by Anne Wortham
What does one have to know and understand to believe in the president? One would have to believe that the source of America's greatness is the welfare state he enthusiastically defends and promotes, and believes is morally and practically justified. One would also have to share his mistaken belief that the nation he was elected to lead is organized around free-market capitalism, and that his mandate is to rescue the country from the failures of capitalism.
In fact, the nation's economy is a system of regulated capitalism and welfare-state paternalism, not one of laissez-faire capitalism based on a natural-rights legal framework that respects the sovereignty of individuals and their right to engage in noncoercive action.
Although there remain remnants of laissez-faire and its legal framework, those zones of economic freedom are under constant attack by politicians and voters on the left and right; by private- and public-sector workers and pensioners; by crony capitalists, unscrupulous financiers and investment gurus; by rent-seeking (privilege-seeking) lobbyists and interest groups of every description; by intellectuals, pundits, and entertainers; and, not least of all, by the president of the United States. The attacks have succeeded because political structure is not the constitutionally limited democracy it was intended to be, but an interest-group democracy driven by what Mancur Olson called "distributional coalitions" of pressure groups paradoxically spawned by the very liberties guaranteed by democracy.[3]
One can only conclude from Barack Obama's statements and actions across his career that, while he loves his country, he wants it to be organized to produce equal outcomes in people's lives, and that he believes that goal can be achieved by expanding the regulatory welfare state and extending the reach of its institutionalized paternalism. His vision is neither unique nor unprecedented; he merely joins a long list of leaders of both political parties at every level of government who have attempted to meet the demands of political, economic, social, and cultural elites and the masses that their interests be served at the expense of the rights of others. As Mark Hendrickson points out, "Obama isn't starting a new movement in our country. He is simply taking the latest step in an old movement. Our Constitution has been terminal for a long time."[4]
Of the many fallacies on which Obama's vision rests, this article disputes the following related assumptions: that prosperity is a bottom-up phenomenon, that economic laissez-faire favors the rich at the expense of those who have less and is therefore an obstruction to prosperity, and that prosperity is better achieved by the transfer of wealth through the regulatory welfare state than by an unregulated market. I will also show how Obama's attitude toward the rich reflects John Maynard Keynes's view of capitalism as analogous to a jungle, and discuss the best intellectual defense against the Keynesian distortion.
Wherefore Prosperity
In his speech at Lorain County CommunityHe then asserted, "In this country, broad based prosperity has never trickled down from the success of a wealthy few. It has always come from the success of a strong and growing middle class."[5]
A student in the audience might have informed the president that in the history of Western economies it was not the peasants who produced the upward mobility, the elevated standard of living, and prosperity made possible by capitalism and the Industrial Revolution. In the United States, as post–Civil War industrialization spread to the devastated southern states, accompanied by the constitutional recognition of the rights of former slaves, the activities of capitalists and entrepreneurs in manufacturing promoted the growth of an industrial working class peopled by the swell of immigration and the migration of blacks to the north from southern tenant farms. Increased efficiency in banking, sales and transport of goods, and the emergence of the corporation created a middle class of white-collar workers. The process also saw the merger of the old upper class of inherited wealth and the new upper class of inventors, entrepreneurs, and capitalists of earned wealth. Among the latter was the Scottish immigrant Andrew Carnegie who had to move from his first job as a bobbin boy in a textile mill to become a pioneer in steel manufacturing before his great contribution to prosperity was possible.
One of the conduits for the spread of prosperity was private philanthropy led by industrialists like Carnegie who funded schools and colleges, public libraries, nonprofit private hospitals, scientific research, orphanages, and community-service organizations to assist the poor. The cultural refinement of America was also made possible by the private financing of art museums, opera houses, symphonies, museums, and publishing.
