In what has to be the most spectacularly idiotic thing a politician has said since concerns that Guam may tip over and capsize, Hillary Clinton recently told a crowd in Boston “Don’t let anybody tell you that, um, you know, it’s corporations and businesses that create jobs”. The speech took place at a rally for Democrat gubernatorial candidate Martha Coakley at the Park Plaza hotel.
Unfortunately, these kinds of ideas are far from original, and I don’t just mean Elizabeth Warren, or Barack Obama. They predate the French Revolution, Karl Marx, Hitler, Stalin, and Mao. Which is why it is all the more hysterical that she goes on to equate businesses creating jobs with “trickle down economics” and says “that has been tried, that has failed, it has failed rather, spectacularly”. If you want to talk about spectacular failures, try the central economic planning of communist and socialist governments the world over. I won’t bore you with the details, but (spoiler alert) it tends to result in tens of millions of dead people.
Before we get into the confusion between trickle down economics, and free market economics, let’s just point out that central economic planning, and the idea that government can better regulate the economy than the market can, has also been tried. I don’t just mean the aforementioned mass murderer dictators, either. In fact, central economic planning is about the only thing that’s been tried in the last hundred years of American history. A central bank and progressive income tax has been the norm in America since 1913. With every year that passes, so too are more laws and regulations passed. The United States Federal Government is the most powerful government in the history of mankind, wielding worldwide economic control the likes of which have never before been seen. Yet, the worse the economy becomes, the more control it demands over the economy. Not only within its own borders, but across the globe. This of course, is old news to my regular readers.
The Difference Between “Trickle Down” and Free Market Economics
“Trickle Down” is the idea that by the State providing special benefits to the wealthiest in society, the entire economy will benefit. That, by placing these people above the rest of us, their economic activity will make all of us richer. They will hire workers, buy products and services, make capital investments, and that sort of thing. This kind of idea holds a lot more water than the equality of outcome rhetoric that we hear from the left, but it’s still not free markets.
To that extent, Clinton may have had a point if she was only speaking of “corporations” and had not extended her commentary to “businesses” which are two separate things, even if they have a tendency to overlap. A corporation is a creation of the State. It is a legal fiction entity, designed to avoid individual responsibility while doing business. When the government tells us it protects us from corporations, we should all be asking government why it is creating corporations in the first place, if they are so dangerous.
I am an agorist business man. I have no corporation. I file no government forms. I do business. I am fully liable for any damage that I do, and so I have a strong incentive not to do damage. With a little bit of creative paperwork and some filing fees, I can own a corporation, and do business as that entity. If I do damage while acting as the corporation, I am not personally liable. The corporation is in many ways disposable. If the claims against the corporation become too much to handle, I can simply discard the legal fiction entity, and start a new one, without repercussions attaching to me personally. There is not nearly the incentive to act responsibly in this instance.
Corporations are an example of trickle down economics. If you shield the wealthy from responsibility for their actions, they can act more boldly and take more economic risks. There are upsides to this, theoretically. If I’m not personally responsible for putting fishermen out of business and damaging private property and causing environmental catastrophe, I can drill for oil in the Gulf of Mexico with minimal regard for safety, like BP did, and avoid responsibility for the damage I do when things go south. Meanwhile, if I, as an individual, pluck too many fish out of a given body of water with my fishing pole, I’ll be criminally liable and possibly sent to prison.
Bailouts are another example of trickle down economics. Giving billions of taxpayer dollars to banks and financial institutions who made poor investment choices was largely seen as a way to protect the people who had their money tied up in those institutions. If you had your life savings tied up in AIG or a similar institution, the government bailout thereof may well have saved your investment, but it did so at the expense of others. It also assured that despite the bad decisions the folks in charge of these institutions had made, they would remain in control of much of the economy. Absent that intervention, yes, a lot of people would have lost a lot of money, but it would also have changed the way people invest, for the better. You shouldn’t trust your money with people who make bad investments. In a free market, you learn that lesson by losing money. In a “trickle down” economy, the lesson is not taught, because there is no discipline of failure.
Businesses Create Jobs, Not Corporations, and Certainly Not Government
In the beginning, there was an individual with a talent and a hunger for more. We’ll call him Joe. Joe marketed his talent in exchange for currency. He was so good at what he did, that demand for his talent grew beyond what he could himself provide to the market. He increased his prices in response to the supply:demand ratio, but demand increased regardless.
Rather than lose out on all the revenue he would have lost out on by refusing business, Joe hired an employee, and trained this employee in the talent he had been marketing. As the supply of available manpower exceeded market demand, he hired a salesperson, an advertising firm, and soon, demand once again exceeded supply, at which point he hired and trained yet another employee. This again increased the supply in proportion to the demand, at which point he hires another salesperson, and invests more in advertising. Demand again increases, and there is more need for employees.
Perhaps you can already see the pattern developing. Nowhere in this equation is there a government or corporation. These are the natural behaviors of individuals responding to incentives in a market environment. That’s how jobs are created.
It is certainly the case that the ambitious individual who begins our story gains wealth for himself, and needs to give some of it to folks who have less in order to gain more for himself. This however, is not trickle down economics as it is traditionally spoken of. This is a free market.
A trickle down economy goes more like this.
John wants money. John goes to the bank to get a low interest loan. The bank is able to give John the loan because the Federal Reserve prints money out of thin air and lends it to banks at near 0%, and the government has compelled the bank to give loans to guys like John because the politicians believe this will help the economy. John gets an office, and computers, and desks. John hires employees. John begins selling widgets that he imports from China, but the widgets are poorly produced.
John quickly finds himself losing more money than he is making. John says “Hey government! I need help! I’m a job creator!” Government says “Here John, we’ll give you money we took from Joe and his employees, because they are doing so well on their own.”
In the eyes of “trickle down economics” this is good for the economy, because John has employees and the government wants to keep the unemployment rate low.
In free market economics, John can’t get the government mandated printing press loan. He has to work for a guy like Joe, he has to be productive. He either has to save money from that productivity, or convince a private investor that he can make money for him, before he can buy offices, and desks, and computers, and employees. If he does acquire those things, and fails in business, then his assets get sold to the highest bidder to satisfy his debts, someone else takes the reigns of the business, and hopefully makes better decisions to succeed.
What Hillary Clinton, Obama, and Warren Propose is Even Worse than Trickle Down
For all the trouble with trickle down economics, there is some respect for market demand in it, government just attempts to manipulate it. What the left in America today ultimately wants is to do away with the market, the business cycle, and really every established economic law – replacing it with top down government control.
To “create jobs” government need only proclaim that a job has been created. Whether it be shuffling papers or digging ditches and filling them back in, the ultimate purpose is just to create demand and make the politicians popular. Pay the “worker” with money printed out of thin air, or that has been taken from some productive individual. Who cares where the money comes from? It’s not like we’re dealing with any natural incentive. With that being the norm, the welfare state begins to look more sensible, “Why even have them do the work? It’s pointless, just give them money for free”.
But as Hillary said of “trickle down economics”, this model has been tried before. It has failed quite spectacularly. It caused governments to murder over 260 million of their own citizens, not including war, in the 20th century alone. As technology makes killing more efficient, as populations grow less informed due to government schools, and more dependent due to the welfare state, the 21st century doesn’t appear to be shaping up to be much better.
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