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Who Built It?

posted by Adam Levitin

We're seeing the back and forth between the Dems and the GOP about "who built it," whether the economy is a function of both public and private action (as artfully expressed by Elizabeth Warren and clumsily imitated by the President) or purely private Galtian will-to-create entrepreneurship. The only interesting thing about the argument is that there even is an argument. The facts are so overwhelming in support of the Elizabeth Warren version that it's astonishing that anyone would deny that government plays a huge and largely uncontroversial role (police, fire, roads, courts, currency) in making the economy function.  

So why are so many Americans so wedded to the private enterprise story? Why is this the heart of the GOP vision of what American is and should be? Why the insistence on clinging to the lone frontiersman version of America that has never really held true except on the margins?

I don't have a great answer to this paradox, but I think it is central for understanding our current political culture. Here are my initial thoughts toward explaining it; none strike me as a very satisfying answer.
  • True belief and aspiration. Clearly some people deeply believe the solely private enterprise story. Why flummoxes me.  Upbringing explains some of this.  Maybe there is something to the private enterprise story that we want to believe:  if we are successful, we want to believe that it is because of our personal merit, while if we fail, we want to believe that it is someone else's fault (and who better to blame than the government). We want to believe that we are all capable of being the loan frontiersman (who doesn't love Bear Grylls) and would be successful if everyone else just got out of the way. 
  • Ignorance. This is the "get your goddamn government hands off my Medicare," phenomenon. A lot of people (including some who are very well educated) simply don't recognize the extent of government's role in the economy (maybe because they've never bothered to look for it), and particularly that of the federal government, which doesn't have a lot of direct contact with citizens. The sole federal employee most people encounter is the postman or maybe someone in the armed forces. The lack of direct personal contact may make federal taxes seem out of proportion with benefits provided. 
  • Cynicism. Some people who embrace the private enterprise story know better, but they also see it as a lever toward deregulation that furthers their own personal interests. Relatedly, there are the policy world hangers-on, who are employed in government, think tanks, and the media.  The conservative bench is often shallower in the policy space, so embracing the private enterprise story can be a smart career move.  

I'm curious to hear readers' thoughts on this. 

Comments

@bzhou: We're not talking about a specific patentable method or optimization of a skill. We're talking about the entirety of the country's infrastructure and expenditures. Short of leaving the country to live somewhere else, it's impossible as a citizen not to make use of them, and they would exist regardless of the use of any particular individual. Further, it's not like the US government came up with the knowledge of building roads or printing money.

To the extent which the government uses public money in the form of grants to fund private research, the people should be entitled to some share of the fruits of that research, not just in the existence of some new invention but in the revenues generated by them. I don't want to go too far afield and dive into the woes of our science and tech expenditures and our often ridiculous patent and intellectual property systems, but suffice it to say that we probably both agree there's lots of room for improvement there.

Taxes should not be considered a bundled payment on prior knowledge. How does one begin to quantify the amount that should be owed on fundamental, centuries-old ideas... and why should it be owed to the government? Taxes should be considered a payment for the important continuing functions of our government.

@AMC: Show me where I say that people shouldn't pay taxes. We shouldn't pay AS MUCH tax as we do now, not even close to it, and we should probably consider better methods of taxation than an income tax. But the government has legitimate functions that cost money that has to be provided by the resources of the people in the form of taxation. That's valid.

@David Shemano: That's an excellent and well-formed summary of the argument here. I would go further and say that the government is providing roughly the same infrastructure and support to EVERY citizen. The difference between Steve Jobs and a failed or failing business owner has everything to do with Steve Jobs' individual talents and motivation and nothing to do with the government (setting aside claims of favorable treatment and other things that certainly happen but aren't a function of an ideal government).

@bzhou again: The "no one would be anywhere without public education" argument is equally spurious. Widespread education is a boon to our country, but there's no natural order that says it has to be run by the government, or even that the government is doing a good job of running it. Saying Steve Jobs is Steve Jobs because of a public education is assuming that if our system didn't exist, a self-motivated individual like Jobs wouldn't have found any other way to educate himself, or that his family would not have been able to educate him on their own.

I wanted to respond to your post Adam, but it seems you already have a whole host of responses. Even the Austrian school admit that government is essential to provide a level playing field. It's up to individuals what they do with that. Obama's inartful comments (or were they just true to his beliefs) implied that individual success is just random happenstance. In essence, we have no control over our success. This discredits the incredible hard work, risk, and sleepless nights of every small business owner in America.

This discussion is getting silly. Absolutely no one is claiming that individual effort and skill doesn't matter for business success. That's not what Elizabeth Warren said, and while the President's words could be taken to mean that, I doubt that was what he was trying to convey. Obviously hard work and talent matter.

