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Friday, July 27, 2012

Obama’s Controversial Remark

Take what you want, and pay for it.

“If you’ve got a business—you didn’t build that. Somebody else made that happen.”

President Obama’s statement sure has incited controversy. His opponents, including Mitt Romney, are using it to brand Obama as—at best—out of touch and—at worst—an un-American collectivist. It’s also become the butt of jokes on the Internet.

Meanwhile Obama and his supporters cry foul, claiming the statement was taken out of context. (They’d never take an opponent’s statement out of context of course.)  Some concede that Obama’s expression was inept, but  insist he wasn’t denying the value of individual initiative. In a campaign spot Obama says, “What I said was that we need to stand behind them [business people] as America always has. By investing in education, training, roads and bridges, research and technology.”

So who’s right? Let’s go to the videotape. And here’s the transcript of the relevant section (emphasis added; the full speech is here):

But you know what, I’m not going to see us gut the investments that grow our economy to give tax breaks to me or Mr. Romney or folks who don’t need them. So I’m going to reduce the deficit in a balanced way. We’ve already made a trillion dollars’ worth of cuts. We can make another trillion or trillion-two, and what we then do is ask [!] for the wealthy to pay a little bit more. . . .

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 point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.

What Did He Mean?

Was Obama saying the owner of a business did not build his business or did not build the aforementioned “unbelievable American system” and “roads and bridges”? Under the principle  of charity, I give him the benefit of the doubt, but you can decide for yourself.

A more interesting question is why Obama bothered to state this truism. Everyone knows that a successful business, along with individual initiative, requires things the owner did not create. Besides roads and bridges a successful business requires other businesses. Without those, where would any firm get its buildings, materials, and machines? And remembering Say’s Law, without other people’s productive efforts, no business would have customers: People can buy only because they first had something to sell (goods or labor services). Demand is supply and vice versa.

Has Obama really run across many people who think they got “there on [their] own” only because they are smarter and harder working than everyone else? I guess there are a few people like that, but I smell a straw man. (Obama’s mocking tone at this point was certainly off-putting and did not help his cause.)

So why did Obama bring it up? (“Don’t bother to examine a folly,” Ayn Rand has a character say in The Fountainhead. “Ask yourself only what it accomplishes.”) He seems to have had only one reason: to justify “ask[ing] for the wealthy to pay a little bit more [in taxes].” For him, this is the “balanced way” to cut the deficit. “I’m not going to see us gut the investments that grow our economy to give tax breaks to me or Mr. Romney or folks who don’t need them,” he said.

Demagogue’s Appeal

Even without his objectionable defense of higher taxes on people who don’t “need” their money (even if true, how is that relevant?), this is a demagogue’s appeal. For one thing, no one will be asked to pay higher taxes.

How do we know that upper-income people aren’t already paying enough to maintain roads, bridges, and education? Maybe government foolishly diverts tax revenues to less important purposes.

How do we know the rich and the rest of us aren’t overpaying? Government is notoriously inefficient at providing goods and services because it gets its revenue by force and thus never faces the market test, which requires consumers free to say no. What does “fair” even mean in the matter of taxation?

Why Monopoly?

More fundamentally, why assume that roads, bridges, and schools must be provided by a coercive monopoly rather than in a free and competitive market? Obama takes for granted that monopoly is indispensable to prosperity, but that claim requires demonstration, particularly in light of the drawbacks already pointed out. Before one invokes “market failure,” one must first come to grips with “government failure” because there is no prima facie reason to prefer the latter to the former, even if it can even be said to exist. Strangely, monopoly is universally despised—unless it’s run by the government.

Not to be misunderstood, in a corporatist economy there are grounds for concern about the wealthy to the extent that their fortunes derive from government privilege. The solution, however, is the abolition of privileges, not higher taxes, which merely give more resources to mischievous public self-servants and inevitably come to haunt the middle class.

And the fiscal crisis? The path to a solution is illuminated by the fact that we face a crisis not because of a failure to tax—but because of a proclivity to spend.

Thus even if we give Obama the benefit of the doubt, he’s got this all wrong. If he is really concerned that successful people pay too little for the benefits they enjoy, radically freeing the market is just the ticket. It’s the best way to honor the Spanish proverb: “Take what you want, God said to man, and pay for it.”

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.