Obama: The President’s Job is Not to Maximize Profits

It is not news that President Obama does not understand economics. Nor is he alone in not understanding the role of profits in an economy. But anyone who wants more employment will want to maximize profits. Profits are a leading indicator for employment. If businesses are making more profits, they will have the money to pay workers, give raises, and above all hire new workers. Moreover the profits will give the businesses an incentive to do all these things.

If unemployment is very high or chronic, it means that there is a problem in the relationship between prices and costs, a problem which is holding down profits. This is not an economy wide phenomenon. It is company, industry, and sector specific. One industry may be fine; another not fine. Macro-economic policies that affect all parts of the economy won’t be able to fix it. Usually the way to fix it is for government to get out of the way and stop interfering with the price system. The market price system can fix itself (there is a powerful profit motive to do so), but not if government keeps controlling prices.

In his speech, President Obama not only minimized the role of profits. He made profits and more employment sound at odds. He added that the president has to worry more about workers than profits. But in real life, profits are not only a leading indicator for employment. They are also a leading indicator for wage levels. To suggest that profits are earned at the expense of workers is a Marxist idea which has long since been discredited.

Click here to hear what the president said.