Benefactions to Obama
It is especially in the private philanthropic sector of the economy that evidence of prosperity originating from the top can be found in Obama's own career. As a community organizer his major accomplishment was building the Chicago-based Developing Communities Project (CDP), founded by the Calument Community Religious Conference.[6] Since he led CDP it has expanded due to funding from government grants and from foundations such as the Woods Fund of Chicago, the Field Foundation of Illinois, Marguerite Casey Foundation, Polk Bros Foundation, and the Wieboldt Foundation. From 1993 to 2002 he sat on the board of the Woods Fund, serving as vice chair in 1997 and 1998, and as director in 1994–2002.One would think that, in light of Obama's association with the Woods Fund, he would appreciate the connection between the source of the fund's grants and the development of CDP and its activities of community uplift. But he seems to dismiss the implications of the following connections: the principal of the Woods Fund, incorporated in 1941 by Frank Henry Woods Sr. (1868–1952), came from the family's business interests in the Lincoln Telephone & Telegraph Co. of Lincoln, Nebraska, the Chicago-based Sahara Coal Co., and Addressograph-Multigraph Corp. of Cleveland, Ohio. From 1994–2010 the fund distributed more than $50 million dollars to 436 nonprofits in the Chicago region. The Field Foundation of Illinois was established in 1940 by Marshall Field III (1893–1956), investment banker, founder of the Chicago Sun, racehorse owner/breeder, and heir to the Marshall Field department-store fortune. The Polk Bros. Foundation exists due to the success of the Polk Bros. chain of retail furniture and appliance stores, a Chicago institution for more than 55 years. The Marguerite Casey Foundation was founded in 2001 by Casey Family Programs, which was established in Seattle, Washington, in 1966 to honor the sister of James E. Casey (1888–1983), founder of the American Messenger Company, which became United Parcel Service (UPS) in 1919.
In their various ways of responding to people and communities with the least wealth and opportunity these and other foundations are linked by philanthropies like the Needmor Fund, a social-justice family foundation established in 1956 in Toledo, Ohio "to empower those individuals whose basic rights to justice and opportunity are systematically ignored or denied." The Fund, considered a leader in "socially responsible investing," was founded by Duane Stranahan (1903-1998) and Virginia Secor Stranahan (1906-1997) with family money earned from the Ohio-based Champion Spark Plug Company.[7]
Pointing to the link between the wealthy and philanthropy is not to say that foundations are the source of prosperity. Foundations are but conduits; the source consists of assets created by the entrepreneurship of the founders. As economist Deirdre McCloskey points out, the problem of inequality is not solved by foundations redistributing wealth to college professors and community organizers. "The problem is really solved by the education of the workers and the entrepreneurship of the bosses.… That is, it is solved by the accumulation of real capital."[8]
And, as Ayn Rand reminds us, capital is not "an anonymous tribal product that is the result of some undifferentiated, collective process [in which] everyone did something and it's impossible to tell who did what."[9] The publicly recorded achievements of Woods Sr., Field, the Polks, Casey, the Stranahans are the successes of individuals — not some unidentifiable disembodied collective — and the rewards of their productivity were theirs to do with as they saw fit. Without their capital accumulation and entrepreneurship there would not have been the funds available to support the activities of Obama's organization on behalf of those at the bottom, not to mention his own compensation.
Expropriation from Obama
Obama's evasion of the function of capital in improving people's material condition, including his own, is evident in his proposal, for the fifth time, to reduce the income-tax deduction for charitable donations by upper-income individuals and families. His proposed 2013 budget calls for lowering their charitable deduction rate from 35 percent to 28 percent. Administrators in the philanthropic community have generally agreed that the decrease would undermine the incentive for the wealthy to give to organizations that help the poor.[10] But in 2009, when charitable organizations complained that proposal would have a negative impact on giving, Obama dismissed their objections. "Now, if it's really a charitable contribution, I'm assuming that [a tax deduction] shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street," he said.I think it is a realistic way for us to raise some revenue from people who've benefitted enormously over the last several years. It's not going to cripple them. They'll still be well-to-do. And, you know, ultimately, if we're going to tackle the serious problems that we've got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.[11]The president seems to think that increasing taxes on the rich in this and other ways is of no consequence to them, that no matter how much is expropriated from them, they will somehow remain rich. Missing from his assumption is the recognition that foundation grants and other benefactions are not manna from heaven but must come from created wealth. It collapses the distinction between being income wealthy and asset wealthy. His statement also assumes that as a class the rich are always the same people whose incomes and wealth creation are unaffected by their financial decisions or political policies that either promote or limit freedom of choice and action.
