With Apologies to Murray Rothbard

Over at Carpe Diem, Mark Perry has an interesting piece on perception vs reality. It turns out, the average person in a Reason-Rupe poll believe the average corporation enjoys a profit margin of approximately 36% (in other words, for every dollar they take in, the corporation keeps $0.36).  The reality is different, however: the average corporation enjoys a profit margin of about 7.5% (the median is 6.5%).  Some firms, such as Wal-Mart, enjoy even less, at about 3.1%.  Wholesalers and restaurants often operate at less than 1%.

Why is this important?  Economics is, after all, a dismal science.  This is important because activists call upon government to make policy based on their false assumptions.  They argue from ignorance and demand government do something based upon their ignorance.  This ignorance is why we end up with such harmful economic policies like minimum wage, protectionism, high taxes, and burdensome regulations.  No one would ask a man off the street to perform brain surgery, and yet economic policy is debated and determined in exactly that way.

It is no crime to be ignorant of economics, but to hold an unwavering and demanding opinion while remaining in a state of ignorance is just downright irresponsible.

7 thoughts on “With Apologies to Murray Rothbard

  1. That kind of ignorance extends pretty deep and wide, and not just in the looney left community. Those who consider themselves conservative are frequently infected with that same ignorance. Why? Because the left has been able to dominate the education system and the media, so kids grow up with wrong information and never find anything to counter it until long after their belief system is so heavily cemented in that they have a hard time accepting truth.

    Look at the post I did yesterday on the CafeHayek Friends of the comments from Peter Mitchell, who claims he is not leftist. Even common sense evidence from Archaeology of trade (where there is trade there has been a market) going on long before humans learned to write, and that is rejected by Peter as revisionist history. To Peter, and most people today, capitalism, trade, and markets were all invented sometime in the 18th century and before that everything was theft.

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  2. Excellent essay Jon,
    I’m going to try to keep track of erroneous facts like that about profits. Perhaps you can too. Good point made by Vidyohs about irrelevance of socialized education. Wouldn’t it be wonderful if high school could teach basic economics of business.

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  3. Assuming businesses generally enjoy profit margins upwards of 36% is likely due to confusing the markup of products and services versus the actual profit margin. Markup of products versus profit margin might be a good subject matter to discuss, Jon Murphy.

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