Friday, July 20, 2012

The Myth of Merit

"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."
 -- Barack Obama; from speech in Roanoke, Virginia (July 13, 2012)

The above inartfully put together statement has drawn some controversy.  Though it is clear from his inflection in making it, that the president clearly was talking about roads and bridges being what others built and made happen, there is certainly a germ of truth even to the comment as distorted by the media.

First of all, there is the matter of "this unbelievable American [S]ystem" that our capitalist economy was built on.  The American System was that economic system put in place by the George Washington Administration, which included protective tariffs, bounties to industry, and even the bailout of Wall Street banks in 1792.  This system became more extensive following the civil war, with massive land grants to the federally chartered railroads to lay track and borrow capital against.  The American System continued until WWII, and--to a lesser extent--until 1994 GATT.  That is, it was the prevailing economic policy during the duration in which the United States became an economic superpower.

We can debate the merits of the American System of economics but, right or wrong, it was built and maintained for the sake of the national interest.  That is, that certain privileges were granted based on the supposition that such served the greater good, and that such a supposition was the basis for the social compact during the bulk of our history.

In our post 1994 GATT system of globalism, it is questionable whether any suppositions of national interest are translatable.  In this global system, it ought to be expect that businesses stand on their own two feet, but this is rarely the case.  Quite ironically the old dynamic has been turned on its head.  Indeed it could be stated in Yakov Smirnoff form:
In American System, companies compete for sake of nation.  In global system, nations compete for sake of company.
Whereas it would seem that "free trade" would preclude any sort of protectionism at all, it is instead the case that protectionism is everywhere more prevalent now than at any time in history, even disrupting that "commercial amity" among the states that was a central purpose of our constitution.  There is even an industry of selling books telling aspiring entrepreneurs how to get the most handouts in order to become a "success"


Some of the most celebrated "job-Creator" deities are in fact the greatest welfare queens of all.  Take for instance a company called Steel Dynamics whose 1994 start-up included $385 Million from investors--the largest private investment being $18 Million from a Massachusetts firm by the name of Bain Capital. The largest investment however was provided by the taxpayers of Indiana and DeKalb County.  Grants and subsidies of $37 Million (plus a county income tax to finance agreed upon infrastructure improvements) helped anchor this "success" story.  Cato Institute analyst Tad DeHaven described these bounties as "an example of the government stepping into the marketplace, picking winners and losers, providing profits to business owners and leaving taxpayers stuck with the bill."

There is in fact a laundry list of instances where Bain Capital profited from the beneficence of government.

It's one thing to be a welfare queen.  It's another still to be one who says "let them eat cake!"

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"Government is instituted for the common good; for the protection, safety, prosperity, and happiness of the people; and not for the profit, honor, or private interest of any one man, family, or class of men: Therefore the people alone have an incontestible unalienable, and indefeasible right to institute government; and to reform, alter, or totally change the same, when their protection, safety, prosperity, and happiness require it." -- Constitution of Massachusettes (1780)