The cost of being wealthy today is greater than it was in earlier decades. Even millionaires go bankrupt, and must adjust to declining fortunes in economic recessions. In fact, according to the Boston Consulting Group's study of global wealth, in 2011 American households with investment assets of $1 million or more declined to 5,134,000 from 5,263,000 (by 129,000), while globally the number grew by 175,000. Singapore has the highest proportion of millionaires in the world: 17 percent of all households in Singapore have wealth of over $1 million, as compared to 4.3 percent of households in the United States, which ranks it seventh in the world.[12]
Given the decline in millionaires and the impact of the recession on overall net worth, it is not surprising to find weak growth in giving. Many foundations have less grant money to give to nonprofit organizations because their endowments have declined along with the stock market. According to the philanthropic organization, Giving USA, total donations by US foundations in 2011 were an estimated $46.9 billion, an increase of only 2 percent from 2010 and a more than 2 percent drop from 2009.[13] Again, the point is that, contrary to Obama's implication, the wealth creation and assets of capitalists, entrepreneurs and heirs of fortunes are no more immune to compulsory redistribution than they are to the choices of those who invest in and patronize their enterprises. More fundamentally, whether they are affected or not, the rich are not cash cows whose right to their wealth is excluded from constitutional protection.
Historically, the originators of the wealth distributed by foundations to people like Obama are three groups of individuals whose activities are the ultimate sources of prosperity. Those pioneers, as economist Ludwig von Mises called them, are savers who accumulate capital in an institutional framework in which capital accumulation is rendered safe by the principle of the private ownership of the means of production; entrepreneurs who employ capital made available by the savers for the most economical satisfaction of not-yet-satisfied wants of consumers; technologists who perfect methods of processing.[14]
In a capitalist society, although everyone is free to join the ranks of these groups, most people do not; rather, they are beneficiaries of the activities of these three classes. As Mises points out, in a market economy
the greater part of the improvements brought about by the endeavors of the three progressive classes [are allotted] to the nonprogressive majority of people. Capital accumulation exceeding the increase in population raises, on the one hand, the marginal productivity of labor and, on the other hand, cheapens the products. The market process provides the common man with the opportunity to enjoy the fruits of other peoples' achievements. It forces the three progressive classes to serve the nonprogressive majority in the best possible way.[15]
Obama's Keynesian Jungle
Obama rejects the Misesian interpretation of the market economy. "For much of the last century, we have been having the same argument with folks who keep peddling some version of trickle-down economics," he asserts.They keep telling us that if we'd convert more of our investments in education and research and health care into tax cuts, especially for the wealthy, our economy will grow stronger.The theory, which he has called "thinly veiled social Darwinism," has failed, he insisted, and "the results of their experiment are there for all to see."[16]
This dismissal of the link between the productivity of the wealthy and prosperity is suggestive of John Maynard Keynes's (1883–1946) criticism of free-market capitalism as a state of affairs in which, as he argued in The End of Laissez-Faire,
there must be no mercy or protection for those who embark their capital or their labour in the wrong direction. It is a method of bringing the most successful profit-makers to the top by a ruthless struggle for survival, which selects the most efficient by the bankruptcy of the less efficient. It does not count the cost of the struggle, but looks only to the benefits of the final result which are assumed to be permanent. The object of life being to crop the leaves off the branches up to the greatest possible height, the likeliest way of achieving this end is to leave the giraffes with the longest necks to starve out those whose necks are shorter.[17]Like Keynes, who erroneously claimed a parallel "between economic laissez-faire and Darwinism," Obama views wealth in the aggregate, as though it were a tree created by nature and the wealthy were like giraffes eating the best leaves at the top of the tree.
The problem with Keynes's analogy is that human actors are not giraffes and wealth is not created as trees are by a self-sustaining evolutionary process of nature. Clearly, human actors in the economy are distinguished by their rational capacity, not by the length of their necks. As Mises points out, unlike animals, "Man's survival and well-being are an achievement of the skills with which he has utilized the main instrument with which nature has equipped him — reason."
