| Should price gouging be a felony? Should it be a crime | | | | In other words, the full cost of doing business. |
| for someone to take advantage of market conditions | | | | Many people think businesses earn as much as 50% |
| and make too much profit? How can the government | | | | or 60% of the prices their products or services sell for. |
| let big corporations and rich industrialists get away with | | | | In fact, they may end up keeping as little as one or |
| making so much money simply because they are in a | | | | two percent of their revenue or sales, as in the case |
| position to control the supply and manipulate prices? | | | | of supermarkets, or it may be five to ten percent, as |
| It’s not fair. What about the little guy? | | | | with restaurants. The oil companies, which are |
| “There ought to be a law” is an old cliché. So, | | | | currently being castigated by just about everyone, |
| why not prevent “price gouging” and | | | | manage to keep (net) only “8.3 cents per dollar of |
| “excess profits” by passing laws to regulate | | | | sales. Beverage companies and cigarette makers, by |
| everything involved in producing and delivering all goods | | | | contrast, earned 19.1 cents. Drug makers, 18.4 cents. |
| and services? | | | | Indeed, all manufacturers, 8.9 cents on average, made |
| Unfortunately, there is one small problem: defining | | | | more than ‘Big Oil.’” (“Profits of |
| “price gouging” and “excess profits.” | | | | Doom,” IBDeditorials, May 1, 2008). |
| So, what are they? You tell me. I haven’t a clue, | | | | What about those individuals who make substantial |
| and I’m a retired CPA. | | | | profits on investments in public companies, starting their |
| Should “profit” be determined solely on the basis | | | | own businesses, or real estate? Many people invested |
| of markup? Just how much should businesses be | | | | in IBM, Microsoft, Berkshire Hathaway, Yahoo!, Cisco |
| allowed to mark up the cost of their raw materials and | | | | and other enterprises that ultimately became hugely |
| or labor? Do we need a law against prices that double | | | | successful, making them rich in the process. Should |
| the cost, or more, such as cosmetics, drugs, groceries, | | | | they also be subject to “excess profits” taxes? |
| restaurants, dry cleaners, actually just about anything? | | | | Or, what about those homeowners whose properties |
| Seems simple, doesn’t it? But, just how should cost | | | | increased in value by 500% or 1,000%, or more. Are |
| be figured? Does it include labor and materials plus all | | | | those “excess profits” that should be taxed to |
| the other expenses of running a business? That is, | | | | prevent people from taking advantage of market |
| literally everything and anything that’s necessary to | | | | conditions? |
| run an enterprise. How about the salaries of the | | | | We repeatedly hear politicians complain about how |
| owners or executives who manage businesses? | | | | much money various businesses make, such as the oil |
| Should they be considered part of the cost of doing | | | | companies, drug manufacturers, hospitals and doctors, |
| business? | | | | Wal-Mart, just about any company or industry that |
| Is it even possible to create legislation that regulates | | | | garners public attention. |
| literally everything involved in the process? And, what | | | | But, who would determine the amount of profit that is |
| about the cost of implementing such laws: defining, | | | | too much? Would some board, commission or agency |
| regulating and policing them? | | | | decide how much businesses should be paying for the |
| A commentary that circulated on the Internet | | | | raw materials they use in manufacturing or what they |
| highlighted huge markups that drug manufacturers | | | | should be spending on advertising or perhaps the |
| make on the active ingredients in their products. At first | | | | wages they should be paying, or how much their rent |
| glance, the raw data is quite shocking. | | | | should be, or what they should pay for any product or |
| Here are some examples of the spread between the | | | | service they use, or how much they should be allowed |
| selling prices of some popular drugs and the cost of | | | | to mark up their costs? |
| the active ingredients used in manufacturing them: | | | | The entire process is a “slippery slope,” |
| Celebrex - 21,712%; Claritin - 30,306%; Lipitor – | | | | guaranteed to become a nightmare of rules and |
| 4,696%; Prevacid – 34,136%; and Prilosec – | | | | regulations, much like the tax code. |
| 69,417%. If anything ever seemed excessive, markups | | | | To those who may think they know how to create |
| of this order certainly seem to qualify, don’t’ | | | | and implement legislation that can make price gouging |
| they? | | | | illegal or tax “excess or windfall profits” without |
| However, the problem with this type of information is | | | | destroying the incentive to produce, good luck! I |
| that it omits the other numbers that are needed to | | | | confess, it’s above my pay grade. |
| make a judgment, that is, all the costs of | | | | © 2008 Harris R. |
| manufacturing, distributing and marketing the products. | | | | |