The Empire Page

Background:  Recently, Elizabeth Warren, Harvard law professor, former Obama regulator and candidate for the Democratic nomination for the Massachusetts Senate seat formerly held by Edward Kennedy, sparked a national debate by positing that people who are successful in business owe that success to a large extent because of the state's contributions in the form of schooling, public utilities, police and fire protection, and thus the state should be able to take as large a share of their wealth as it needs in order to provide such services as it deems necessary. 

George F. Will, writing in the Washington Post, argues that Warren's social contract is "antithetical to America's premise, which is: Government – including such public goods as roads, schools and police – is instituted to faciliate individual striving, a.k.a., the pursuit of happiness."   This debate encapsulates the differences between the two national political parties and thus may play a role in the outcome of the 2012 election.  Who is right -- Warren and Occupy Wall Street or WIll and the Tea Party, or is there a third view? 

The Empire Page invited a number of trusted commentators for their views on this topic. Their initial statements are found below.  If you'd like to participate in the discussion, you may comment at the end of the piece or if you have a longer statement that you'd like us to consider please email it to editor@empirepage.com.

By film’s end, though, Rick has undergone a striking change of heart. At Casablanca’s airport, he tells his girlfriend, Ilsa, that she must go off with her Czech freedom fighter husband and support him in his noble task of battling the Nazis. She can’t run off with Rick and spend the rest of her life with him, as they’d planned. Rick, too, plans to fight the Nazis.

Ilsa is shocked at Rick’s sudden flip-flop. She says, “But what about us? …I said I would never leave you.”

Rick then tells her, “And you never will. But I've got a job to do, too. Where I'm going, you can't follow. What I've got to do, you can't be any part of. Ilsa, I'm no good at being noble, but it doesn't take much to see that the problems of three little people don't amount to a hill of beans in this crazy world…”

The America of 1942, a nation of rugged individualists if ever there was one, loved that movie. It got the Oscar. Its theme was self-sacrifice – the subjugation of individual self-interest to the welfare of the larger community in time of crisis. Yeah, sure, everybody understood and sympathized with Rick’s early self-focus in a difficult, dangerous and treacherous world, but that film hit the screen during an era when Americans, regardless of their political views, understood that in time of national crisis we’re all in this together – and that we all need one another for most of us to succeed in the long run.

That, ultimately, is what civilization is about. That’s why human beings got together in the first place. That’s essentially Elizabeth Warren’s point when she maintains that people who succeed conspicuously in this society owe a big portion of that success to the benefits that civilized society provides. George Will condemns that view as an example of “the collectivist agenda.” I don’t know if he would similarly characterize public sewerage systems, but that’s the logical extension of his point of view.

Will’s argument is that government’s sole purpose is to “facilitate individual striving.” That’s certainly one purpose of the government created by Madison, Franklin, et al, but hardly the only purpose. The best indication of what the Framers had in mind as government’s proper role is to be found in what they wrote about that role.

The purpose of the federal government, they wrote in the Constitution’s preamble, is to “… establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare and secure the blessings of liberty …”

Justice is like beauty; it exists in the eye of the beholder. That whole domestic tranquility thing suffered a bit of a setback in 1861. It’s clear, however, that the Framers were at least as concerned with the general welfare as they were with individual liberty. Quite clearly, what they were after was a fair and rational balancing of those interests when they come into conflict, as will often occur in discussions of taxation and government power.

It’s absurd, however, for anybody to argue seriously that the creators of this nation did not expect some sacrifice on the part of some citizens for the benefit of all citizens. The Framers were exceedingly smart guys. If that’s what they’d meant, that’s what they would have written; they didn’t.

That doesn’t mean that the general citizenry should enjoy a bottomless entitlement to the wealth accumulated by productive people, and only a tiny percentage of Americans believe that it should. It also does not mean that productive people can claim all the credit for their success for themselves. Herman Cain, who proclaimed the other day that if you’re not rich it’s your own fault, is a classic example. He’s clearly a bright, purposeful, energetic guy, but would Herman Cain have become Herman Cain without the Civil Rights Act, without the Voting Rights Act, without the actions taken by the federal government to clear the path to success for African Americans?

The fact is that Herman Cain might well have become Herman Cain without those government actions, but the odds would have been longer for him – considerably longer, actually. It says something not terribly complimentary about Herman Cain that he lacks either the character or the self-awareness to acknowledge that.

This battle over what America really stands for has raged on since long before I drew my first breath. It’s essentially a battle between people who respect the obligation of membership in a larger community and people whose general mindset is, “Screw everybody but me.”

