Econ 101

Let’s pretend that I run two businesses. Widgets Inc enjoys sales of a million dollars per year, with net profits of a half million. At the same time, Doohickey Corporation has earnings of a billion dollars, with net profits of 20 million dollars per annum. Now let’s say that you have a million dollars, and you want to start a new business to compete with me. Would you rather make widgets or doohickeys?

If you answered “Doohickeys,” then you’re an ignoramus, or you might be Jimmy Carter.

The most dangerous legacy Carter left us with was the “windfall profits tax,” and I mean to explain why by using the Let’s Pretend example above.

Competing with Doohickey Corporation looks pretty sweet. I mean, they made 20 million dollars last year, and that’s nothing to sneeze at. Heck, it’s not even anything to burp at, even one of those tiny burps you think no one else noticed during the dessert course. But if you look a little harder, you’ll find that Doo-Corp eked out a tiny 2% profit margin. Do you really think there’s room for your brand-new company in an industry with profit margins that small? I wish you the best of luck, but don’t look to me for any start-up money.

Widgets Inc is another story. Sure, they made “only” $500k