Instead, Warren's and the President's comments were aimed at rebutting the basic GOP trope that government is the problem, that it is what is holding back business, the economy, and personal potential. Their comments were highlighting that government provides a lot of things that help business, and that no one no matter how talented, not even the new patron saint of entrepreneurs Steve Jobs, could have achieved what they did without the support of government (e.g., we have legal enforcements of patents, roads for shipping Apple's products, payment systems for buying them, etc.). That's not to deny that Steve Job's was the proximate cause of his success, but to state what should be a pretty simple truth--he needed services that the government provides, just like Michael Phelps needed the pool. Government's role isn't to make Apple computers or win gold medals, but to provide the environment in which personal potential can be fulfilled. And that requires government spending and regulation.

Could some of the services be provided privately? Yes. But would they look the same? No. It's hard to believe that private capital would finance the equivalent of our current public education system, as flawed as it is, would finance the enormous amount of bio-medical research funded by the government, would provide for equivalent public transportation systems, etc. There would be something in the place of government, but it would look really different, and I shudder to think of the distributional implications. (See my Coasean Republic post here: http://www.creditslips.org/creditslips/2012/06/the-coasean-republic.html).

Are there some bad regulations? Well, yes, of course, but there are also some bad absences of regulation. Warren and Obama were simply pushing back against the demonization of government. To read their comments as a denigration of the entrepreneurial spirit is to be looking for an animus that doesn't exist.

It's like playing baseball. You lose as a team or win as a team but you always have an "at bat". That's where you can demonstrate your skills as an individual. Did you pay for your uniform...the stadium you play in... the TV station you shown on...the country your playing in..The roads you traveled on to get there? NO...They and by extension we invested in those things..I wonder though where some of these business would be without concessions from local and federal taxing authorities....hmmmm. Utilities, labor, zoning...on and on.. There is no "I" in team... unless your Ayn Rand... maybe there is in German but I'm no linguist..

@russ

Education is a classic example of a good with positive externalities, meaning that not enough of it would be provided in a private market. That's a thesis that's pretty much universally recognized among economists. Given that Steve Job's adopted parents couldn't afford to pay for a year of private college tuition, I find it hard to believe that he would have received a high quality education in a system where the quality of instruction you receive is perfectly correlated with the expense of tuition.

"If community infrastructure had that big of a impact on individual success, then we wouldn't be having this discussion as more people would be successful."

This would be more persuasive if you provided an iota of evidence to back it up.

@ Bzhou: "I think the basic divergence in the economically liberal/conservative ideologies is the issue of how much one's success comes from their individual skill and effort versus the product of a community infrastructure and luck." Your words, not mine.

Those of us on the right believe the the bulk of one's success is individually obtained/earned. No one is arguing that successful people did not have help along the way whether it is through mentorship, great teacher, parents, etc. An of course, there is always a sprinkling of luck. Although, luck is best defined as when opportunity and preparation meet.

It appears from your quote, you are arguing that successful people primarily owe the bulk of their success to someone else. Given that everyone has access to public education, roads, and all kind of other government services that we supposedly didn't build, you would expect to see more successful people would you not? If the government provided infrastructure were so important to individual success, why aren't more people successful since we all have access to teh same infrastructure?

As someone earlier posted, simply owning a swimming pool does not make one Michael Phelps, nor does the availability of public golf course create a Tiger Woods. The Warren argument is basically saying that UPS/FedEx owe their business success to the US Government because of publicly financed roads.

@Adam: Michael Phelps needs the pool. Michael Phelps pays to use that pool. Michael Phelps doesn't have a financial debt to the person who invented the pool.

A lot of the Republican rhetoric is obnoxious. They speak in outrageous overstatements and generalizations to "fire up their base" and try to convince independents of their narrative with volume rather than substance. The "demonization of government" falls into this category.

But that doesn't change the fact that even if we can both agree that a combination of personal motivation and public infrastructure are both necessary to generate success, we probably have a vastly different view of the extent of said infrastructure that's required. It's easy to justify roads and bridges and policemen. Harder to justify the government being in charge of people's retirement savings or health care expenses... to the massive extent which it's involved right now.

Michael Phelps doesn't pay more to use the pool because he's the most successful swimmer, either. If the only way our system works is to take progressively more and more from those that have generated the most, and we're STILL running a massive deficit, it could be a sign that we're spending more than we should.

Here is what I get from your post: Entrepreneurs think they are better that non-entrepreneurs - and therefore shouldn't have to pay taxes.

You know what? That is what pisses off a large part of the rest of the country.

http://news.yahoo.com/most-americans-rich-dont-pay-enough-taxes-160833705.html

"I created a medical billing company. I am a job creator (All hail! Kiss my ring!), my individualism trumps any social compact. The rest of you are citizens of a lesser god. Any one who disagrees - it's envy I tell you! Pure envy!"

