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Obama Tells Entrepreneurs "You Didn't Build That"

Politics / US Politics Aug 02, 2012 - 06:22 AM GMT



Best Financial Markets Analysis ArticleGary Galles writes: President Obama's "you didn't build that" statement to successful business owners has created a serious backlash. In rebuttal, his defenders point to his more complete statement for "clarification":

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.

Their defense is that what President Obama said somebody else made happen was not their success, but the teachers, roads, bridges, etc., provided by government, that "gave you some help." However, that broader statement is still both confused and ominous for America.

Most ominous is President Obama's mistaken equation of society and government. Starting from the correct premise that one's society plays a role in successes, he incorrectly concludes that the successful therefore owe more taxes to government. However, society and government are very different, and in many ways, "the interests of the state and the interests of society … are directly opposed," as Albert Jay Nock wrote.

Or as Thomas Paine put it, "Society in every state is a blessing, but Government, even in its best state, is but a necessary evil."

First of all, only a very small part of what government does can be justified as making our voluntary social arrangements work better, advancing the general welfare. But that can only justify very low and commonly borne taxes, not high and highly disproportionately borne taxes on a small minority who already pay the lion's share of taxes, while exempting almost a majority of citizens from bearing any burdens for what they also benefit from.

Government has also coercively displaced voluntary market arrangements in so many areas that many cannot even conceive of government not doing things that were done by others before. Teachers are one example. Some share of many successes belongs to teachers. But it is those "special" teachers that deserve our gratitude, not the government that has commandeered the education system from parents' control into its control. That gratitude does not require that we must be made to give teachers more money later, as they taught voluntarily for the compensation they agreed to. And we do not owe government more just because they took over a function that does not require their intervention, particularly since it hamstrings more than it advances the quality of education.

"Most ominous is President Obama's mistaken equation of society and government."

Government, with its massive inefficiencies, also vastly overcharges citizens for their services, as demonstrated in study after study. Roads and bridges are prime examples, due to pork-barrel earmarks, prevailing wage rules, union restrictions, project labor agreements, environmental extortion, buy-local restrictions, and more. Such inefficiency cannot justify making "successful" people pay more to make up for overcharging us for what we could do more cheaply and voluntarily, if government would only allow us the freedom to do so. If anything, it instead justifies a rebate to compensate for government "price gouging."

Much of government spending supposedly requiring higher taxes is also to inhibit rather than enhance voluntary social arrangements. Many of the metastasizing alphabet soup of regulatory agencies, such as the EPA, fit this mold, as do price controls (for example, minimum-wage laws), many labor and zoning laws, occupational-licensing requirements, ad infinitum. Such restrictions cannot even be justified as advancing Americans' general welfare, much less as demonstrating a need for some to pay more to create ever more roadblocks.

Taxes (the burdens of which are continually ignored by the president) also create roadblocks to voluntary arrangements. Every dollar the government takes, it takes from others. But in patting itself on the back for the few things it does tolerably well, it ignores the wonders individuals could have worked with the resources taken away to fund all that the government does. In addition, taxation distorts people's incentives, which imposes further costs on society. Just as a, say, regulatory burden of 30 percent eliminates some voluntary arrangements that would otherwise have created wealth for the parties involved, so does a 30 percent marginal tax rate. The gains crowded out dramatically raise the cost of government, increasingly so as it grows larger, demanding a far higher standard for the government to meet than whatever the current administration decides is good for us.

Most of our "unbelievable American system," which the president views as provided by government and expanding along with government, is in fact due to centuries of voluntary arrangements with one another. But those arrangements weren't due to government. It was the opposite. The previously unimaginable success of America was made possible because we more stringently limited government than ever before (for example, the Constitution's creation of the world's largest internal free-trade zone and the Bill of Rights' "thou shalt not" limits on what the federal government is allowed to do).

The president is right that we have inherited an "unbelievable American system," but he totally misunderstands what its basis is. It is not government, particularly all that the government chooses to do today. It is the social coordination and wealth made possible by keeping most things off limits from government meddling and extortion. And that incomparable social inheritance from reining in government that Americans enjoy cannot justify undermining that success for us and our future by expanding government further, which is the non sequitur conclusion the president reaches.

President Obama's "you didn't make that happen" comment has been twisted by some. However, without any such twisting, his words reflect both a misunderstanding of and a threat to what has made America great. He has forgotten what Albert Jay Nock observed long ago:

It is a curious anomaly. State power has an unbroken record of inability to do anything efficiently, economically, disinterestedly or honestly; yet when the slightest dissatisfaction arises over any exercise of social power, the aid of the agent least qualified to give aid is immediately called for.

Given the growth in the power and reach of the federal government, President Obama needs to learn that expansion of the state is not an expansion of social (voluntary) power, but a contraction of it. His remarks make that result unlikely.

Comment on this article.

Gary M. Galles is a professor of economics at Pepperdine University. Send him mail. See Gary Galles's article archives.

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© 2012 Copyright Gary Galles - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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