It is also the case that, unlike animals, human actors are moral agents possessing the capacity to choose among alternatives in terms of what is morally good and evil. The pursuit of economic betterment is such a human choice. Man's survival demands purposive activity, but he must discover that requirement and choose to meet it. Giraffes do not face this issue of human nature.
For human beings, regardless of where we start in life, the choices we make and the paths we take in pursuit of opportunities to acquire economic, cultural and social capital will result in positioning us in different locations and contexts in the class structure. Given the available opportunities — including a rights-based democracy; relatively free and open access to economic, social, and political institutions; and factors such as parental occupation and race — and an individual's educational attainment, some move ahead, some fall behind, and some stay in place. Clearly, such differentiation and ranking, resulting from competition in a society of open mobility, is not the zero-sum process that Keynesian statists perceive.
As Tibor Machan puts it,
competition in the market is not like that in a boxing ring, where (normally), there is only one winner and one loser, but rather like that in a marathon race. Between the one at the end and the one up front, there are as many positions as there are participants, many bunched together very close to the front, other a bit behind, some alone in the middle, and so forth. [18]Not only does the Keynesian jungle analogy deny the aspirational desires of humans that animals lack; it distorts the morals of both the winners and losers in the marketplace. By portraying free-market competition as a survival-of-the-fittest exercise, and the winners as insensitive and callous, welfare statists accuse unregulated business of lacking the humanitarian ideals they believe are best imposed by state regulation. The dichotomy of economic freedom and compassion is false in principle and in practice.
A lack of compassion for one's competitors may be acceptable in the jungle but not in human society. Since a laissez-faire system requires respect for individual liberty, there is nothing in such a system to prevent people from helping the unfortunate or the helpless. A society that forces its citizens, under the threat of punishment, to help the less fortunate, is less, not more, compassionate.[19]Another strategy for impugning the morality of winners and for justifying state intervention in the private sector is the promotion of the false dichotomy of wealth and labor that defines venture capitalists as vultures that prey on weak companies for personal gain at the expense of American workers. Characterizing private-equity firms as predatory entities diverts attention from the productivity that links capital and labor: without capital generated by private equity and injected into risky enterprises there can be no production; without production there can be no jobs.
As economist Hernando de Soto concludes from his intriguing research of why capitalism has made little progress in developing nations or in former communist states,
Capital is the force that raises the productivity of labor and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress.DeSoto finds that, while people in developing countries have plenty of assets, what stands between their ownership of assets and prosperity is the lack of capitalism's legal framework of property rights.[20]
Pointing to the causal link between wealth creators and jobs is not to say that there are no ethical failings among winners in market competition; rather, it is to stress that the generation and accumulation of capital needed for the creation of jobs is not by definition immoral. "That businesspeople buy low and sell high in a particularly alert and advantageous way does not make them bad," insists Deidre McCloskey, "unless any trading is bad, unless when you yourself shop prudently you are bad, unless any tall poppy needs to be cut down, unless we wish to turn our ethical lives on the sin of envy."[21]
As noted earlier, the Keynesian jungle analogy not only distorts the morals of winners in the marketplace; it also denies the responsibility that losers have for their choices and views them as an undifferentiated mass of helpless victims of predatory winners. Again, to quote Machan,
the analogy makes it appear that in human societies those who are losers do not deserve their fate, because the jungle houses dumb animals who are victims of their fate — their genes, the environment, the comparative physical advantage of their fellow beasts, and so forth.… But human beings are capable of making good and bad choices in their conduct, and they are not helpless when they make the bad ones or the good ones. [22]This is not to deny that misfortune occurs due to causes beyond people's control; rather, it is to insist that losers are human beings and to recognize their moral agency, which the Keynesian analogy denies. In any case, argues Machan, even if it is the moral responsibility of others to help them, there is no moral justification for forcing that assistance. The needs of the helpless do not cancel the moral autonomy of potential helpers. Coerced assistance corrupts both the benefactor and the beneficiary, as in the cases of various types of welfare fraud. It produces the politics of victimhood, or "learned helplessness," the state of orientation of passivity described by psychologist Martin Seligman, that results from people's perception of rewards and punishments as disconnected from effort and merit.[23]
The Keynesian mischaracterization of the morals of winners and losers was perpetuated by presidential candidate Mitt Romney's opponents during the Republican primary campaign, and eagerly taken up by Obama and his supporters. The president wants voters to believe that a qualification for the presidency is having a disadvantaged background of need rather than being advantaged by family wealth. Thus, in justifying increased government funding of student aid, he cited his experience of neediness as giving him a greater claim to empathy with financially burdened students than someone like Mitt Romney whose advantaged background allegedly deprives him of empathy. "Somebody gave me an education. I wasn't born with a silver spoon in my mouth. Somebody gave Michele and me a chance."[24]
Obama's implication was that he is a better president than Romney would be because, unlike Romney, he has received aid from others and is therefore more in touch with voters. An indignant Vice President Joe Biden added to the distortion by declaring before a cheering audience of manufacturing workers in Youngstown, Ohio, "They [the 'Romney rich'] don't get us; they don't get who we are."[25]
In other words, despite the fact that the vice president and the president are wealthy men, since they were not born into wealth, they are in touch with workers. As an MSNBC host put it, mixing metaphors and ignoring the history of wealthy presidents, what disqualifies Romney for the presidency is that "his personal roots were not sown in the salt of the earth."
