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Sunday, October 07, 2012

Building it: In which I explain why "you didn't build that" so offended business people 

The American left frames the current election in terms of debt -- what one group of people owes to another. In their formulation, the wealthy owe more to everybody else, their "fair share," in the politically correct expression of the idea. About a year ago, the now Democratic candidate for the United States Senate, Elizabeth Warren, won the hearts of lefties everywhere with a speech that claimed that successful businesses were fundamentally collective instead of individual accomplishments:

"You built a factory out there? Good for you," she says. "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."
This summer just past, President Obama tried to make exactly the same point, but so botched his presentation of it that he handed the right a rallying cry (helpfully rendered in to out-of-context bold below):
There are a lot of wealthy, successful Americans who agree with me — because they want to give something back. They know they didn’t — look, if you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something — there are a whole bunch of hardworking people out there.

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.

In all the argument over whether conservatives were taking "you didn't build that" out of context, few on the left acknowledged that he was trying to say what Warren had said to such acclaim from the Democratic base. Even in context, the argument that accomplishment in business is collective is deeply offensive to most people in business, at least when they are not camouflaging themselves at a college town cocktail party. Since many liberals are genuinely baffled about why this should be so, I shall try to explain. Suffice it to say that the reasons are legion.

The very argument is disingenuous. Neither mainstream Republicans nor the Tea Party activists who drove the 2010 election are against public roads, public education, police departments, firefighters (Warren) or, even, technology spin-offs from necessary spending on national defense (Obama, re the Internet). There has been a broad national consensus around each of these for between 100 and 200 years (I am sure we all remember that Eli Whitney's invention of interchangeable parts was in the context of defense spending). To suggest otherwise is to erect and demolish a straw man -- an argument your adversary never made -- the last and worst tactic of a lawyer with a losing case. As any good law professor knows...

Even if, as a liberal might respond, there are many other examples of government spending that helps "successful" people (in Obama's expression) or factory builders (in Warren's), the argument is still a straw man. The argument today is not between minimal government and Communism. Today government at all levels accounts for 39% of GDP, up from 33% or so during the now halcyon Clinton years. That range defines the mainstream debate -- most Republicans would be thrilled to return government's share of GDP to Clinton-era levels, and most Democrats would be outraged. The range might expand to 46% or so at the high end if one includes the 80-100 Democrats in the House who would fully nationalize health care, and falls to perhaps 30% at the bottom if one includes the most conservative Tea Partiers who would privatize Social Security. But that is the widest possible scope of the disagreement, and under no circumstances does it contemplate that we should do away with roads, police, teachers, firefighters, or national defense. To suggest otherwise, as Warren and Obama have done, is so transparently dishonest that it can only be explained as an attack on "successful" people for political advantage. They noticed.

Nobody argues that "successful" people should not pay more tax than, er, unsuccessful people.

Oh. Are you offended by my use of "unsuccessful" people? Well, President Obama was making his point about "successful" people. Who are people who are not "successful" if they are not "unsuccessful"? Do you find that irritating? Well, it is the President's terminology, not mine. Any good businessman knows that success in life takes many forms. Again, the President's implication that "successful" people define success in narrow material terms is offensive, so it is not unfair for us to point out that the opposite of "successful" is "unsuccessful". Not that we would have thought of it that way.

Anyway, I know a great many "successful" people, and not one of them believes that "successful" people should pay less tax, either in absolute terms or as a percentage of their income, than "unsuccessful" people. Further, I am unaware of anybody important who advocates that result. When politicians on the left argue otherwise, they are dishonest. Not only have "successful" people paid an ever higher proportion of direct taxes at all levels, but they are paying a higher proportion relative to their own share of national income. In 2010, I paid 42% of my income in direct taxes -- income, FICA, Medicare, and property -- divided by adjusted gross income. That is a higher proportion than any "unsuccessful" person would pay, and it obviously does not include sales taxes, gasoline taxes, excise taxes, "fees" paid to governments so I can do something I should be allowed to do anyway, taxes on my wages paid by my employer, and corporate taxes paid by companies in which I have invested. If the taxes I pay are not a high enough proportion of my income for Warren and Obama, how high should it be? President Obama believes it should be substantially more and it will be on January 1, 2013 unless Mitt Romney wins. Personally, I do not believe I am failing to pay my "fair share" by forking over more than 42% of everything I earn to the government. If you do, then please tell me how much of my time I "should" work for the benefit of the government? We need to understand what liberals believe.