People in the military think you are a coward of a lesser god.

Teachers think they are under appreciated.

Doctors think they walk on water for the healing work they do.

Ministers know their work is even more important, saving souls, not just treating the clay.

Come to think of it - we all think we are special, and should be treated special!

Entrepreneurs already have laws that protect them - like, for example, they can file bankruptcy on their business debts without regard to their income (the Means Test doesn't apply to those with primarily business debts).

The question is - how much do the rest of us non-entrepreneurial scum have to give before you are happy?

The United States is already undertaxed relative to other countries based on the percentage of GDP that goes to taxes.

http://www.usatoday.com/money/perfi/taxes/2009-11-25-oecd25_ST_N.htm

What is the protocol to be for the religious leaders, doctors and nurses, teachers, the merely self-employed, the members of the armed services, the guy who builds the roads, and the other worker bees that you see only as business expenses that need to be minimized?

How many times do we kiss your ring? Is four times enough?

As we bow abjectly, what is the appropriate distance between our foreheads and the floor? Should we scrape out noses to be sure?

Please tell us how to serve you.

1. I'm all in with Adam's 12:20 post.
2. I think we tried all-private education once. It left the vast bulk of the population illiterate. The public education system gave the US (Read: US businesses.) a huge competitive advantage over other countries due to a largely literate workforce.
3. It is true even the Austrians accept that government is needed to assure a level playing field. Much of their model is based on access to information and access to markets, and if those are blocked by participants, the models fail.
4. I would rather have my health care and retirement savings controlled by a government in DC than by an insurance company or bank in Grand Cayman.

@ Adam:

"Government's role isn't to make Apple computers or win gold medals, but to provide the environment in which personal potential can be fulfilled. And that requires government spending and regulation."

This is the fundamental disagreement. Some believe providing an environment in which personal potential can be fulfilled means government getting out of the way while others believe regulation and government spending is the way.

@Robert Loman: I don't know if Michael Phelps pays to use the pool. It might be a municipal pool like those in my towns. Who knows how many even better swimmers aren't swimming because of the lack of private investment in pools in their communities? (And how many drownings occur because of lack of swimming education...)

@Russ. Well put. Providing the environment for fulfillment of personal potential sometimes means getting out of the way and sometimes means getting involved. I'm fine with disagreement about when, but not with an absolute position that government always needs to get out of the way.

@russ

If you had one thousand genetically cloned, identical Steve Jobs and sprinkled them across different families in different communities in the US, I bet only the one that actually existed would have been able to create Apple into anything close to its current form. That is not to say that he wouldn't have been otherwise successful in different contexts. Maybe in most of them he would have been successful, but you have to recognize the amount of serendipity that separated him from being a millionaire and a multi-billionaire.

@Robert Loman

I don't understand your insistence on the need to develop a formula based tax that reflects government contributions to individual success. I agree that it's difficult to quantify numerically, in the same vein as utility or happiness, which we know exist but can only measure relatively.

Query:

What are the odds that Steve Jobs could have created Apple in, say, Nigeria 35 years ago? I would say it was pretty low. And why not? Because Nigeria 35 years ago did not have the infrastructure.

I would say this is like the "leading a horse to water" thing. Somehow the water had to get there. Similarly, Steve Jobs had to have the proper surroundings to succeed.

I cannot imagine a world without Apple or Microsoft. But I am pretty sure our country would have continued to advance, even if Steve Jobs or Bill Gates had not stepped up to the plate.

MT says "Quantification is lacking. The cost of police, fire, courts, defense . . . is small".

That's not true for defense. The defense budget is roughly $700 billion to $1.2 trillion, depending on what you count as defense (veterans benefits are sometimes moved into a different category), or 25% of the federal government's budget.

It is by far the single biggest spending category for the federal government. Defense spending used to be an even higher percent of federal spending in the WWII ear through the Vietnam war, so a very large percent of debt service is actually legacy costs from previous defense spending.

MT also writes:

"A a road or bridge etc may have been built and the workers paid for theier work years ago. Its continued existence does not mean that for the rest of eternity every generation has to pay again for that."

Roads and bridges (and public transit and airports and sea ports) need to be maintained, and preferably upgraded to improve safety and efficiency.

According to the American Society of Civil Engineers, the U.S. is $3 trillion behind on basic infrastructure maintenance, and much of our infrastructure base is in danger of collapsing from neglect.

This is not news to anyone who has travelled to Europe or Asia. The U.S. looks like a third world country when it comes to infrastructure?

Why? Because libertarians and conservatives think that paying for infrastructure once, in 1940s and 1950s, should last forever.

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