Profits Profits Profits

Evidently oil companies aren't hurting. I'm sure we're all glad to hear that, since I know that my biggest concern when I get up each morning is the thought that, perhaps, a massive oil company might not be making as much money as it used to. So thank goodness for that.

What a pile of donkey shit. Oil companies claim that they need to raise the price of oil because they aren't making money, and then we learn that they are making money, money hand over fist in fact. And while I'm sure that this money is enriching the common man through the stock market, it's mostly enriching already rich people. So if oil companies are making record profits, why is gasoline still so expensive? Sure, the price of oil has gone up, but that should cut into profits, not into the price of gasoline.

Well, I'll tell you why, if you didn't already know. There is a saying in business: "If you're not growing, you're dying." The truth of the basic statement can be debated, but let's just assume, for the sake of argument, that it's true. So growth is necessary.

The problem is that companies don't measure growth like normal people. A normal person thinks that if you make a profit, you must be growing, right? If I take in more than I spend, I can afford to save for things which will improve my life, or if I'm a business owner, I can afford to spend more money on business expenses, hopefully improving the quality of my business and thus maintaining that favorable level of profit.

But company growth doesn't work that way. See, if you make the same profit every quarter, your profits aren't growing. So you must make more profits each quarter, not just make a profit. So if a business makes a profit and funnels that profit back into the business (which it probably doesn't, in the real world, since CEOs have to get paid), the next quarter, increased spending should mean that, to simply maintain the same profit margin, a larger amount of money must be made. But you can't just maintain the profit margin; it has to grow, which means that increased business expenses must translate into greatly increased revenue. Expense to revenue can no longer be a linear equation, and that's just silly.

If your head is beginning to hurt, imagine that I, a lemonade stand, spend $5 in my first week of business. In return for this expense, I make $10 (it's a thirsty town). I turn around and next week I spend $10 dollars. Return is $20. I spend $20, it returns $40. My profits, by week, were $5, $10, $20. Plot the curve; it's not a straight line. Or don't, and take my word for it. Consistently doubling profits is growth, in the profit sense, and it will, if it continues, eventually make a lot of money.

The problem is that it doesn't continue, because eventually I buy several thousand dollars worth of lemonade and there is not enough demand. So I have to cut costs to keep my profit margin going up. I start making the lemonade out of fake lemons. Then I reduce the amount of lemonade per glass. Then I buy cheap water from the sewage treatment plant. I can also increase revenues by selling sewage for $2 a glass. Then when no one buys it, I can tell the government to illegalize all other forms of beverage because they create unfair competition. Then I can shaft my stockholders while maintaining a healthy salary for myself. I think you see where this is going.

The best part is that maintaining profit growth is only phase one. If the amount by which your profit grows remains constant, you're still not growing. So in the example above, since my profit is always equal to the money I put in, that's not acceptable. I should get more money back from my investment each quarter, even if I maintain or reduce my expenses. I'm sure that students of calculus could tell us that even that isn't the end; there's another derivative to be taken, then another, and if all of them have to result in something other than a straight line... well, suffice it to say that this way madness lies.

And this is all assuming that companies are strictly on the up-and-up, and aren't interested solely in providing hefty bonuses for the top echelon. It would be naive to assume that.

I won't get into my opinions on distribution of wealth, but it seems to me that making money is fine, but continually making more money is madness. There has to be a ceiling somewhere. When we all go broke because gas prices become obscene (which they certainly aren't now) maybe the ceiling will be reached. Maybe not. Maybe we're all so addicted to gasoline that we won't care.

On the plus side, high gasoline prices might spur innovation and possibly save us from destroying the environment and depleting our entire energy supply. It might, but I'm not making book on it. And there's no reason why a few unscrupulous people should grow fat off that tragedy.