On the inanity of Elizabeth Warren’s now famous quote

Sorry my progressive friends, but Warren’s quote is nonsense. It ignores the most basic principle of a freer (not free) market – that wealth is generated on both sides of the vast overwhelming majority of transactions. Her quote implies a zero-sum thinking about the economy. It is false and I believe dangerous. It implies that everything you have done is at the expense of others. I hope none of you believe that.

Capitalism is, by definition about paying it forward. Farmers, factories, software companies, and consultants produce things (food, goods, services, and knowledge) that are of greater value to the purchaser than to the buyer. What is more, they create these things that are for the betterment of customers whom they do not even know today. In other words, they are being altruistic. Altruism being defined as “other centric.”

The roads, schools, and police to which Ms. Warren refers have been paid for, their makers have received just compensation. Where did the compensation come from – the people in the first place, but how did the government get this money? By claiming a share of the profits. In effect, Ms. Warren is claiming a double debt.

Ms. Warren while intending to  or not is also making a great limited government, public choice theory argument, namely for schools, roads, and police. If government (and it should be the local government) were ONLY using tax money for the building roads, the education of students, and the funding of police, the tax burden would be much less. Instead we bailout failing companies, start endless wars on ideas (drugs, poverty, and terrorism to name a few), and now are taking over the healthcare industry.

The US federal government is quickly becoming a large and in debt insurance company with guns.

Personally, I do not think corporations should be taxed at all. There is mounting evidence that high corporate taxes result in lower wages for workers. After all, businesses just view taxes an expense. If the budget line item for taxes is made higher, then another line on the budget has to get reduced. Often that other line is wages and salaries.

Now, I am no corporatist. I think the bailouts were a travesty of justice, but notice this was government action once again interfering with the market.

Both governments and corporations are made up of people, flawed human beings. To paraphrase Milton Freidman, is political greed somehow nobler that economic greed? At least with economic greed a) the corporations have no guns (save those than make them) therefore cannot force me to buy something (even if it “for my own good,” see the mandate provision of Obamacare) and b) if we don’t like what a company sells we can quickly vote with our wallets rather than once every two, four or six years.

7 thoughts on “On the inanity of Elizabeth Warren’s now famous quote

  1. Ed, this post is a contender for the best on your blog.
    Some brave and extreme comments made here……and I like them.
    Will we always have two groups of thinking – those who believe that markets allocate resources best and those who do not believe this?

  2. Ed –

    I love the argument that you make but I don’t think historical data backs it up.

    The problem is that the rich and ultra-rich aren’t necessarily reinvesting their profits (in recent years some would say – with some merit – “obscene profits”) back in expanding current businesses or building additional businesses and providing additional goods.

    They stick these gains in their accounts and play the “who can die with the most” game. While I agree that it’s not a zero sum game at play, money is taken off the board all the time and not necessarily making the game bigger at the rate it would in a theoretical world.

    Greed can be good when it is used for value creation but we live in a world of excess where greed is used as a scorecard. Do we really feel sorry for the Bank of America executives cutting back their salaries when they are asking for their customers to pay $5 for debit card usage? (And for choice: Once one bank has the balls to institute fees like this, they all fall into line quick enough.)

    Despite Ayn Rand’s teaching, man is not always a heroic being pursuing productive achievement. A lot of folks are just greedy assholes who couldn’t care less about anything but acquisition for acquisition’s sake.

    I also don’t buy the argument that people can vote with their wallets in every case. In a growing number of industries, established corporations have near strangleholds on markets – individually or jointly – to the point that new entrants representing better choices are prohibited by economic realities of entering the market.

    I do believe corporations tend to fall apart over time as their leaders change or lose sight of their prize (ironically usually because they are following Wall Street’s cries for “more! more! more!”). That allows new entrants into the market. But this isn’t a fast process.

    Regardless of any of the above, the data doesn’t prove out your arguments. Here’s some sites for your enjoyment:




    PS. It’s kind of polarizing to use the word “progressives” here. Even though you are accurate, a lot of folks will read that as “liberals” and “democrats”. Hopefully most folks that read your blog know that the current batch of republicans are just as bad with throwing the money around as the democrats but I think it would be better to make the argument without the labels. The republicans just want to throw the money around AND decrease taxes (not sure how they think that will work but that’s how it seems they operate).

    Just my 2 cents.

  3. I don’t follow the arguments Ed is making here. Where does Ms. Warren imply a zero sum game? Where does she imply double taxation? On the other hand if there are no taxes on corporations, how does it work when the corporations are foreign owned and transport the profits overseas? The infrastructure roads, highways, trained workers was built using taxes. Something more important, liberty, was built using the blood of the patriots. It makes my blood boil to hear that these people were fairly compensated for their services, when they paid the full price so that others might benefit.

  4. Peter H: Maybe if you were not so angry you could look at this objectively. She implies a zero sum game by suggesting (as you have) that the workers that built the roads are somehow losing and only the factory is winning – that simply is not true. They were compensated. Whether it was fairly or not was their choice – they could have found other means of income. But they accepted it. Now the question becomes what did they do with it once they received it? Did they go down to the tavern and drink it all, or did they efficiently spend it on living expenses putting some aside to invest. Many of the people who built those factories started working menial jobs, but saved and kept raising themselves up until they reached the level that they could build a factory. Too often we only see the success and not all the work and time they put in to get there. But which is better a system where that opportunity exists, or a system where others effectively tell you what’s available to you.
    Ed might not agree with me on this, but I do believe it is governments responsibility to ensure competition. Unfortunately so many laws are written for their “buddies” that ensure their unfair, often insurmountable advantage. I.E. why do Insurance companies enjoy Anti-trust exemptions? If competition where ensured, that would take care of foreign companies. I have a friend who started a transportation company 2 years ago – the laws that exists make it almost impossible for someone to do what he did – but he was determined and is now kicking the crap out of a huge FOREIGN company! Imagine if these laws didn’t exist and we could have more competition in industries. What would happen if we had competition in the health insurance market? And sorry Peter W – There is NO market you can’t find the resources to compete in, if the incumbent companies hasn’t already got laws created to keep you out!

  5. @Rob – When you say “there is NO market you can’t find the resources to compete in”, I would ask you what you think of your chances with any of the following:

    An innovative tablet PC, an operating system, a search engine, a car, a database engine, a new type of phone.

    You would need to work with an existing company in those cases if you ever hoped to see your product come to market or need to win the lottery and get venture capital funding.

    Even then, good luck not getting sued out of existence by the big boys when you infringe on their patents, brands, whatever excuse they can find to keep you out of the game. It’s an age-old American story and it happens daily.

    You hit the nail on the head when you talk about cronyism and laws and regulations designed to keep the rich rich. The idealistic society doesn’t exist because the uber-rich folks defined the rules of the game.

    I agree it’s not zero sum but I stand by my points above: not all created value is being kept in the came so it’s not as cut and dried as letting free enterprise run free. From that angle, it seems that you and I are in agreement that the government has a responsibility to keep the field level.

    The sad truth is that much of our government is bought and paid for by large interests and they have zero desire to keep the field level.

  6. Guys, great dialogue. I am on the road this week, but will weigh in when I have ample opportunity to address all of the issues each of you have raised. In the meantime I commend each of you for your thoughfulness.

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