Now, what about those super-"successful" people, like Mitt Romney, who do not have highly-taxed employment compensation and instead live off dividends and capital gains which are taxed to the individual at much lower rates? Perhaps they do indeed pay too low a proportion of their personal income in taxes (although dividend and capital gains income is mostly (although not always) double-taxed because it is subject to corporate tax (which in the United States is the highest in the world, averaging 35-40% of U.S. income in most states)). The main objection to raising taxes on dividends and capital gains is that capital is mobile, and that high taxes on capital cause it to leave for jurisdictions that tax it less. That would be bad for the United States, which needs as much capital as it can get right now. That is why even socialist countries usually have highly preferential rates for capital gains, and that is why it is unwise to raise our taxes on dividends and capital gains, at least without a significant reduction in corporate tax rates.

Beyond the roads, cops, honest courts, and firefighters, government is an obstacle to entrepreneurs, not the helpful partner that Warren and Obama imply. Liberals, and especially President Obama, think that "business" is best represented by the Fortune 100 and its "chieftains". Most people who "built that" know otherwise, that government serves to entrench huge bureaucratic businesses at the expense of the upstarts that actually create new jobs. First, there are now so many regulations associated with being a "government contractor" that few small businesses can feast at the taxpayer's trough even if they had the political stroke to get the contract in the first place. Second, the ever larger pile of federal, state, and local regulation favors the large over the small, the mature business over the growing. As I wrote a couple of months ago,

Regulation usually imposes a fixed cost on each affected business regardless of size. Therefore, complex and costly regulation favors large companies (for which the proportionate cost of compliance is relatively small) over small and mid-sized companies. Left liberals almost never recognize that more regulation almost always drives consolidation in the affected industry, forcing smaller companies to sell out to larger ones. In general, you cannot have both heavy regulation and small, diffuse businesses. The first drives out the second in favor of the behemoths for whom large overhead is a small proportion of the total.
Of course, the most frustrating aspect of all of this to business people is that these points seem so obvious as to be self-evident, so when the chattering classes do not recognize them as such we distrust their motives and assume they are all a bunch of cynical parlor pinks. Increasingly, though, I believe that there are a great many people, especially in the educated elites, who are profoundly disconnected with the reality of commerce, and actually have very little idea how small and growing businesses struggle to create the wealth that we all need to support our prosperity. That is to America's great misfortune.

17 Comments:

By Anonymous tyree, at Sun Oct 07, 11:11:00 AM:

Thanks for that. I help my brother with his small business by doing some bookkeeping for him. Due to Obamacare, his health insurance went up $400 a month. People who have never run a small business might think of that as a small expense. However, the state of the economy and overseas competition have driven his profit margins down to the 10%-20% range. He has to design, sell, manufacture and install and additional $2000 of product every month just to break even. The state of regulation and taxes is such that he should have quit two years ago. The only thing that gives him hope is that the current economic conditions have driven so much of his local competition out of business.  

By Anonymous E Hines, at Sun Oct 07, 11:39:00 AM:

Cross-posted from an older post of mine.

A private enterprise built the car—a Ford—that I drive. Private enterprise drilled the oil well for the oil, private enterprise refined the oil into gasoline, private enterprise shipped the gasoline to my local filling station—itself a private enterprise.

Private individuals, and collections of private individuals—businesses—built all of those. And it was my own private industry that enabled me to earn the wherewithal to buy my Ford.

I built that. All of us in that chain can say that.

Now, it's true enough that infrastructure facilitated all of that. It's nice to have decent bridges and paved roads on which to drive my car and on which those fuel shippers could drive their trucks. It's good to have a communications system (vis., the Internet, a technology developed by a private enterprise to solve an internal data management problem) through which to talk with others and do some research enabling me to choose the car I'd end up buying. It's nice to have a set of laws that enables these private enterprises to compete with each other in a fair way, free of the depredations of brigands.

From where did this infrastructure come, though? Some have insisted that Government built that. Private individuals, private enterprise, had nothing to do with any of that. More, that without that Government-provided infrastructure, private effort would have been impossible, and so by extension, I—and you—didn't build our companies, either.

But without the desire to have a car, without private enterprise providing that long chain of support for the car, there would be no demand—and so no need—for that infrastructure. Private enterprise—I, and all the other private entities—created that need.

Private enterprise built the roads and communications networks, and all the other infrastructure items. Not the Navy's Seabees, not the Army's Corps of Engineers, not the USAF's Civil Engineers—none of these were out there building that. Those were private construction firms and private communications companies building that.

