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Wednesday, October 6, 2010

The Enemy of Growth

Oct. 6th, 2010

by F. Grey Parker

It has become increasingly clear over the last decade that the number one enemy of growth is actually profit. Sustainable expansion of markets has taken a back seat to quarterly profit taking.

Few stories could illustrate the continuing problem better than a report today from the Wall Street Journal:

"companies in the Standard & Poor's 500-stock index posted second-quarter profits of $189 billion, up 38% from a year earlier and their sixth-highest quarterly total ever, without adjustment for inflation."

Let's take a closer look at that big number.


If one third of that number was dedicated to expansion and, in turn, another third of that set aside was used to hire workers at just $25,000 per year, the number of jobs created would total 840,000. There would still be 126 billion dollars in profit.

Let's take a closer look at that big number.


Those 840,000 workers would begin to reliably consume. Markets for goods and services would subsequently expand. This would drive profits higher. Unfortunately, the market gain could not possibly be achieved in a 90 day period. Stockholders would rail against the drop in dividends. Thus, there is no longer a management philosophy in this country that places any value on longer term thinking.

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