That’s why the Americans of 1942 fell in love with Rick Blaine’s epiphany that life in the real world involved something more than his own desires. At the time, Americans faced a common enemy whose danger to all was obvious even to the most dim-witted among us. Today, this country has 25 million people looking for fulltime jobs – one out of five of us in the workforce. Yet a disturbingly high number of the four out of five people who still have jobs and income don’t grasp how that situation can adversely affect them.

They lack the knowledge of history to understand how corrosive and universally devastating large-scale, long-term unemployment can be to a society. They don’t grasp the dangers of immense disparities in wealth – of people at the top of the heap getting richer and richer over decades while the masses grow ever poorer, day by grinding day. They know nothing about the forces that gave birth to the French Revolution or to the Nazis a century and a half later. They simply don’t see how somebody else’s enormous economic problem is their problem, too.

So, while loudly annunciating their fervent love of country, they hide behind utterly false interpretations of this nation’s founding principles. They ignore words meticulously chosen by the Framers, and they cling to the totally fallacious view that success involves only effort, drive and individual commitment. To them, there’s no such thing as luck, no such thing as disadvantage, no virtue in community, no universal benefit to be derived from a public support system designed with the goal of giving everybody an equal chance.

“Casablanca” was fiction – great fiction that celebrated the concepts of altruism and mutual obligation. The mindset that I’ve just described is also fiction.

But it’s hardly reassuring as a window on human nature.

Paul M. Bray, Esq.:  In the late 1970s I was the bill drafter for Assemblyman Dan Haley, an anomaly who was a Democrat from the North Country. One of his interests was the work of Louis Kelso, a believer that various forces like increased productivity are going to make significant cuts in available jobs. Kelso’s solution was Employee Stock Option Plans (ESOP). It would enable working people without savings to buy stock in their employer company and pay for it out of future dividend yield. He saw employees supporting themselves and their families by become share holder rather than hourly employees.

In other words, the plight of today’s unemployed has been envisioned for decades even if the today’s multimillion-dollar incomes with lower rates of taxes than the middle-class families weren’t. Do you remember when a billion dollars was real money at the time the billion dollar Empire State Plaza was constructed?

We have a real problem in the USA as the rich get much richer and more tax adverse while incomes of the poor and middle classes continue to decline and unemployment rates increase. This is the background or explanation to the fact that our public goods like roads, schools, libraries, transit, parks and police are in decline.

George F. Will is right that such public goods can and should facilitate individual striving, a.k.a., the pursuit of happiness. But that isn’t the end of the story. We are also a national community with hundreds of thousands of local communities with public goods like schools and roads that make it possible for these communities and the residents therein to have their happiness. How can any individual striver that becomes a million or billionaire and fails to carry his or her weight for the common good succeed in a decayed world?

As Louis Kelso anticipated, we are facing a structural inadequacy of employment that may lead to what Jim Clifton calls in his new book “The Coming Jobs War” and it will be bad for all, rich or poor, if the richest amongst us fail to pay “the price of civilization” as Jeffrey Sachs entitled his new book. We have serious problems in maintaining our public goods and we don’t need a political party dedicated to protecting the rich from paying their fair share of taxes.

Peter G. Pollak, Publisher & Editor, The Empire Page:  We Americans are in danger of losing another chunk of our liberty. Americans have enjoyed greater liberty than other peoples for so long that we’ve come to take it for granted.  As a result we are slow to see the threats.

Liberty is that combination of individual rights that is sufficient to enable each person to pursue personal happiness as s/he sees fit.  In the U.S., it began as freedom from Great Britain, the right to self-governance.  It was extended in the form of the Bill of Rights, 10 provisions that were added to the Constitution largely to protect the individual against government.  Why did we need a Bill of Rights?  Because the people who founded our country knew from experience that governments do not hesitate to deny rights to individual citizens in order to achieve their goals. 

Liberty was extended in the 19th to people who came to this country as slaves.  Later women were granted equal rights to men.  Other rights before the law have been gained as a result often of long difficult struggles. 

Today liberty is under attack from two sources.  Technology has made it harder for the individual to remain anonymous. Employers can check out your Facebook page to find out what you did this past weekend.  Emails you wrote in anger can be uncovered and private phone conversations can be overheard.  Most Americans are nervous about such developments, as they should be, but most of us are willing to trade a certain amount of loss of privacy in return for the advantages technology can deliver as long as protections are included with the package.  The bottom line is that each American’s liberty is diminished to the extent that government officials, one’s employer or one’s neighbor can use information gained through technology to censure legal behavior, including legal speech.  Cases of bullying that have led to suicides are an example of the evil that can result.

An equal, if not greater, threat to liberty is the emergence of coercive government – a government that uses its powers to censure legal behavior.