That legal system? The courts are manned by individuals, not some nebulous "government" thingie, albeit those individuals are government employees. Private individuals, choosing to lead for a time public, political lives, deliberate and enact the laws of that legal system. They're elected—and fired—by private individuals voting at the polls.

But surely government paid for all that. No. Government has no money of its own; it has only the money we private individuals and our private enterprises allocate to government in our tax payments. It's our privately originating money, pooled for the purpose, that paid for the construction of that infrastructure. And that pays the salaries of those government employees and elected politicians.

Government didn't build anything; it just acted as middle man for a small part of all that private building.

Eric Hines  

By Blogger Malcolm Kirkpatrick, at Mon Oct 08, 08:48:00 AM:

"Neither mainstream Republicans nor the Tea Party activists who drove the 2010 election are against public roads, public education, police departments, firefighters (Warren) or, even, technology spin-offs from necessary spending on national defense (Obama, re the Internet)."

Please do not equate "education" with "attendance at school". Please do not equate "public education" with "government-operated schools". Some of us who vote for free markets and federalism question whether society as a whole benefits from a government role in the education industry beyond the role that it plays in the shoe industry or the kitchen utensil industry, an original assignment of title and a stabile system of contract law. For each person under age 18 somebody or some body will decide how that sub-adult will spend his time. No sound argument supports policies that that take this power from parents.

The US "public" (i.e., government-operated) school system originated in religious intolerance. It has become an employment program for dues-paying members of the NEA/AFT/AFSCME cartel, a source of padded construction and consulting contracts for politically-connected insiders, and a venue for State-wworshipful indoctrination.

Compulsory, tax-subsidized schooling exemplifies the failures of otherwise now-discredited "industrial policy". The NEA/AFT/AFSCME cartel's schools (the "public schools") are Solyndra times 1000, every year, for decades. The standard arguments for competitive markets in goods and services apply to the market for education services. No sound welfare-economic argument supports the compulsory, tax-subsidized, State-monopoly US school system. Tax subsidizaton of school promotes over consumption of school as a means of education (over on-the-job training and home schooling), and the cartel's exclusive position in receipt of the taxpayers' subsidy yields wretched performance.

Please read Milton Friedman, __Capitalism and Freedom__, Enlow and Ealy, __Liberty and Learning: Milton Friedman's Voucher Idea at Fifty__, and James Tooley, The Beautiful Tree__.  

By Anonymous Mark Buehner, at Mon Oct 08, 10:09:00 AM:

The reason this is so explosive is that it touched on the driving tenet of liberalism that must never be spoken out loud. That is- people are essentially widgets (exception- the political and academic class, some of them anyway) that can be interchanged. No-one is lazy, no-one is thrifty, no-one is a workaholic. If you happen to launch a successful business, it was done through a combination of sheer luck and a racist system rigged to provide you an advantage to your luck. Steve Jobs was no different than a welfare queen, he was just much luckier. Hence through some nebulous reasoning even liberals cant seem to explain, Steve Jobs owes his success to the welfare queens, and not vice versa. The cognitive dissonance that creates the liberal loathing for the small business class comes from the strange phenomenon where average liberals who are on average smarter than entrepreneurs (we know they are because they are liberal) dont excel at business very often despite all of the racist benefits they themselves have benefited from. They aren't as lucky for some reason, despite being smarter. This can't be explained via the liberal worldview, hence the anger.  

By Anonymous Anonymous, at Mon Oct 08, 11:29:00 AM:

It will def help to have a Pres that has a clue how Business works in the WH. I like how you show the range of 30-39% and the 2-3 std Dev of Tea Party and Commie 25-45%. Never thought of it that way but what a difference those 9% make.

Like you I have been thinking of diversifying from my dark blue state (which runs at about 42 on your scale) to a warmer Red State outpost in the lower end of your range. I see why Austin makes sense.

Hope you are doing well TH! Always appreciate when you do a post! You rooting for anyone at Kona next weekend?  

By Blogger James DeLong, at Mon Oct 08, 01:34:00 PM:

The missing element in the left's idea of "you did not build that and therefore it is community property" is the concept of reciprocity. The obligations run one way -- from the builder (or, in their view, the purported builder) to the demanders. But the latter have no obligation to give anything back.

In a functioning real world, property rights and markets are the instruments of cooperation and community. No community will prosper for long if anyone who creates falls under an obligation to "share" without having receiving anything in return.  

