Obama on Small Business

18 July 2012 at 9:57 am 5 comments

| Peter Klein |

President Obama’s gaffe about business creation — “If you’ve got a business, you didn’t build that. Somebody else made that happen” — has been met with the usual reactions. Defenders claim he simply used infelicitous language to describe the vital role of government in providing essential goods, while critics point out, for instance, that he didn’t even get it right on the Golden Gate Bridge (which received no federal money). I actually feel sorry for the guy. It was an pretty dumb thing to say, politically, and may end up hurting him more than Romney’s role in “exporting American jobs” (gag) hurts the challenger.

The idea that no one builds a business on his own, without help from other people, is in once sense trivially true, as Leonard Read never tired of explaining. No one person knows how to make a pencil, let alone a microprocessor. As a defense of government spending on infrastructure (not only roads and bridges, but things like the internet), it falls completely flat. Of course some entrepreneurs profit from government spending on infrastructure — not just directly (e.g., road contractors, engineering companies hired by ARPA, etc.) but indirectly (from lower transportation or transmission cost, net of tax payments). But such anecdotes do not at all “justify” the expenditures. As I once wrote about the internet:

[E]nthusiasts tend to forget the fallacy of the broken window. We see the internet. We see its uses. We see the benefits it brings. We surf the web and check our email and download our music. But we will never see the technologies that weren’t developed because the resources that would have been used to develop them were confiscated by the Defense Department and given to Stanford engineers. Likewise, I may admire the majesty and grandeur of an Egyptian pyramid, a TVA dam, or a Saturn V rocket, but it doesn’t follow that I think they should have been created, let alone at taxpayer expense.

A gross benefit to particular entrepreneurs from a government program does not, by itself, demonstrate net benefits to the taxpaying community. Vague references to spillovers and multipliers may sound good in a press conference, but are no substitute for serious analysis.

Entry filed under: - Klein -, Business/Economic History, Entrepreneurship, Myths and Realities, Public Policy / Political Economy.

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5 Comments Add your own

  • 1. Brian Saxton  |  18 July 2012 at 11:26 am

    I’m fond of this essay, pointing out that despite the fact that his faithful guardianship prevents your house from being burgled, your dog does not own your house:


  • 2. Rafe Champion  |  19 July 2012 at 9:05 pm

    Some would say that cats own houses, dogs just live there:)

  • 3. mikemarotta  |  1 August 2012 at 10:12 am

    It is important to understand that the pencil evolved. In Reed’s own time, a Soviet commissar could, indeed, have taken a Ticonderoga Number 2 and replicated it. But no one could have designed it complete and mature from scratch because no one did. We still speak of “leads” and “stones” – Bleistift in German and lapiz in Spanish – and ignore the fact that the pen-cil is a “little feather.” It is not just the invention, but the evolution that cannot be predicted, planned, controlled, or subsidized. We gush at the latest iPod but forget the failed Adam and lackluster Palm. The first desktop computer (arguably) was the IBM 5100 which its sales engineers apparently expected secretaries to program in APL for word processing. I recently read Jack Kemeny’s Man and the Computer. No one in 1965 saw Visicalc coming… or PowerPoint… or blogs.

    Thus, even if the apologists for government-funded businesses could make a case for DARPA’s role in the Internet, if not for the unplanned (and unplannable) we would still be dialing in at 110-baud via the Ma Bell monopoly … no one’s phone would have a camera…

    Peter Klein’s argument against NASA and all else it implies, is, of course, the “broken window” problem, the unimaginable benefits never brought to market.

  • 4. Karen Wang  |  1 August 2012 at 11:42 am

    If you read the entire transcript, it wasn’t a gaffe. He was referring to the roads and bridges… businesses didn’t build them. The Daily show has a good segment on this grammer problem.

  • 5. Peter Klein  |  1 August 2012 at 10:55 pm

    I haven’t seen the Daily Show piece but have read other attempts to defend the remark on these grounds. I’m sorry, I just don’t buy it. I’ve read the entire transcript and there’s no way “that” could refer to the roads and bridges mentioned a few sentences before, unless the President’s grammar is worse than that of my undergrads.

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