Are job creators a myth?

The idea that the rich create all the economy's value is simply not true. What's more, Obama knows it

Topics: Next New Deal, on,

Are job creators a myth?President Obama signing the Jumpstart Our Business Startups (JOBS) Act in April. (Credit: Reuters/Jason Reed)
This originally appeared on Next New Deal.

Conservatives are in a rage after Obama suggested we add value to the economy together. In their version, only the rich do.

“If you’ve been successful, you didn’t get there on your own … 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 … If you’ve got a business — you didn’t build that … The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.”

- President Barack Obama, Roanoke Fire Station No. 1, Roanoke, Va., July 13, 2012

“The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contribute nothing to those above him, but receives the bonus of all their brains.”

- Ayn Rand, “Atlas Shrugged,” required reading for Rep. Paul Ryan’s, R-Wis., staff.

“The Zambrellis scoffed at attempts by the Democrats … to wage class warfare … ‘It’s not helping the economy to pit the people who are the engine of the economy against the people who rely on that engine.’”

- Michael Zambrelli, Mitt Romney fundraiser, East Hampton, N.Y., July 8, 2012, quoted in the Los Angeles Times

What’s the opposite of President Obama’s view that the rich have become rich thanks to the American system that we’ve created together? President Obama’s speech has sent the right into a furor, with Rush Limbaugh telling his audience, ”I think it can now be said, without equivocation — without equivocation — that this man hates this country.” But if expressing the opinion that the value of the economy is something that is created together is enough to hate America, what would it mean to have a vision of wealth creation that loves America?

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Next New DealSome political commentators have treated this comment and its reaction either as part of the presidential noise machine or as the dreamscape projections of the conservative id. Will Wilkinson at Democracy in America has written a post, “Taxes and the Rich,” addressing this. There are some problematic issues with the post [1] [2], but he describes Rush Limbaugh’s reaction as being bound up in an absurd myth. He says, “Mr Obama’s in-it-together point is mildly offensive in context because it is used to imply that top-earners who resist paying an even larger portion of America’s tab do so only because they are in the grip of an absurd myth of self-reliance.”

I’d argue that instead of self-reliance, the real idea the right is appealing to here is the idea of the “job creator.” It goes beyond the person who gets by on his own without any help from the government or the public at large. It’s the idea that the rich create all the value of the economy. They are, as John Paul Rollert put it in a great post wondering what Adam Smith would think of “job creators,” the visible hand of the economy. The rich are, as people at the Mitt Romney fundraiser put it, “the engine of the economy” who all the other people “rely” on for their survival. (I’m assuming. I would have meant it the other way around, but I wasn’t at that fundraiser.) The economy isn’t something we create together. It is something the rich create for everyone else.

And, crucially, rather than being a myth or a fairy tale conservatives tell themselves, this idea of the “job creator” is the basis for current policy-making on the right. As Texas Gov. Rick Perry put it during the primary, “America is not going to move forward until we remove restrictions of over-taxation, over-regulation and over-litigation on the job creators and free them so the jobs can be created.” Charles Krauthammer argues on TV that we have a capital strike that’s holding back the economy. John Boehner gives speeches where he argues “private-sector job creators in particular — are rattled by what they’ve seen out of this town over the last few years. My worry is that for American job creators, all the uncertainty is turning to fear that this toxic environment for job creation is a permanent state. Job creators in America are essentially on strike.”

Speeches like these diagnose the problem, and then it turns into policy. Presidential candidate Mitt Romney’s policy plans for job creation operate under the assumption that those at the top of the economic pyramid are being held in check. His Day One proposals include “the elimination of Obama-era regulations that unduly burden the economy or job creation,” “revers[ing] the executive orders issued by President Obama that tilt the playing field in favor of organized labor,” cutting corporate taxes, eliminating the estate tax, and a variety of other policy designed to give the “job creators” a firmer hand in controlling the economy. His education policy includes putting private actors in charge of everything, especially putting commercial banks back into the sweet spot of collecting government-insured money and expanding how easy it is for for-profit colleges to qualify for federal money. Presumably he does this because the private is always superior to the public, regardless of how much the business model appears to be a vacuum for subsidies. His tax and social safety net policy focus on boosting the earnings of those at the top of the pyramid on the backs of those at the bottom.

These policies include no hint that the economy is stuck due to inadequate demand or the weak purchasing power of the middle and working classes and the delinking of wages and productivity. There’s no mention of the need to expand education and infrastructure to create the economy of the 21st century. There’s absolutely no sense that the economy encourages the most innovative or entrepreneurial when there is full employment and a portable social safety net that provides economic security. And it is light-years away from the observation that society is a system of cooperation in which the value in the economy is created together.

[1] Wilkinson doesn’t say it outright, but it seems that he is in favor of a flat, proportional tax on fairness grounds: “The facts about the portion of tax revenue contributed by the rich plausibly suggest that they pay more than their fair share for the infrastructure of capitalism … the class of people Mr Obama wants to ‘give back’ has already paid most of the tab, and continues to pay most of the tab, for the tax-financed public goods upon which they, and the rest of us, so crucially depend.”

Why do we assume that a flat tax is fair? Given that Wilkinson’s theory is about how public goods benefit society, presumably he thinks taxes should be the shadow price of purchasing those goods if they were available in a market. A flat tax would be the philosophically coherent answer for how to raise funds to pay for these benefits if and only if benefits consumed rise proportionately to income. If someone is 10^4 times as rich as I am, they need 10^4 times more garbage collected, breathe 10^4 times more clean air, require 10^4 more police protection and functioning courts, etc. That strikes me as dubious.

The best Milton Friedman could do was “proportional flat-rate-tax would involve higher absolute payments by persons with higher incomes for governmental services, which is not clearly inappropriate on grounds of benefit conferred.” Not clearly inappropriate indeed. Taxes should be highly regressive in Wilkinsons’ view, converging to a head tax, unless we are talking about utility gained from society, or unless we believe tax policy is a function of making the basic structures of society serve goals like benefiting the worse off, under which the progressive taxation case makes much more sense. See Barbara Fried’s fantastic “The Puzzling Case for Proportionate Taxation” for more.

[2] Wilkinson: “In 2008 … the top 5 percent earned 31.7 percent of the nation’s adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes. If that’s not giving something back, what is?” These numbers are juked in part due to the Earned Income Tax Credit (EITC), which is kind of like a negative tax with a work requirement. Given that all the rage in Bleeding Heart Libertarian circles is a universal basic income (UBI) delievered through a negative tax, wouldn’t that number be significantly higher under such a system? This is why some people think that libertarians wouldn’t really pull the trigger on a UBI.

Mike Konczal is a fellow at the Roosevelt Institute.

Mike Konczal is a Fellow at the Roosevelt Institute.

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