Other People’s Profits

I too have been musing about the Santiago bus problem. My conclusions are similar to Mr. Kling’s, but with differences. People don’t hate profits so much as they think of profits as overhead. If you eliminate profits, there’s more left over for providing goods and services. Right?

Of course it’s not right! But it’s not careless reasoning – it’s reasoning based on incomplete knowledge. Relatively few people understand why profits are needed to improve the general welfare. Even with some understanding of economics, people might understand how profits lead to progress without understanding that progress would be much reduced in the absence of profits. Witness all the poor souls who argue that universal health care would save money by eliminating the profits of insurance companies.

So here’s what people need to understand: progress comes from taking risks. Some people take risks in order to make profits. Eliminate profits, and some people will still take risks, but not nearly as many – and there will be much less progress. The Santiago bus problem, and countless other examples of self-defeating political behavior, comes from people simply not understanding how much other people’s profits improve their own lives.

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