Monday, November 20, 2017

Accounting Facilitates Media Attacks On Capitalism And Profits: My WSJ Comment

My published comment in the Wall Street Journal, Opinion, "Quit Modifying Capitalism: Profits should be pure, generated from price signals between buyers and sellers." by Andy Kessler:
The accounting profession gives cover to attack capitalistic profit-making companies by overstating profits and ignoring economic sustainability. For example, investors expect a risk-adjusted total return of dividends and price appreciation as compensation. Yet, investors are treated as if their taking on the risk of loss of their money is done without expectation of anything in return from companies. Likewise, interest expense on debt reduces profit but principal payment does not. As if, a household's wages only have to pay the interest portions of mortgage and credit card debt and not the repayment of the money owed. Most media focuses on profits solely, but without a repayment of debt and a risk-adjusted return of capital, very few companies would exist and most entrepreneurial activity would cease. When governments regulate companies and industries and distort market prices, governments negatively affect the economic sustainability and survivability of firms, lowering GDP growth.

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