John Paul Rollert

 

Recent Posts by John Paul Rollert

  • Obama’s Second Inaugural Should Reject the “Job Creators” Vision of Capitalism

    Jan 18, 2013John Paul Rollert

    Now is the time to articulate a vision of capitalism that doesn't rely on the Visible Hand.

    An inaugural address finds presidents at their most philosophical. Policy prescriptions are neither expected nor desired, and the solemnity of the occasion lends itself to reflection.

    Now is the time to articulate a vision of capitalism that doesn't rely on the Visible Hand.

    An inaugural address finds presidents at their most philosophical. Policy prescriptions are neither expected nor desired, and the solemnity of the occasion lends itself to reflection.

    But a second inaugural address differs from the first in one important way, for it must respond to recent history. A newly installed president, without any real responsibility for the larger events that saw his election, can indulge in hopeful prophecy, but a re-elected president owns the immediate past. It, and not his address, is prologue to a second term, and so, especially in troubled times, his speech must take shape around present challenges.

    The financial crisis cast a long shadow over President Obama’s first term.  Yet in his battle to deliver the economy from a steep financial downturn, he stumbled into a war of sorts over how capitalism works. This is a conflict the president would no doubt have rather avoided—the presidency is challenging enough without having to convince a substantial portion of the electorate that your aim is not to subvert capitalism but to save it from itself. However, the deep disagreement over how the crisis came about, much less how it might be resolved, made an ideological debate over the very nature of capitalism all but unavoidable.

    What exactly is the nub of the disagreement? During the election, everything Republicans believed to be wrong with the president’s approach to economic policy was epitomized by the “You didn’t build that” remark. The remark came amid off-the-cuff comments President Obama made at a campaign rally in July. A first-time listener might be forgiven for mistaking the endlessly disputed that, but a review of the transcript clearly shows it refers to public infrastructure—roads, bridges, educational institutions, and the like—that is necessary, if not sufficient, for a private enterprise to thrive.

    At the time, some Republicans tried to twist the remark to suggest that Obama believed that business owners don’t actually have a hand in building their own businesses, a contention that was not implausible so much as incoherent. However, shrewder observers insisted that the significance of the remark lay beyond its plain meaning. “It’s an explanation,” Paul Ryan declared in a campaign stop at the site of the remark. “It tells us why our economy is not growing like it should. It tells us the mindset that he’s using to lead our government. It tells us that he believes in a government-centered society and a government-driven economy.” For Ryan and others, it suggested that President Obama rejected the “job creators” vision of economic development favored by Republicans, or what one might call the Visible Hand theory of capitalism.

    This theory finds its first and most formidable expression in the work of Joseph Schumpeter, the mid-20th century Austrian economist who cast the entrepreneur as the action hero of economic growth. As far back as Adam Smith, economists had regarded the serene stasis of perfect competition as a kind of endpoint for capitalism. But Schumpeter believed this ideal blinded them not only to the chaotic reality of capitalism but to the revolutionary power of instability to pull or, more accurately, yank an economy ahead.

    “Economic progress, in capitalist society, means turmoil,” he declared in his classic work Capitalism, Socialism, and Democracy. The system “is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure.” The people who fomented such destabilizing changes were Schumpeter’s entrepreneurs. Their efforts constituted a “distinct economic function,” one that gave rise to new possibilities in the capitalist order even as they foreclosed old ones.

    Especially in Schumpeter’s early writings, the entrepreneurial class embodies the Visible Hand of capitalism. In his first book, The Theory of Economic Development, Schumpeter celebrates the entrepreneur as a “man of action,” a larger than life individual whose keen intellect, swashbuckling spirit, and stubborn irreverence toward the commercial status quo made his activity “the greatest and most splendid element that economic life offers to the observer.”

    But though he never yielded pride of place in Schumpeter’s system, the entrepreneur evolved from a class of superman, distinct and identifiable, to a spirit of sorts that animated capitalism. That evolution is captured by the very way in which Schumpeter emphasized the impact of the entrepreneur. Early on he terms it “creative construction” before changing to the always-capitalized “Creative Destruction,” a subtle revision that prized the secondary consequences of entrepreneurial endeavors over their self-conscious aims.

    The shift in emphasis coincided with a greater awareness by Schumpeter of what he called the “cultural performance” of capitalism, its tendency to subvert traditional ways of life and undermine social cohesion. “[O]ne may care less for the efficiency of the capitalist process in producing economic and cultural values,” he candidly admitted, “than for the kind of human beings that it turns out and then leaves to their own devices, free to a make a mess of their lives.”

    Ayn Rand’s radical individualism made her the natural person to adopt Schumpeter’s vision and relieve it of its social qualms. Though she never acknowledged her debt to Schumpeter, Rand also locates the engine of capitalism in an “exceptional minority who lift the whole of a free society to the level of their own achievements.”

    This passage comes from What Is Capitalism?, an essay published in 1965, 15 years after Schumpeter’s death. In it, Rand provides an eye-opening description of the just deserts implied by her vision of capitalism:

    The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all their brains.

    In other words, to the victors can’t go spoils enough.

    Rand’s ethics of achievement, together with Schumpeter’s opinion of the essential place of the entrepreneur, provide the Visible Hand its moral license and theoretical integrity. In the 2012 campaign, it found an impassioned spokesman in Paul Ryan, whose speech at the Republican National Convention was a celebration of this vision. “With tax fairness and regulatory reform,” he pledged, “we'll put government back on the side of the men and women who create jobs, and the men and women who need jobs.”