Dan Lynch’s defense of personal sacrifice is well argued, but it misses the point of the present debate. It’s one thing to coerce sacrifice in a time of war, which in essence is what the military draft represents, but it’s another thing to coerce personal sacrifice in the market place.  Lynch argues that the well-being of society as a whole is at stake, but there’s no objective standard in place that tells us when it’s okay to impose an economic draft.  Rather, what determines how far government may go is the political process. What we decide in the voting booth is the final arbiter … until the next election.

I would argue that Elizabeth Warren and Occupy Wall Street represent a threat to individual liberty that extends far beyond the need of government to protect its citizens in a time of economic crisis.

We take progressive tax rates – the idea that the more you earn, the higher percentage of what you earn can be taken from you – as a given.  That’s not the problem.  The problem is the basis for setting those rates – is it truly social needs or ideological in nature? When those who fall into the 35% tax bracket are asked to pay even more because of their supposed personal greed, we’ve stepped over the line.

To define individual success in the marketplace as greed borders on the scapegoating policies of the Soviet Union and Nazi Germany. We should recognize the tactic:  define certain groups – capitalists in Russia and Jews in Germany –as evil to justify confiscating their property. When wealth gained through lawful means is defined as anti-social behavior, we’re violating the social contract as originally intended by the founders; we’re saying as Wills points out that to protect the individual’s right to the pursue personal happiness is no longer government’s top priority.

Warren argues that economic success is a benefit dependent on government’s providing certain services, including public schooling, roads, police and fire protection and so forth.

No one is saying that taxes should not be raised to pay for basic public goods.  The problem comes when people are taxed so that elected officials can loan money to people who donated to their campaigns or when government determines where a business should be located to benefit a special interest group, as in the case of Boeing’s attempt to open a plant in South Carolina being blocked to aid certain labor unions.

The case of Solyndra is instructive.  The Obama administration, having determined that solar power was the wave of the future, loaned money to a company that existed largely to take advantage of government largesse.  Backing individual companies is not the right way to support alternative energy.

Government can stimulate innovation, which in turn can boost the economy, but picking individual winners and losers is the worst of many options.  Preferable are awards to academic institutions where peer review – not government officials – determine which research projects deserve financial support.  Those research projects which meet market needs will then have no trouble getting loans and investment support from the private sector.

Another way government can help the economy without allowing political objectives to interfere is through loan guarantees to companies chosen by bank officers whose careers are on the line if they pick losers. When I started Empire Information Services in 1986, I borrowed $100,000 from Key Bank.  Key took advantage of a small business loan guarantee program to help reduce its risk, but a Key Bank loan officer, not a government official, made the decision to back my company. 25 years later that company (in its second incarnation as readMedia) still exists.

A major flaw in Warren’s argument (and the protestors’ focus on Wall Street) is the notion that successful businesses have not paid their fair share of the cost of the public utilities they consume.  Businesses are more heavily taxed in the U.S. than almost every country in the developed world; then their owners and shareholders are taxed on the salaries, bonuses and dividends they distribute.

Like President Obama, Warren is intentionally vague on who ought to be considered wealthy and what share of the cost of public goods wealthy Americans ought to pay. Is it $250,000?  $1,000,000?  A recent proposal that a surtax be added to Americans who earn $1 million or more was rejected by the Washington Post on the grounds that it leaves in place special tax breaks for the oil and gas industry and is “purely political.”

The real danger of Warren’s position, however, is the assumption that government has a “right” to punish a specific class of citizens for lawful behavior.  That makes government something apart from the people – a model that the communists of the Soviet Union could not make work and that the Chinese are having to abandon in fact if not yet in theory.

When a coercive government is allowed to define groups within a society as greedy, to claim their gains are not legitimate, then the liberty of all individuals is diminished. 

But what about our economic problems?  There are other solutions on the table, including removing obstacles to private sector growth.  As I’ve stated in past columns, job growth in the past 20 years has come largely through new technology.  Companies large (Google, Apple, Facebook, etc.) and small (EIS/readMedia, etc.) create jobs when given the opportunity to do so.  Other companies (IBM, Intel, Boeing, Caterpillar, etc.) continue to grow because their managers make winning decisions without being influenced by government pressure about what products to bring to market.

Unemployment will go down when government restricts its involvement in the private sector, allowing winners and losers to be chosen by customers rather than by bureaucrats.  Steve Jobs didn’t apply for unemployment when fired by Apple.  He started Next and Pixar, both of which produced social value, jobs and personal wealth.  The people need a social contract that allows future Steve Jobs to thrive, not regret having done well.