Hillary Clinton’s Friday warning to a Boston audience, “Don’t let anybody tell you that it’s corporations and business that create jobs,” felt like a “jump the shark” moment even within a Democratic Party that has adopted a similarly ignorant and harmful anti-capitalist mantra.
The most well-known recent Democratic dismissal of entrepreneurs came from President Obama during the 2012 election campaign season: “If you’ve got a business, you didn’t build that. Somebody else made that happen.” The entire rant is equally inflammatory, demonstrating a complete lack of understanding of economics and a reprehensible dismissal of those risk-taking businesspeople — with whom Obama never associates except when collecting their checks at Silicon Valley fundraisers — who power the economic engine of the free world.
But Barack Obama, not exactly a fountain of new ideas, didn’t come up with this by himself and he isn’t even the poster child for class warfare in the United States. That dubious honor goes to Senator Elizabeth Warren (D-MA) who in 2011 told a group of supporters that “There is nobody in this country who got rich on his own. Nobody. 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.” She went on in this vein for some time, discussing business and taxation without offering the slightest suggestion that society should be grateful to, not jealous of, the men and women who build the factories; they, not taxpayers funding roads, are what cause a nation to thrive.
Mrs. Clinton’s statement goes well beyond Obama’s and Warren’s muddle-headed formulations of Progressive class warfare into a level of speciousness so obvious that even most Democrats would not actually believe her: After all, who other than businesses or corporations create jobs in this country? Individuals who are not operating as businesses rarely create jobs. That leaves only the government.
According to the Census Bureau, “In March 2012, federal, state, and local governments employed 22.0 million people” excluding members of the military; of these, nearly two thirds work for local governments rather than for a state or federal government. This compares to a civilian workforce of 142 million people during that same month.
However, even the superficial suggestion that government creates 15 percent of American jobs is mitigated by the fact that half of government workers are teachers and others within our education systems. Police, firefighters, hospital workers, and those working in “national defense and international relations” combine for nearly another 17 percent of all government workers. In other words, when considering work that an ordinary civilian might apply for, the government creates a small single digit percentage of American jobs — and the rest of us pay for all of them.
The jobs issue is purely a numbers question and Hillary Clinton is obviously, spectacularly wrong.
But what about the fundamental question of whether entrepreneurs get rich at our expense and therefore owe the rest of us something? That suggestion plays into the left’s theme of “economic justice” — a dangerous term in a free society — which is a potentially powerful political argument in a nation whose people typically have a terrible understanding of basic economics yet still vote for politicians who promise to meddle with the economy.
“You didn’t build that” and its variants are arguments that must be refuted by conservatives and libertarians and Republicans and businessmen of all stripes not only in order to win political campaigns but to create public understanding of why policies that promote economic liberty benefit the poor and middle class far more than they benefit the rich.
Politicians and others must unashamedly explain to voters why taxpayer-funded infrastructure such as bridges and roads, schools and teachers, do not mean that profit-earning businessmen owe their success to “the public.”
Don Boudreaux, an economist at George Mason University who is one of the nation’s best communicators of economic liberty in plain language, explains the liberals’ error in a note that is worth quoting at length:
[It is a mistake] to insist that “because government makes businesses’ profits possible, even the most innovative” entrepreneurs and investors “earn only a portion of their profits.”
[This approach confuses] possibilities with actualities. Infrastructure and other inputs do not turn themselves into valuable outputs. That task requires entrepreneurial creativity, risk-taking, and effort. The very existence of huge profits earned in markets suffused with infrastructure and other inputs implies that entrepreneurs who earn these huge profits produce something unusually rare and valuable — something that the vast majority of people, despite having the same access as do successful entrepreneurs to infrastructure and other inputs, do not produce.
In short, the outputs created by entrepreneurs would not otherwise have been produced. Therefore, the profits of these entrepreneurs reflect the additional value to the economy of these outputs. This is additional market value that, despite the use of infrastructure and other inputs, is created only through the actions of successful entrepreneurs. These entrepreneurs, and they alone, are responsible for making actual that additional value which, without their efforts, would remain only an unrealized — indeed, unnoticed — potential.
This reality does not itself argue against taxation. Infrastructure, like other inputs, must be paid for, and taxation is one way to pay for it. But this reality does mean that it’s mistaken both to attribute to government a prime and uniquely important role in the creation of entrepreneurial profits and to suppose that government, by virtue of a politician quipping fatuously to entrepreneurs “You didn’t build that!,” becomes entitled to an open-ended claim on those profits.
