Profits Discourage Investment?
17 May 2007
News Editor, WTOP Radio
Washington, DC
Dear Editor:
Morning anchor Mike Moss proposes that the U.S. government enter the business of gasoline refining. He argues that the private sector has no incentive to build more refining capacity as long as oil-company profits are high.
Mr. Moss's economics is backwards. It implies that private firms would consistently refuse to expand outputs of MP3 players, gourmet coffee, cell phones, and other high-demand products. Firms instead would invest only where profits are low or negative - treating consumers to endless supplies of the likes of chocolate-coated olives and cardboard condoms.
In fact, of course, the profit motive drives firms to invest precisely where returns are highest -- assuming that they're not thwarted by government regulations.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
News Editor, WTOP Radio
Washington, DC
Dear Editor:
Morning anchor Mike Moss proposes that the U.S. government enter the business of gasoline refining. He argues that the private sector has no incentive to build more refining capacity as long as oil-company profits are high.
Mr. Moss's economics is backwards. It implies that private firms would consistently refuse to expand outputs of MP3 players, gourmet coffee, cell phones, and other high-demand products. Firms instead would invest only where profits are low or negative - treating consumers to endless supplies of the likes of chocolate-coated olives and cardboard condoms.
In fact, of course, the profit motive drives firms to invest precisely where returns are highest -- assuming that they're not thwarted by government regulations.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Thursday January 10, 2008 at 10:57am