Failing to make the distinction between the values and practices of free-market entrepreneurs and statist (crony) capitalists, the president wants Americans to believe that all capitalists are crony capitalists guided by the ethic that Mark Twain attributed to railroad developer and financier Jay Gould, one of the most unscrupulous "robber barons" of the 19th century. That ethos, wrote Twain in his 1892 mock eulogy of Gould, is this: "Get money. Get it quickly. Get it in abundance. Get it in prodigious abundance. Get it dishonestly if you can, honestly if you must."[26]
Twain's vilification of Gould is often used by contemporary writers who erroneously believe that today's crony capitalism has sprung from a laissez-faire market that does not exist rather than from the welfare state in which we actually live and to which they are committed.
So says Steve Brouwer in Robbing Us Blind:
America's destiny is now linked to the reckless and selfish pursuits of a corporate elite who are disregarding the well-being of the United States. Like the "Robber Barons" in the late nineteenth century, [it] is devoted to the business of fleecing the American people and buying out the last vestiges of honest government. [27]Economist Robert Frank joins Brouwer's indictment in his judgment that "The Origin of Species is a better guide to our economy than The Wealth of Nations."[28] Again, their criticism is directed against free enterprise, but the facts they bring to bear are those of the welfare state we live in.
We Are All Keynesians Now[29]
Keynes's Darwinian portrayal of laissez-faire is such a widespread taken-for-granted conception that George W. Bush seemed compelled to center his 2000 presidential campaign around the doctrine of "compassionate conservatism" to blunt the association of free-market principles with lack of compassion. By 2004, during his reelection campaign, Bush's emphasis on compassionate conservatism had taken a back seat to his promotion of the "ownership society," the catch phrase he used to describe the intent of his tax-cut proposals and policies regarding home ownership, health care, education and retirement savings.[30] But Bush's promotion of government regulated and subsidized compassion and ownership did little to diminish the pervasive influence of the Keynesian analogy. In his 2008 acceptance speech for the Democratic presidential nomination, Obama used the ownership slogan to reinforce the analogy:In Washington, they call this the "Ownership Society," but what it really means is that you're on your own. Out of work? Tough luck, you're on your own. No health care? The market will fix it. You're on your own. Born into poverty? Pull yourself up by your own bootstraps, even if you don't have boots. You are on your own.[31]Contrary to Obama's distortion of the Bush slogan, many of the policies it covered were consistent with Obama's belief that people have a right to well-being that others should provide through the agency of governmental intervention. Bush's mandated ownership in order to "give our fellow Americans greater freedom from want and fear, and make our society more prosperous and just and equal,"[32] and Obama's coerced fair shares both require the force of the state to produce outcomes that the free market cannot guarantee, such as the Medicare prescription-drug entitlement. Like Obama, Bush believed the government could artificially stimulate the housing market to increase homeownership. In practice, the Bush administration's execution of its vision of the ownership society was best represented not by the shibboleth "Tough luck, you're on your own" but by the paternalistic directive "Sign here and don't read the fine print."[33]
Obama's Keynesian distortion also overlooks Federal Reserve Chairman Alan Greenspan's increase of the money supply in the banking system and the consequent low interest rates plus artificial lending standards, the encouragement of borrowing by Government Service Enterprises (Fannie Mae, Freddie Mac, and Ginnie Mae) — all of which were consistent with Obama's commitment to government intervention in the economy.[34] His oversight of a series of inflationary bailout operations during times of financial distress earned him the moniker "godfather of federal bailouts and moral hazards."
