Taking Another Shot at the Profit Motive

The Occupy movement is encouraging people to take their money out of “big Wall Street banks” and to open accounts in local credit unions. Now, a Portland mayoral candidate is urging the city to do just that with some of its official funds.

Big banks are understandably under fire for their role in the recent economic downturn and for their ability to get bailed out by their friends in Washington, D.C. But the call for moving deposits from banks to credit unions relies in part on an assumption that must be challenged.

One reason mayoral candidate Jefferson Smith gives for advocating that public funds be deposited in credit unions is that “[a]s not-for-profit financial institutions, credit unions don’t pay boards or stockholders, meaning credit unions can offer advantageous interest rates.”

What Smith and the Occupiers apparently don’t understand is that profit is not so much a cost that raises prices as it is a signal that consumer needs are being met. Satisfy more consumers, and a business can earn more profits. And, those profits don’t have to come at the expense of higher prices. In fact, some of our most profitable businesses got that way by lowering prices to attract more customers.

So, if credit unions offer a better deal, then by all means consider them. Just don’t fall for the profit-is-bad justification touted by some candidates and protesters.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.