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Dividing and Growing the Economic Pie

The Occupy Wall Street protesters and those who support their cause decry economic disparity. They scream for the wealth of the nation to be spread equally or at least more equally. They propose to accomplish this by taking from those who have succeeded and giving to those who have not―wealth redistribution. The focus is on dividing the economic pie we have in a way that they see as being more fair. Their proposal would punish the successful and reward underperformers in the service of creating a more just and equal society. Unfortunately, such lofty ideals ignore the reality of the human condition.

There has always been economic disparity and there always will be. In every society known to humanity, some people have enjoyed more economic advantages than others have. It’s an irrefutable fact. Kings and Queens lived better than peasants did. Generals have always been more comfortable than privates. Lords and Ladies had nicer things than surfs. Communism sought to share the riches equitably―from each according to his ability, to each according to his need. It just didn’t work out that way. People high up in the communist party enjoyed lavish lifestyles not shared by those who toiled in the fields on collective farms.

Extravagance isn’t foreign to American politicians either, regardless of their rhetoric. Former Speaker of the House, Nancy Pelosi publically supports the Occupy Wall Street protesters who camped out in public parks, but she stayed in a $10,000 a night suite in a luxury hotel. Barack Obama positions himself as the champion of the underclass, yet he throws lavish, Hollywood style, Alice in Wonderland, Halloween parties in the Whitehouse and then attempts to hide them from the electorate.

Those who long for economic equality are living in a fantasyland. It has never happened and in this life, it never will. The question is not will some enjoy more economic advantages. It will always be the case that some will. The focus should be on two much more important questions.

  1. How will our society determine who has more and who has less? We favor a model that rewards those who work the hardest―people who create more economic value. Those who produce more widgets should make more than those who produce fewer. We favor a model that rewards those who provide society with more of what it wants and needs. Those who innovate, those who offer better products and services than were available previously should receive more than those who don’t. In short, we favor free market capitalism.

The alternative to letting a free market determine the winners and losers is to let the government choose. But, when politicians and government bureaucrats make these decisions it’s not those who contribute the most to society by creating economic value that are rewarded, but rather those who support the political ends of the decision makers.

The much-publicized Solyndra case provides a good example―by the way, it is now clear that this was not an isolated incident. The government chose to invest taxpayer money in a company that supported one of its objectives, green energy. Solyndra also happened to provide a convenient photo op for Barack Obama. Unfortunately, the underlying economics of the business were not sound, predictably it failed―taxpayers lose.

If a private company say, Bain Capital, had made this investment, its shareholders would have suffered the loss, not the taxpayers. But, the fact is that Bain Capital probably wouldn’t have invested in Solyndra because its investment decisions are predicated on creating economic value not furthering a political agenda. Solyndra would have failed sooner, but good money wouldn’t have been thrown after bad.

  1. Should we focus most of our attention on how we divide the economic pie we currently have or on creating a larger economic pie? Those who favor large government, wealth redistribution, heavy regulation, labor unions, and government run programs are primarily concerned with how we divide the existing pie. Systems where success is determined by an elite ruling class that chooses winners and losers will always fail to create a larger economic pie. This is because those who create economic value aren’t the winners, but rather those who support the objectives of the politicians and bureaucrats who make the decisions. In such a system smart, hardworking people who want to succeed won’t focus on creating economic value, they will focus on setting the agenda of the government in a way that benefits them.

Free market capitalism provides the single best opportunity for this country to create a larger economic pie because it rewards those who create economic value. Not surprisingly, you get what you reward. More economic value will be created and the economic pie will grow.

It is undeniable that if the economy is to grow, small business will lead the way. The Bureau of Labor Statistics (BLS) states that 90 percent of all net job creation from 1996-2007 came from small businesses. While conducting research for our new book, Let Go to Grow; why some businesses thrive and others fail to reach their potential, we spoke with the owners of more than 100 small businesses. What we heard uniformly from these entrepreneurs is that they aren’t looking for assistance or a government handout. They just want government to get out of the way and let them grow their businesses―reduce overly burdensome regulations, simplify the tax code and above all else, repeal Obama Care. Let the free market work.

The nice thing about this approach is that it allows essentially everyone who is willing to work hard to enjoy more pie than they would have under the alternative system. There will always be some people who have more than others, nothing will change this. However, because it spurs a growing economy, free market capitalism will result in essentially everyone being better off than they would have been under a different system―yes, anyone who is willing to work hard can win!

It’s not that there isn’t a role for government in the economy, there certainly is. That role is to foster competition and to create a level playing field that allows the free market to reward those who create economic value. Free market capitalism isn’t perfect. As with any system there are problems that need to be addressed―admittedly, a modest amount of sensible regulation is necessary. However, it does provide the best way to divide the existing economic pie and will result in this pie getting larger over time. In the long run, it is better for all concerned―we can all win!

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