Obama’s Business Comment . . .

Many readers will be aware that last week in a speech President Obama said “If you’ve got a business — you didn’t build that. Somebody else made that happen.” There have been many comments on this already — most of them I’ve seen have been negative — but I’m still going to add a few words, because I find the comment so troubling.

If the credit for a business person’s success belongs to “somebody else,” who is that somebody else?

In the same speech the president said “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.” That statement is true. But in no way does it imply that if a person has a successful business, “Somebody else made it happen.”

Everybody’s well-being in a modern society depends on cooperation with other members of the society. Through specialization and gains from trade, we all are more productive, and we all benefit. First, consider the way that social cooperation works in the market sector.

People engage in exchange when they find it mutually advantageous. Both buyer and seller are better off because they have specialized, become more productive at some activity, and produced value for those with whom they trade. The only way a business person can succeed in a market environment is by purchasing inputs and combining them to produce output that is more valuable than the inputs they purchased. This is a creative activity that adds value to the economy, and the credit for that accomplishment belongs entirely to the business person.

Many people start businesses that lose money. The implication of President Obama’s comment is that those people aren’t responsible for their failures either. Other people are. No, he didn’t say that. Perhaps this is something the president should clarify. If you don’t deserve credit for your successes, perhaps you’re not responsible for your failures either. In the real world, people make choices, and they are responsible for the consequences of those choices. Both the good consequences and the bad.

How about the businesses that make money? They do that by creating value for their customers. Doing so is not trivial. It is a creative activity, and it also requires hard work. Just because the success comes from trading with others does not take away from that fact that successful business people were able to make those exchanges because their entrepreneurial activities added value to the economy.

Consider a spectacular example. President Obama’ statement implies that Steve Jobs didn’t build Apple Computer, and the credit for the iPhone, the iPad, and all the other products the company has introduced goes to somebody else. “Somebody else made that happen.” Who? The same applies to less spectacular examples. The person who owns a restaurant, or an auto repair business obviously depends on customers, but those customers patronize the business because the people who work there create value, which enables mutually advantageous exchange.

I would think it is so obvious that what President Obama said is fundamentally wrong that it almost goes without saying, except that the statement was made by the President of the United States.

Now, consider the president’s other comment. “If you were successful, somebody along the line gave you some help.” We already considered market exchange, where both parties help each other. How about that great teacher? Lots of people had the same teachers as Steve Jobs and other successful business people. I can assure you (as a teacher myself) that some students put more work into their studies, some students are more perceptive, and some students get more out of instruction than others who had the exact same instruction. Ultimately the teacher-student relationship is an exchange relationship like many others. Teachers are paid to teach, just like auto mechanics are paid to fix cars. Yes, some teachers are better than others, but some students are better than others too. I get paid to teach; students (and taxpayers) pay to get my lessons, and the students themselves deserve full credit for any successes they have after they leave my classroom. I hope I give them something valuable, just like customers value the auto repairs they pay for, or the iPhones they buy. But they put in the effort, take the risk, and think creatively to add value to the economy and benefit from gains from trade.

How about the bridges? The president said “Somebody invested in roads and bridges.” This is an exchange relationship too. Taxpayers are the ones who sacrificed their incomes to invest in roads and bridges. The difference here is that they were forced into the exchange. We are compelled to pay taxes, and some of that money goes to build roads and bridges. If we are giving credit to anyone, it should be to the people who were forced to part with their earnings to pay for the roads and bridges everyone uses. The top 1% of taxpayers pay more than 36% of total federal income taxes, and the top 5% pay well over half of total federal income taxes. So if someone else deserves the credit for those roads and bridges, it is the very individuals President Obama wants to burden more by raising their taxes. But as with market exchange, just because some people produce what other people pay for does not mean “somebody else” is responsible for people’s successes.

Every one of us owes our prosperity to the social cooperation that occurs in a market economy. We rely on our customers, our suppliers, and all of the many businesses that provide us with the goods and services that make our standard of living so high. But this is far different from asserting, “If you’ve got a business — you didn’t build that. Somebody else made that happen.” No, if you’ve got a business, you built it and you made it happen, by creating value for your customers. The business people, the entrepreneurs, and the business employees in an economy chart their own path and make their own successes. Success is not guaranteed and it does not come easy. When people are successful in business, we should recognize their accomplishments and applaud them, for in the process of succeeding themselves, they also have created value for others in the economy.

Over the past four years I have found myself in disagreement with some of President Obama’s statements and policies. But I don’t recall him making a statement before that shows such a profound misunderstanding of the economic forces that have produced the material prosperity that too many people take for granted.