee. If they don't like it, they can drink that stuff from the diner down the street." Furthermore, in a complete rebuff to the President, Schultz insisted, "We at Starbucks believe we do have a right to make a profit!"
When informed of Schultz's remarks, President Obama admitted that he doesn't actually buy his own coffee anyway. "Joe Biden usually picks it up for me on the way to the office every morning."
Note to readers: In case you lack a sense of humor, this blog post was completely fabricated from my own imagination.
Some coffee lovers are even asking for a consumer coffee protection agency to prevent this kind of predatory pricing. They want the government to act right now. One latte lover who asked not be identified said, "I can't live without my coffee. It is completely unfair for Starbucks or any other coffee shop to just raise prices whenever they want to."
President Obama even got into the fray. While clutching a caramel macchiato with both hands, he said, "Starbucks doesn't have some inherent right just to get a certain amount of profit." He urged Congress to immediately pass legislation that would require fully transparent coffee pricing and limit by how much any coffee brewer could increase prices. He said consumers need to know exactly how much money they are paying for their coffee.
Starbucks CEO Howard Schultz defended his company. He insisted that Starbucks is already very transparent in its pricing. He said, "Every purchase is rung up on a state-of-the-art cash register. Each customer is told exactly how much he or she must fork over for our coffee. If they don't like it, they can drink that stuff from the diner down the street." Furthermore, in a complete rebuff to the President, Schultz insisted, "We at Starbucks believe we do have a right to make a profit!"
When informed of Schultz's remarks, President Obama admitted that he doesn't actually buy his own coffee anyway. "Joe Biden usually picks it up for me on the way to the office every morning."
Note to readers: In case you lack a sense of humor, this blog post was completely fabricated from my own imagination.
Thursday, October 06, 2011
Competition is the Best Way to Limit Profits
A few observations:
1. Steve Jobs, who passed away yesterday, was one of the greatest innovators in the technology sector. He was also one of the world's greatest business executives. He became a very rich man because his company, Apple Inc. made tremendous profits. He was admired by those on the political left.
2. Warren Buffett is one of the greatest investors of all time. He became a very rich man because his company, Berkshire Hathaway, made tremendous profits. He is admired by those on the political left.
3. When asked about Bank of America's plan to charge its customers a fee for using their debit cards, President Obama said his administration could stop this service charge "If you say to the banks you don't have some inherent right just to get a certain amount of profit." President Obama is admired by those on the political left.
It is true that no company has a right to make a certain amount of profit, but it is also true that in the United States we don't limit how much profit a company can make. A competitive free market capitalistic system does that for us automatically. High profits invite competition. Competition drives profits down.
Bank of America may have made a mistake by introducing this fee. If so, its competitors will pounce. They will begin advertising debit card services with lower fees or no fees at all. Bank of America will notice that it is losing customers.
That doesn't mean government has no role. We need regulations to make sure the banks don't take excessive risks that leave taxpayers on the hook for their mistakes. But we don't need the government telling banks what fees they can or can't charge. As long as those fees are transparent and as long as the market is competitive, consumers can decide for themselves which services they value and where they want to maintain their accounts.
1. Steve Jobs, who passed away yesterday, was one of the greatest innovators in the technology sector. He was also one of the world's greatest business executives. He became a very rich man because his company, Apple Inc. made tremendous profits. He was admired by those on the political left.
2. Warren Buffett is one of the greatest investors of all time. He became a very rich man because his company, Berkshire Hathaway, made tremendous profits. He is admired by those on the political left.
3. When asked about Bank of America's plan to charge its customers a fee for using their debit cards, President Obama said his administration could stop this service charge "If you say to the banks you don't have some inherent right just to get a certain amount of profit." President Obama is admired by those on the political left.
It is true that no company has a right to make a certain amount of profit, but it is also true that in the United States we don't limit how much profit a company can make. A competitive free market capitalistic system does that for us automatically. High profits invite competition. Competition drives profits down.
Bank of America may have made a mistake by introducing this fee. If so, its competitors will pounce. They will begin advertising debit card services with lower fees or no fees at all. Bank of America will notice that it is losing customers.
That doesn't mean government has no role. We need regulations to make sure the banks don't take excessive risks that leave taxpayers on the hook for their mistakes. But we don't need the government telling banks what fees they can or can't charge. As long as those fees are transparent and as long as the market is competitive, consumers can decide for themselves which services they value and where they want to maintain their accounts.
Monday, October 03, 2011
Investors Ignore Buffett's Obama Endorsement
Warren Buffett is admired for his investment prowess. Unfortunately for Democrats, that admiration is not translating into influence in the political sphere. The White House is counting on Buffett to help raise lots of money for President Obama's campaign, and for the Democratic party in general. The president even dubbed his initiative of making "millionaires and billionaires" pay at least the same tax rate as those in the middle class the "Buffett Rule." He should have called it the "Buffett Tax."
The name results from Buffett's claim that his tax rate is well below that of his secretary's even though he makes much more money than she does. Although Buffett has not released his tax returns, we can assume his favorable tax rate occurs because his income is primarily in the form of dividends and long-term capital gains, which are taxed at just 15%, and because of the large deductions he probably takes for his charitable contributions. His secretary's income, on the other hand, consists primarily of her salary, which is considered ordinary income and taxed at a higher rate.
Before trying to occupy Wall Street, consider the following: First, it is not true that most millionaires and billionaires pay taxes at a lower rate than the middle class. In fact, figures from the IRS prove they pay taxes at much higher rates. Even if they have a lot of deductions, they get snared by the alternative minimum tax. If Buffett's tax rate is indeed as low as he claims, that's highly unusual. Rather than raising rates on everybody, let's first scrutinize Buffett's tax return.
Second, there is a valid reason why dividends and long-term capital gains are taxed at only 15%. It is because that money has already been taxed at the corporate level. It would make perfect sense to tax dividends and capital gains at the same rate as any other income, but only if we eliminate the tax on corporations first.
Getting back to Warren Buffett's rather insubstantial political influence, The New York Times recently reported that the turnout was disappointing at a recent fundraiser for President Obama hosted by Buffett. While investors no doubt still prize Buffett's keen sense for detecting undervalued assets, they apparently have much less admiration for his political views.
The name results from Buffett's claim that his tax rate is well below that of his secretary's even though he makes much more money than she does. Although Buffett has not released his tax returns, we can assume his favorable tax rate occurs because his income is primarily in the form of dividends and long-term capital gains, which are taxed at just 15%, and because of the large deductions he probably takes for his charitable contributions. His secretary's income, on the other hand, consists primarily of her salary, which is considered ordinary income and taxed at a higher rate.
Before trying to occupy Wall Street, consider the following: First, it is not true that most millionaires and billionaires pay taxes at a lower rate than the middle class. In fact, figures from the IRS prove they pay taxes at much higher rates. Even if they have a lot of deductions, they get snared by the alternative minimum tax. If Buffett's tax rate is indeed as low as he claims, that's highly unusual. Rather than raising rates on everybody, let's first scrutinize Buffett's tax return.
Second, there is a valid reason why dividends and long-term capital gains are taxed at only 15%. It is because that money has already been taxed at the corporate level. It would make perfect sense to tax dividends and capital gains at the same rate as any other income, but only if we eliminate the tax on corporations first.
Getting back to Warren Buffett's rather insubstantial political influence, The New York Times recently reported that the turnout was disappointing at a recent fundraiser for President Obama hosted by Buffett. While investors no doubt still prize Buffett's keen sense for detecting undervalued assets, they apparently have much less admiration for his political views.
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