The furor over the President’s latest comments in Roanoke, Virginia are both an example of his misunderstanding of capitalism and the hyper-partisan desire of some conservatives to read every speech or event in the worst possible way. I chose the novel idea of pulling up the entire C-SPAN video of the Roanoke event and watched it.
The most controversial line is at minute 52.30: “…roads and bridges, if you’ve got a business you didn’t build that, somebody else made that happen.” I watched the entire context of the quote. The “that” in the quote is not a reference to an entrepreneur’s business, but the roads and bridges.
Really hard to argue that point. But what is interesting in listening to the entire speech without the drag of Republican commentary is to understand why so many people who voted for the President are disappointed in him. He really does not understand how you create and maintain a business in a private enterprise system.
The President’s larger point in the section of the speech with the controversial quote is that no man is an island. As Donne and Hemingway taught us, individuals live in a larger world of good and evil. All it takes for evil to triumph is for good men to stay idly by.
But as an economic doctrine in a capitalist society, not a political doctrine, that is crazy. Assuming the government has done its job correctly in regulating and establishing the conditions for credit, roads and bridges, stable taxation and politics, individuals compete ferociously for the SOLE purpose of maximizing profits for the shareholders within the law. That is directly out of the Delaware corporate code. Capitalists are not working on behalf of a larger society, they are living on the island of maximizing value for the shareholders.
There is not some magical moment after the government centrally plans an economy where customers and employees come together at the entrepreneur’s door step begging for products, services, and jobs. It is the hard work and insight of the entrepreneur or a group of them that discovers the customers and employees, that convinces the first to buy and the second to work productively . It is an exhausting, changing, and constant battle with the only freedom being the freedom to take a risk and fail.
And when entrepreneurs fail that is a good thing. Yes, it is a good thing that he or she goes bankrupt, the employees lose their job, the shareholders lose their investment, and the lenders lose their capital. In a capitalist system the weak and inefficient die, futuristic ideas can be too early, and historically significant businesses become obsolete. All the vagaries of human economics are left to rise and fall on their merits.
The President describes the American dream as playing by the rules and working hard entitles people to a life where they and their family “get ahead”. But that is fundamentally not the American dream. To the President’s credit at one point he does say there are no guarantees. But you can tell from tone and substance of the speech that he believes as so many of my professors in college appeared to believe that if you pull together the data, model it, then decide on a outcome that is what happens.
That is fundamentally a misunderstanding of the economy, how and why entrepreneurs take risk, and is frankly scary. The American Dream is the freedom to take a chance of your choosing, succeed or fail, and reap the outsize rewards if you succeed.
You can blame the last two years on an obstreperous Republican majority in the House. But, the first two years were spent on a poorly designed stimulus, which ironically focused on temporary tax cuts not roads and bridges, followed by the healthcare debacle. If you do not understand the basis of capitalism you simply cannot model it correctly. If you cannot model it, you cannot pick policies that will positively influence the economy.
BUT, if Governor Romney wants to win he needs to get on with presenting something better, not warmed over George W. Bush economics.