In a 2004 paper for the National Bureau of Economic Research, Yale University economist William Nordhaus concluded that “2.2 percent of the total present value of social returns to innovation are captured by innovators” (although profits to these innovators start out somewhat higher and then decrease rapidly over time.) In other words, nearly 98 percent of the value of technological innovations accrues to you and me as consumers (through lower prices and increased productivity) rather than to the inventors themselves.
Dr. Nordhaus was working with data that mostly predated the Internet age. Given the low price of so many services now being provided on the Web — it’s free to use Facebook and Twitter and Google, and many smartphone and tablet “apps” can be had for a dollar or two —today’s innovators may capture even less of the societal benefit of their inventions than they had in the past. These inventors may be getting rich but it’s only because they are bringing until-recently-unimaginable value to your life and to mine. (Dr. Nordhaus, who kindly responded to questions for this article, said of the issue of the distribution of gains in an increasingly technological economy, “I don’t know the answer but see no reason to think it has changed appreciably.” )
While Nordhaus’s numbers are slightly startling, the basic idea is obvious to anyone who considers this fundamental fact: In most cases, when a consumer purchases a product it is because she estimates her gains from owning that profit to be greater (whether in dollars, productivity, or happiness) than the cost of the product. It bears repeating: Entrepreneurs get rich by you and me voluntarily buying things that make our lives better.
(A philosophical point: In his response to my questions, Dr. Nordhaus offered this comment: “How important are societal factors in innovation? This can be illustrated by examining the distribution of Nobel Prize awards in Chemistry and Physics over the last century. If we could make critical innovations on our own, then we would expect that the number of prize winners should be distributed proportionally to the population of different countries. In reality, the proportion of prize winners born in Africa or India is lower by a factor of more than 100 compared to high-income countries in Western Europe and North America. Moreover, the least developed countries, with 10 percent of the world’s population, have not given birth to a single prize winner in Physics or Chemistry during the entire history of those prizes. There are no ‘self-made innovators’ any more than there are any ‘self-made Derek Jeters.’” I responded as follows: “The question isn’t whether society can foster innovation but whether the innovator has a debt to society. The left thinks so while I think the debt is really in the other direction, and you’re right that it is primarily a political and philosophical question and only secondarily a question of economics, at least given information such as in your 2004 paper.”)
I doubt whether Hillary Clinton even believes her own words. She tried clumsily to walk them back three days later after it became clear that they were hurting her. But she was in Massachusetts, campaigning for perennial loser Martha Coakley (who somehow lost “Ted Kennedy’s seat” to Republican Scott Brown in 2010 and seems on the verge of losing the Bay State’s governor’s race to Republican Charlie Baker).
Inhaling that liberal air, Clinton may have felt a need to move left (quite a comfortable direction for her) as she tries to regain the love and affection of the Democratic Party’s Progressive base — feelings that have shifted from Hillary (to the extent that she ever garnered them) to Sen. Warren. While Elizabeth “Really, I’m an Indian” Warren has repeatedly ruled out running for president in 2016, Hillary is no doubt feeling the pressure from her left and is therefore incorporating Warren’s divisive and ignorant rhetoric in her own campaign trail offerings (just not as well as Warren does).
As with so many liberal themes, it is easier to rile up voters with jabs at the rich (the irony of which, coming from Hillary who just took $225,000 from an irresponsible UNLV to give a single speech, is almost too much to take) than it is to explain why most of “the one-percent” deserve our praise for getting rich rather than our scorn for not sufficiently “giving back.” After all, Bill Gates and Steve Jobs and Jeff Bezos (and many thousands of others who aren’t household names) did not take anything from us.
Rather, they have improved our lives dramatically, lowered our costs for things we buy or tasks we must complete, given us access to more information than Encyclopedia Britannica’s editors could ever have imagined, allowed us to communicate, network, and even play with each other in fantastic new ways, and, pace Hillary Clinton, directly and indirectly created lots and lots of jobs.
Based on 2011 data, the top 1 percent of earners pay 35 percent of all taxes (down from 40 percent just a few years ago), representing twice their share of national income. Meanwhile, the bottom 40 percent of earners in the United States pay (or, more precisely, collect) negative 11.5 percent of all income taxes. Somewhere in hell, Karl Marx is smiling. But for Obama, Warren, and Clinton, the many pounds of flesh taken from productive Americans are still not enough.
The debate over the treatment of entrepreneurs in American society is not just an economic one. It is, as much as conversations about same-sex marriage or legalized marijuana or the structure of our health care system, a moral question.
While conservatives believe that gay marriage and recreational pot and Obamacare threaten the very fabric of our nation, the combined impact of all of those issues pales in comparison to the potential harm to a nation that abandons entrepreneurial capitalism and treats as villains — or at least as debtors — those to whom the country owes an existential debt and to whom, whether Hillary realizes it or not, so many Americans owe their jobs.
