Entrepreneurial Illusion?

President Obama took on entrepreneurs the other day, boldly claiming the self-made man is an illusion to an audience in Roanoke, Virginia.

I can’t imagine why he did it. Was it gratuitously insulting? Of course. Did it sound like a school yard taunt? No doubt. Was it unpresidential? Absolutely. Was it a gaffe? I’m not sure. He seemed to be speaking from the heart. I am sure about this: The president’s remarks reflect bad logic, bad philosophy and most important (for me) bad economics

Since the Obama apologists are claiming that the president is being quoted out of context, here is the full text of how he led into the subject:

If you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be ’cause I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something: There are a whole bunch of hardworking people out there.

If you don’t know what that means, you must be incredibly dense. It gets worse. The president continued:

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen.

There is no way to read any of this and not be acutely aware of what the president is trying to do. Whenever anyone on the left tells you that you didn’t earn your own success, that you had help from others — you know what’s coming next…If you didn’t earn what you have, you don’t deserve it! And if you don’t deserve what you have, it follows that…

Well, nothing actually follows from that. Suppose I’m rooting around in the woods and stumble upon a valuable diamond. I didn’t put forth any physical or mental effort. The discovery is pure, blind luck. So you can say, in a sense, I don’t deserve it. But you don’t deserve it either. It doesn’t follow from the fact that I was the beneficiary of luck that others are justified from taking the diamond from me.

If the roll of the dice or the spin of the roulette wheel favors me rather than you, I can’t claim that I “deserve” my winnings or that you “deserve” your losses. But it doesn’t follow from those facts that you are entitled to what I have won.

As for Philosophy, Dylan Matthews (at Ezra Klein) surveys what various thinkers have to say about who deserves what. Here is what he leaves out: Suppose I am standing behind a Rawlsian veil of ignorance and I can dictate the rules that govern the world I am about to be born into. What do I want those rules to be? Well, if I am a utility maximizer, I want people to get their marginal product. That’s the only way we are going to maximize output. And that’s the only way a randomly selected person will achieve maximum expected utility. What does it mean for people to get their marginal product? Read on.

For more than 200 years economists have been studying the distribution of income. Granted that what each of us does affects other people, what determines how much income any one of us receives? The economist’s answer is straightforward. In a capitalist system, each one of us tends to receive an amount equal to our marginal contribution to nation’s output of goods and services. That is, each of us tends to receive an income equal to our contribution to generating national income.

In plain English: people tend to get the value of what they produce.

There is logic to how the economic system functions. Incomes are not distributed randomly. For the most part, they are not the result of misfortune or luck. They are very much affected by the attributes the president derides: smart thinking and hard work.

Some of President Obama’s defenders have claimed that the critics are reading too much into his speech. That all that’s going on here is the classic conflict between individualism and social needs. But there are degrees of disagreement. Obama’s articulation of the issue is an extreme collectivist point of view. It is remarkable precisely because it is so very far outside the mainstream of contemporary thought.

That’s why so many people are outraged and why there is a sudden surge of gallows humor. On Facebook and in other social media, people are sharing examples of inventors and entrepreneurs “who didn’t build it.”

By way of contrast, here is Ayn Rand’s paean to the entrepreneur:

America’s abundance was created not by public sacrifices to ‘the common good,’ but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America’s industrialization. They gave the people better jobs, higher wages and cheaper goods with every new machine they invented, with every scientific discovery or technological advance—and thus the whole country was moving forward and profiting, not suffering, every step of the way.

And here is her warning:

Every movement that seeks to enslave a country, every dictatorship or potential dictatorship, needs some minority group as a scapegoat which it can blame for the nation’s troubles and use as a justification of its own demands for dictatorial powers. In Soviet Russia, the scapegoat was the bourgeoisie; in Nazi Germany, it was the Jewish people; in America, it is the businessmen

John Goodman is President and CEO/Kellye Wright Fellow at the National Center for Policy Analysis.