US: Dear President Obama, You Can’t Create Growth, But You CAN Suffocate It

US: Dear President Obama, You Can’t Create Growth, But You CAN Suffocate It – by Ralph Benko

President Obama recently generated a furor with his speech in Roanoke, Virginia, in which he stated: “There are a lot of wealthy, successful Americans who … know they didn’t — look, if you’ve been successful, you didn’t get there on your own.  You didn’t get there on your own.  … If you were successful, somebody along the line gave you some help.   …  If you’ve got a business — you didn’t build that.  Somebody else made that happen.”
This has created fury from the right and unease from the center, as well it should.   The fury and unease arise because this statement represents a grotesque distortion of an important truth, even more troubling than a downright lie.  Later in the speech Obama paraphrases the Declaration of Independence, subtly distorting it and deeply subverting its meaning: “[I]n this country, you have some God-given rights:  a life in liberty and the pursuit of happiness, and a belief that all of us are equal — (applause) — and that we’re not guaranteed success, but we’re guaranteed the right to work hard for success.  (Applause.)”

Actually, Mr. President, the Declaration says that “all… are created equal,” implying equality of opportunity not equality of outcomes, not “all of us are equal.”  A nuance, perhaps, but a critical one.  The claim that “we’re guaranteed the right to work hard for success” — is also insidiously distorted.  A “right to work hard for success” is belied when coupled with the assertion of a (constitutionally nonexistent) paternalistic federal power to intervene to take away as many of the fruits of that success as should please our liege to take.
The recipe by which Americans have prospered lies not in some sort of state action but in opportunity.  Obama uses a warped logic of federal noblesse obligeto dispense a bag full of goodies from tuition tax credits, to a mortgage refinancing credit, to public works projects.  His litany brings to mind the indictment of FDR’s New Deal in Liaquat Ahamed’s Pulitzer Prize winning Lords of Finance : “The string of measures was a strange mixture of well-meaning steps at social reform, half-baked schemes for quasi-socialist industrial planning, regulation to protect consumers, welfare programs to help the hardest hit, government support for the cartelization of industry, higher wages for some, lower wages for others, on the one hand government pump priming, on the other public economy.  Few elements were well thought out, some were contradictory, large parts were ineffectual.  While much of the legislation was very laudable, aimed as it was at improving social justice and bringing a modicum of economic security to people who had none, it had little to do with boosting the economy.”
The federal government plays a central roll in the economy.  It does this not by playing Robin Hood, robbing from the rich and giving to the poor.  It, through tax, fiscal, monetary and other policy, establishes an economic climate that generates — or strangles — opportunity.  Opportunity, not largesse, is the Holy Grail of economic growth and equitable prosperity.  Malcolm Gladwell, in his bestselling book, Outliers: The Story of Success,  observes: “[N]o one—not rock stars, nor professional athletes, not software billionaires, and nor even geniuses—ever makes it alone.”
But this only superficially similar observation has dramatically different implications from those posited by Obama.  It does not, as Obama implies, mean that people need government subsidies — a demeaning view of Americans, who yearn to succeed on their merits.  It does not justify funding subsidies by confiscating some of the wealth of the super-successful.  It means, instead, that success is governed by four, not three, variables:  talent, industriousness, social intelligence, and opportunity.  Gladwell: “But what truly distinguishes [the] histories [of the super-successful] is not their extraordinary talent but their extraordinary opportunities.  … [T]ake a close look at the … list of the seventy-five richest people in human history.  … As you can see, it includes queens and kings and pharaohs from centuries past, as well as contemporary billionaires…. Of the seventy-five names, an astonishing fourteen are Americans born within nine years of one another in the mid-nineteenth century. (Emphasis added.)  Think about that for a moment. Historians start with Cleopatra and the pharaohs and comb through every corner of the world for evidence of extraordinary wealth, and almost 20 percent of the names they end up with come from a single generation in a single country…. What’s going on here?  The answer becomes obvious if you think about it. In the 1860s and 1870s, the American economy went through perhaps the greatest transformation in its history.  …  [T]here was a particular, narrow nine-year window that was just perfect for seeing the potential the future held.  All the fourteen men and women on the list … had vision and talent.  But they also were given an extraordinary opportunity….”
Is it coincidence that the creation of this great wealth (for the middle class as well as the super-successful) coincided with the approach toward and institution of the classical gold standard?  Not at all.
Economic historian Prof. Brian Domitrovic observed in Forbes.com: “… the record of 1878-82 and its own run of some 40% growth. In the four years prior, there had not been a historic collapse in economic growth that made the base year of 1878 low, as was the case in 1933. Rather, in the four years before 1878, growth had come in at 13%; in the previous ten years, growth had totaled 49%. In other words, 1878-82 was a mega-acceleration from a high base. And after? Over the next decade, another historic expansion of 49%. 49% on top of 40% on top of 49%, 1868 to 1892. That’s registering “the strongest output growth…in US history outside of wartime.” Regarding policy, there was one major shift that occurred in these heroic years in the latter 19th century. In 1879, the U.S. went back on the gold standard. That’s right: this epic run of growth, which in no way was inferior to the best that the New Deal and Keynesianism could offer (but that in only a very short span of time), occurred as the dollar regained unimpeachable soundness.”
Mr. President, there is a role for the federal government to play.  The federal government has the inherent power to create a climate in which opportunity flourishes or … to strangle opportunity. Expropriating the wealth of the successful — making us all, as you say, equal — strangles opportunity, and, with it, national prosperity.  Nobody ever has made the poor richer by making the rich poorer.
What made, and some day again shall make, America the Land of Opportunity is very simple: good money (of which the empirical evidence shows the gold standard to be the best); moderate taxation with low rates on a broad base; frugal federal spending; sensible regulation; and other common sense policies.  When the government gets right the policies that foster opportunity, rather than patronage, Americans will thrive.