By Anonymous Anonymous, at Mon Oct 08, 02:42:00 PM:

reminds me of the problem I've had with many political ads this season: "X is endorsed by the Tea Party, pledges to repeal Obamacare and supported the Ryan Tax plan." Is this an attack ad or an endorsement? It often isn't until the ad is half over that I can tell.  

By Anonymous Anonymous, at Mon Oct 08, 04:42:00 PM:

You might as well be speaking Greek to lefties, TH. They will never get it.

Your worldview derives from Locke (ironically dubbed the father of classic liberalism), who inspired the economic and political thinking of Adam Smith and other enlightenment scholars who provided the intellectual fuel which fired the American Revolution with it's emphasis on a limited government which exists to protect the inalienable rights of the individual.

The worldview of modern liberalism, not to be confused with classical liberalism, derives from Rosseau who inspired the terror of the French revolution and, through Karl Marx, the Russian Revolution. In both politics and economics the individual is subordinate to the state and is entitled only to those rights granted by the state.

These worldviews embody diametrically opposing notions of individual liberty and the role of the state. They are irreconcilable.

You can talk about details marginal tax rates until you are blue in the face or write until your fingers fall off and it won't make any difference to a modern liberal. They are in the Rosseau camp. In their world view you are not possessed of an inalienable right to your income or wealth. Rather, the state is entitled to as much of your income or wealth as required to fulfill the social contract.

We are about 70 years into our experiment with a steady creep toward the Rousseau model of governance. Not surprisingly, the U.S. is hopelessly bankrupt and remains afloat financially only because we have a fiat currency we can print at will.

Question: How much money will the state need to fulfill the social contract?

Answer: How much have you got?

--Anon Attorney  

By Blogger D.E. Cloutier, at Mon Oct 08, 06:09:00 PM:

Pew Research Center, 8Oct12:

"Mitt Romney no longer trails Barack Obama in the Pew Research Center’s presidential election polling. By about three-to-one, voters say Romney did a better job than Obama in the Oct. 3 debate, and the Republican is now better regarded on most personal dimensions and on most issues than he was in September. Romney is seen as the candidate who has new ideas and is viewed as better able than Obama to improve the jobs situation and reduce the budget deficit.

"Fully 66% of registered voters say Romney did the better job in last Wednesday’s debate, compared with just 20% who say Obama did better. A majority (64%) of voters who watched the debate describe it as mostly informative; just 26% say it was mostly confusing.

"In turn, Romney has drawn even with Obama in the presidential race among registered voters (46% to 46%) after trailing by nine points (42% to 51%) in September. Among likely voters, Romney holds a slight 49% to 45% edge over Obama. He trailed by eight points among likely voters last month."

Link:

http://www.people-press.org/2012/10/08/romneys-strong-debate-performance-erases-obamas-lead/

My comment:

The election probably will come down to which party does a better job getting its supporters to the polls. That's a management problem at the local level, not a "sales" problem at the national level.

- DEC  

By Anonymous John, at Mon Oct 08, 07:03:00 PM:

The most objectionable part of "You didn't build that" is what it implies: "We may take what you have worked for without giving you anything in return."

Which has been the platform of the Democratic party since the start of the Great Society.  

By Anonymous Ignoramus, at Mon Oct 08, 07:38:00 PM:

“The election probably will come down to which party does a better job getting its supporters to the polls.”

Right on. Turnout will be the driver. Current polls are unreliable because they can’t model the turnout of key demographic segments accurately enough given the unprecedented swings we had in 2008, and again in 2010. Will the Young and Hispanics turn out for Obama? Will Joe Rolling Rock get off his ass in Ohio for Romney? What about the Tea Party? Also, some whites may be telling pollsters “Obama” even if they don’t mean it this time.

Re: Locke v Rosseau

I suppose Romney meant to say that 47% were in the Rosseau camp.

I see a growing Borg, which has now gotten too big to finance itself with taxes on those in the true private sector –- they don’t make enough. Once the Borg borrows 40% of what it spends, how does it voluntarily shrink?

Our Left rants that we’re all in this together. But it won’t play that way in the USA. We’re not Japan. We’re too diverse and too greedy. With a bigger Borg we just invite never-ending political mobilization to fight over a shrinking pie. Hiring a lobbyist still has the best ROI for corporate America.

Obama is Peron without the gold braid. Like Argentina, we’re on a path to squander what we’ve had -- an historical birthright to meaningful GDP growth in most years so that each generation should be better off than the one before. We’ll also kill social mobility. We’re giving our Young a collective debt burden that already averages to a modest mortgage for each. But they won’t bear it evenly, given our tax code. Why try to succeed if your only reward will be to bear the burden of a huge mortgage instead of a small one?

