Public Company Disease

Businesses provide product(s) and/or service(s), but they exist to make money. There are altruistic business owners who are not trying to make money hand over fist, but to stay in business they still need to make money. Whether a company is privately held (does not offer shares to the general public) or publicly held (its registered securities--stock, bonds, etc.--are for sale to the general public) the profit it makes goes to the owners. How much ends up as profit is adjustable. Once obligations are covered (e.g., paying for utilities, rent, purchases, etc.) the remaining money can be put back into the business (e.g., buy more machinery, facilities, etc.) to grow that business or the money can be declared profit and dispersed among the owners. If the "excess" money is never reinvested back into the company and the owners keep taking it as profit all the time, the business will never grow and most likely it will fail. I understand this is a simplistic explanation, but I don't want to bore you too much. :-)

People generally buy stock in a public company to make a profit and the sooner the better. Because public company owners are focused so much on making fast profits, the managers who run public companies are also focused on the fast buck. I remember reading about a computer company CEO a few years back who increased the company's stock value by over 50% in a short period of time, but was fired because the owners expected even more! Because managers want to make a lot of money now too often they sacrifice future profits and value of the company. This is the public company disease and it doesn't just affect public companies.

There's been a lot in the news lately about sports figures on steroids. In an attempt to be big and strong and make the big bucks now, those athletes are seriously endangering their future health. Others in society take illegal drugs because they want to feel good now. They risk not only their short- and long-term quality of life, but life itself.

Any body--be it human, business or government body--that sacrifices the future for the now, jeopardizes the long-term health and viability of that body.

In an attempt to feel good now by getting out of the recession immediately instead of letting markets correct themselves over time our government is throwing money at the problem. Current estimates are that they will stop at 5 trillion, but there's no guarantee of it ending there. I ran some calculations in an earlier post, but maybe I drew the payback out too long (over 2000 years) so the debt didn't look so big. So let's recalculate.

Whenever we hear people mention the national debt we typically hear them say we are indebting our children. Sometimes they also say grandchildren. I don't remember ever hearing anyone in the media say anything about great grandchildren, so let's just suppose our grandchildren need to finish paying it all back. Let's stretch the time line out and let's start with those who just became adults: 18 year olds. Let's say they start having children about 10 years later (right around the average nowadays) and the same holds true for their children and their grandchildren. In other words, their children are born 10 years from now, their grandchildren are born another 28 years after that or 38 years from now. Those grandchildren will then only have 46 more years to pay off the debt before their children arrive at adulthood and have the burden passed on to them (28+18). That totals 84 years.

Before we go any further I feel it's important to mention that our government is telling us that we won't have to pay off the full amount because they expect to make money on the bailouts. If "experts" in the field of finance got us into this mess and couldn't get themselves out of all that bad debt that the government is taking off their hands, what makes us think that the "experts" in government can get out from owning all that same bad debt? But let's give them the benefit of the doubt and assume that we'll get at least some of it back. Of course let us not forget that while we're waiting to get it back we have to pay interest on all that money now. So let's just say that the money we get back balances out the interest we're paying in the interim so it turns out to be a wash and we have to pay off $5,000,000,000,000 total.

Divide that five trillion dollars by 84 years and we have to pay off over 59 billion dollars ($59,523,809,523.81 to be exact) every year ... and that's just so our great grandchildren aren't indebted by it. That sounds like a lot of money, and it is, but on a per taxpayer basis it comes out at under $500. That doesn't sound too bad, but do you want your taxes to go up by that much (not to mention for everyone else for the next 84 years)? Aren't taxes high enough already? We keep being promised by this administration that our taxes will go down, not up. How's that supposed to happen when we have more and more debt to pay off? Remember, these calculations aren't taking into account our current indebtedness. Just like in the infomercials we can say, "But wait, there's more. Now how much will you pay" in higher taxes?

The public company disease is already at pandemic proportions. It's time to bite the bullet and take our medicine now before our government body gets any sicker.