Thursday, July 19, 2012

"You Didn't Build That."

As someone at least somewhat familiar with the concept of economics, I'm always astounded at the disconnect people have with how economics works. That's easy enough to forgive, of course; there are plenty of maxims of economics that seem, on their face, to be illogical and yet make perfect, logical sense (see comparative advantage for a reasonably simple example).

Of course, if you're foolish enough to get politics involved, all logic goes straight out the window.

I generally don't like to take about specific political events here, mostly due to my inability to have access to this blog for most of each day. By the time I get around to writing about current events half of the internet has already written about it and the other half has digested it and formed a rock-solid opinion about it, so my contributions are usually meaningless.

However, the President's recent remarks seem to have marked a fundamental change in the political landscape, so I think an exception can be made.

Let's back up a little bit. A few months ago, Massachusetts senatorial candidate Elizabeth Warren made an oft-quoted statement about her opinions on the capitalist system:
You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
If you want a bare-bones distillation of how the contemporary progressive movement in America views economic activity, this is it.

For some, of course, it seems to make sense: you can't start a business if there isn't a foundation to build it on, and that foundation is (more or less) by necessity a social good. Like any good politician, though, she stretches the straw man beyond recognition and in the process makes the economic libertarian's point for them. There aren't many free market economists that are calling for the tearing up of roads or dismantling the army; these are textbook examples of the free rider problem, a well-established and recognized market failure of capitalism. Any good free marketeer would immediately point to the armed forces and our judicial system (and, with a little hesitation, roads and power lines) as one of the few true responsibilities of the government, since the free market (by their advocates' admission) can't provide it in any meaningful sense outside of a classroom graph. I suspect that if you were to make an offer to any free marketeer that they would pay taxes on these services (and those services only) they would jump on it with two feet and willingly give the government all the credit.

She's extrapolated what free marketeers already agree on, and assume that's what they want to dismantle. This is, of course, far from the case. And when she then accuses the rich from benefiting from these free rider services, she seems to imply it's because they don't want to pay for it--ignoring, of course, that the rich pay so insanely more in taxes than anyone else, it can truly be said that the reverse of what she said is true: everyone else is living off of what the rich built. When she said that a successful businessman moved their goods to the market "the rest of us paid for," it's flatly wrong, because the amount of tax revenue generated by successful businessmen paid for a majority of said road. They should be able to use it, because they paid for most for it, and they shouldn't have to feel guilty about it. If the businessman wasn't moving his goods on that road, the road most likely wouldn't have been paid for. So who is really contributing to the common good?

I assumed this was simply a one-off statement by a liberal-minded candidate in arguably one of the most liberal states in the union, so I didn't give it to much thought--sure, she became the darling of the extreme economic wing of the liberal movement, but so what? And as one senator out of a hundred, she can't do much damage (though is certainly not alone--Hi, Mr. Sanders!).

However, this all changed when Barack Obama effectively said the same thing:
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet. The point is, that when we succeed, we succeed because of our individual initiative, but also because we do things together.
If you've got a business, you didn't build that. This unbelievable American system that we have that allowed you to thrive. This is even more to the point of anything Warren has said. Of course, the point can be diffused; obviously, no business can succeed on its own (they need paying customers, for one). And he seems to cover himself in that last sentence, dangling the thought that initiative might have something to do with how well a business does.

[I'll let slip that creating a government that allows someone to thrive is a direct contradiction with the natural rights of man, but this could easily have been a slip-up and without a sustained repetition of this thought I'll give him the benefit of the doubt.]

The thing is, as with any economically creative endeavor, of course individuals built it. Sure, these individuals are benefiting from roads and cops and security, but we all are, because we all pay taxes. No business owner gets into their business thinking their ultimate goal is to exempt themselves from paying for free-rider problems--if anything, they'll end up paying more in taxes the more successful they are, and thus will have a better claim at building the work "the rest of us did." And business owners risk their own money and their family's time and a good portion of their lives creating something for this economy. That is definitely something that the "common good" had nothing to do with. Not being able to differentiate between these two things--benefiting from the common bedrock of society, and taking a risk with their own time and resources--is the height of arrogance. 

I realize it's a childish thought, but there's a part of me that wonders if individuals like Obama and Warren don't realize exactly how difficult it is to start and manage a business, especially a small/medium business. The fact that he introduced a costly health care program in the middle of a recession making it even more expensive to hire people makes me think he had little idea exactly how difficult it is.

In the end, politicians like Warren and Obama miss the point. The rich don't want to not pay taxes on roads and the justice system--they need that, just like everyone else, and we'd still have these things, regardless of how many rich people we have. (And to believe that even roads and education and the military don't have a ton of waste and are above criticism should be silly for just about any rational person.) They are upset about taxes because taxes go to so many things that are decidedly not part of the "social contract" we have. Someone who doesn't see that is a decidedly short-sighted politician, but, sadly, will most likely be a successful one.

1 comment:

  1. Good post. I can't decide if the president's health-care-overhaul-in-a-recession plan shows he's completely clueless, or if he knew the expected consequences but just didn't care.