Agree with Anon Attorney. Current trajectory goes on only so long as Bernanke can print. In the near-term we’re propped up by most of the rest of the World sucking even more than we do.
 

By Blogger Donald Douglas, at Mon Oct 08, 09:21:00 PM:

A great post. I linked and it will go live overnight at American Power.  

By Anonymous Anonymous, at Wed Oct 17, 09:37:00 AM:

This post is loaded with meaty points I agree with, but that might be because I'm a business owner and even a small-scale "serial entrepreneur".

The closing statement is the most important and deserves really wide exposure. So many people I speak with, and even know well and love, have been allowed by our prosperous society to become divorced from everyday worry, and have therefore lost all comprehension of where money and wealth come from, that we are really endangered. My brother the law professor is well meaning but clueless. My cousin the business professor and consultant to the UN and large international corporations is convinced leading businesses are babysitting problems and the underlying entities are basically indestructible. Others I love describe their careers to me as "public advocate" and "NGO activist" (I'm not kidding).

So, yes, you are so right-- these "elites" have no clue of how difficult it is to start and nurture a business. My own wife, a registered Democrat, has come to understand (after 28 years of watching businesses close to hand and starting one herself two years ago) and while still a Democrat in a classic sense, is outraged by the present day state of the party.

On your earlier point, in re Warren, I am astounded by one thing: at what point did subscribing to the social compact start to be construed as becoming a serf? Why does Warren think that paying taxes for community improvements mean the community also gets to assert ownership over private business?

TH, you either still live in Princeton or left so recently you'll still recall this story, but a couple of years ago the borough council decided to go into the parking garage business. So through some mysterious process they took over some property downtown, and began construction. Easy, right? People build things all the time, how hard can it be? Just hire someone and order them to build it.

After years of mistakes, and endangering the credit rating of the town, the borough finally threw in the towel and "partnered" with a local entrepreneur who finished the construction, opened the garage and now owns the building. Warren should try to build something herself and see how easy it is because, like the socialists in Princeton Borough, the process of losing everything can be very instructive.

MTF  

By Anonymous Anonymous, at Thu Oct 18, 12:37:00 PM:

Why can’t “president” Barack Hussein Downgrade be honest with US on his 2nd term Socialist National agenda?

What are “president” Barack Hussein Downgrade’s plans to revive a struggling economy?

What are “president” Barack Hussein Downgrade’s plans to lower gas prices?

What are “president” Barack Hussein Downgrade’s plans to handle increasing food prices?

What are “president” Barack Hussein Downgrade’s intentions on freedom of speech - the 1st amendment?

What are “president” Barack Hussein Downgrade’s intentions on your right of self-defense - the 2nd amendment?

What are “president” Barack Hussein Downgrade’s plans to keep Social-Security from going bankrupt?

What are “president” Barack Hussein Downgrade’s plans to keep Medicare from going bankrupt?

What are “president” Barack Hussein Downgrade’s plans to handle our crushing $16 Trillion dollar debt?

What are “president” Barack Hussein Downgrade’s plans to cut deficit in half?

What are “president” Barack Hussein Downgrade’s plans to keep country from going Bankrupt?
 

By Anonymous ABR, at Thu Nov 01, 11:57:00 AM:

So both sides in this red-blue left-right thing tend to think the other one is dumb, or at least missing important pieces of the puzzle. Thus the formula is, "this prominent {left,right}ie said X, but they forgot Y, and how can they be so silly?" We just hope that at SOME level (obviously not the one we or our media are at), the conversation can stop with "you said X but forgot Y", and continue with the response, "ah you are right, so when that is considered, the implications are Z".. and eventually get to some more balanced perspective that takes more factors into account than either side was doing on its own.

As I say, we can hope that this happens. It certainly isn't aided by the prevalence in public dialog of caricatures and straw men. This comes because we all naturally have an underlying fear of giving away too much, of exposing vulnerability, if we DON'T do this. Clearly to get anywhere we all must try to overcome this fear.  

By Anonymous more here, at Wed Nov 07, 04:26:00 AM:

Great post. You have given me a good reading today.  

By Blogger Dan Kauffman, at Sat Nov 17, 09:09:00 AM:

I prefer not to frame the argument with how much I should or do pay in Taxes,

I simply say, if we stipulate that the worker is entitled to a Fair Share of the proceeds of their Labor exactly how much of the proceeds of their Labor have they the Right to Keep?  

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