Like the Bush administration and Greenspan, Obama wants the advantages and effects of capitalism without its necessary cause (protection of property rights), and he wants to perpetuate the welfare state without its necessary effects (economic decline). As Jon Meacham succinctly observed at the height of the financial crisis, "Bush brought the Age of Reagan to a close; now Obama has gone further, reversing Bill Clinton's end of big government."[35] For example, despite the role of the 30-year-old Community Reinvestment Act (CRA) in the housing bubble and subprime-mortgage crisis, Obama supported the expansion of the CRA under the Community Reinvestment Modernization Act of 2009.[36] By 2011 "the ownership society" had lost its currency among conservatives and Bush's policies were indicted by the Tea Party as "big-government conservatism."[37]
In light of Keynesian attacks on capitalism and Keynesian responses to the attacks, it is not surprising that a December 2011 Pew Research survey found that approximately as many 18- to 29-year-old Americans have positive views of socialism as of capitalism.[38] Their 50-50 judgment of capitalism and socialism reflects the society in which they live: a welfare state in which government is seen as an instrument for passing out favors; presidents believe it is their duty to create jobs in the private sector, to endorse deficit spending by the government, and forcibly to transfer wealth from one group of citizens to another. Citizens in this semisocialized society equate needs and preferences with rights and demand benefits as entitlements constitutionally due them as a condition of citizenship. Profit-making is seen as necessarily involving schemes of manipulation, speculation, and greed that should be regulated by the state. Wealth is viewed not as deferred consumption but as ill-gotten gain amassed by the systematic financial thievery of the corporate rich, which should be retrieved by the state.
For over two generations, while Americans have been adjusting to the transformation of the economy from an industrial to a service-based occupational structure, they have been doing so in a world in which the free market is being overtaken by the global spread of state capitalism, defined by Ian Breemer as "a system in which the state functions as the leading economic actor and uses markets primarily for political gain."[39]
In the United States, the shift of economic responsibility and commercial decisions from the free market to the federal government has made Washington, DC, not New York City, the financial capital of the nation. Despite the bureaucratic waste, inefficiency, corruption in both private and public sectors, as well as retarded economic growth caused by deeper state intervention, politicians and voters believe that the amelioration of poverty, economic dislocation, and ignorance and the equal opportunity of individuals to succeed can be achieved only through collective action coordinated by a strong, regulatory welfare state.
No wonder GOP pollster and strategist Frank Luntz advised Republican politicians at the December 2011 Republican Governors Association meeting to avoid using the word "capitalism." Instead, he advised, "Replace it with either 'economic freedom' or 'free market.' The public … still prefers capitalism to socialism, but they think capitalism is immoral. And if we're seen as defenders of quote, Wall Street, end quote, we've got a problem."[40]
The conflict between equality and liberty is not a choice between constitutional equality before the law and liberty, which are corollaries; rather, the alternatives are equality of opportunity in freedom which will result in inequality, or equality of outcome in slavery. Obama's choice is equality of outcome rather than liberty for all. In so choosing he will not fulfill his intent of making the United States the greatest nation. To attain that goal he should reassess his assumptions about the legal framework of natural rights that capitalism requires and correct his misunderstanding of how a society becomes free and prosperous. He would do well to seriously consider Milton's Friedman's observation that
a society that puts equality — in the sense of equality of outcome — ahead of freedom will end up with neither equality nor freedom.… On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality.[41]Putting freedom before equality would enable Obama see that the question of our time is, as it was at the founding of our nation, Do we want equality before the law in freedom, or do we want equality of condition in serfdom? Whether we prosper as a nation will depend on our answer.
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