    Yet even among those sympathetic to the Republican ticket, the unavoidable elitism of the Visible Hand left some feeling cold. “In Ryan’s intellectual bubble, there are job creators and entrepreneurs on one side and parasites on the other,” wrote Scott Galupo of The American Conservative the morning after Ryan’s speech. “There is no account of the vast gray expanse of janitors, waitresses, hotel front-desk clerks, nurses, highway maintenance workers, airport baggage handlers and taxi-drivers. They work hard, but at the end of the day, what can they be said to have ‘built’?”  

    The answer, of course, is nothing—at least nothing essential to economic development. What so struck Adam Smith about the commercial system he described, “the assistance and co-operation of many thousands,” is entirely taken for granted. The daily labors of a nation are a mere fait accompli to the executive decisions of a few.

    Such a vision sits uncomfortably amid democratic values of equality, empathy, and the inherent dignity of the individual, but it becomes intolerable when the theory underpinning it becomes a pretense for naked privilege. Whatever the merits of Schumpeter’s theory of entrepreneurship, his “job creators” were a class defined by spirit, not tax status. To the degree that Republicans conflate the two, they make a travesty of Visible Hand.

    An aristocracy of talents is no doubt preferable to the politics of plutocracy, but neither one is commensurate with a vision of capitalism that takes as its point of departure, and its final destination, a concern for the common good. President Obama recognizes this. “Ever since” the financial crisis began, he said in his most powerful speech of the 2012 campaign, “there has been a raging debate over the best way to restore growth and prosperity; balance and fairness.” This isn’t “just another political debate,” he continued. “This is the defining issue of our time.”

    And it will only continue to be, what with the upcoming battles over the sequester and the debt ceiling in addition to ongoing debates over entitlement reform, budget deficits, and tax rates. President Obama’s second inaugural address provides him a unique opportunity to describe the challenges of a common capitalism and to put forward a vision of economic development that doesn’t see us waiting on the deliverance of an enlightened few, but one in which there is dignity and place for everyone to lend a hand. 

    John Paul Rollert is an Adjunct Assistant Professor of Behavioral Science at the University of Chicago Booth School of Business.

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  • Lifestyles of the Rich and Frustrated: How Much is Enough to Make a Banker Happy?

    Jan 4, 2013John Paul Rollert

    Greg Smith's tale of exile from Wall Street shows that even the rich can feel inadequate compared to the super-rich.

    Greg Smith's tale of exile from Wall Street shows that even the rich can feel inadequate compared to the super-rich.

    Last winter, Bloomberg published a much-discussed account of belt-tightening in the brave new economy. Notable for featuring Wall Streeters, not Walmart greeters, the suffering depicted was sepia-toned. One poor soul described driving all the way to outer Brooklyn to buy discounted salmon, another the indignity of doing his own dishes, and a third dismissed his Porsche 911 Carrera 4S Cabriolet as “the Volkswagen of supercars.”

    Among the lingering calamities of the financial crisis, the sorrows of young bankers don’t exactly cry out for remedy. This is not Les Miserables but the hardships of the haute bourgeoisie. Yet the afflictions of affluence are afflictions nonetheless, and this particular one can teach us an awkward but essential truth in the ongoing debate over income inequality—if we can only bear to listen.

    Consider the inadvertent testimony of Greg Smith. Doubtless you have heard of Smith, who vaulted to fame last March with an op-ed in The New York Times published the day he parted ways with his long-time employer, Goldman Sachs. The piece reads like the précis for some revelatory work. During his 12 years at Goldman, Smith says he had seen the interests of the customer “sidelined” in favor of an approach that sees the bank “ripping their clients off.” Their trust is taken advantage of, their naïveté exploited, their ignorance scorned. Goldman is no longer the client-centered institution Smith joined after college, and blame is placed at the feet of the bank’s leadership, whom he accuses of having “lost hold of the firm’s culture on their watch.”

    Given the anger directed at Goldman in the aftermath of the financial crisis, Smith knew that his op-ed would be greeted with some interest. Here was an insider who affirmed the bank’s bad behavior and promised to illustrate it, at length, if given the opportunity.

    He was, of course—in the form of $1.5 million book deal. Published at the end of October, the attempted tell-all was widely panned for falling short of its promise. The criticism is not unfair, though the publisher shares blame for rushing to print a work that would have benefited from sharper focus and the self-criticism of sustained introspection. Why I Left Goldman Sachs is Greg Smith’s first book, and its 250+ pages were written in less than seven months. If it feels like a first draft, that’s almost certainly because it is, and all parties (except Goldman, perhaps) would have benefited from the careful editing that made the original op-ed an astonishing success.

    But that does not mean the book doesn’t have an intriguing story to tell, if one that is also unintended. The chronicle form lends itself to the task of writing an inevitably personal book on extremely short notice, and while Smith might have done without the convenience, preferring instead to dwell on the conflicts of interests he spends too little time on in the book, he ends up presenting a timely self-portrait of a rich man in a much richer man’s world.

    When he left Goldman Sachs, Greg Smith had been making in the ballpark of $500,000 for at least six years, and the book provides ample evidence of the consolations afforded the young bachelor by his considerable income. There are the fine restaurants Smith frequents (“we went to the Frisky Oyster in Greenport”), the premier sporting events he attends (“I was lucky to be courtside in Paris to see Rafael Nadal beat Roger Federer for his sixth French Open title”), and the fashionable neighborhood he moves into when he transfers to London (it “had become trendy because Gwyneth Paltrow and Chris Martin (of Coldplay) had moved there”). There is even the 30th birthday dinner he throws for himself and his then-girlfriend (“at Freeman’s, a place with a vintage speakeasy vibe”) for which Smith graciously picks up the tab (“[t]he bill came to over $3,000, but I was happy to do it—I like treating people”).

    Smith never reveals how much he has salted away for hard times, but it is not enough to stave off a minor panic when the financial crisis hits. Faced with the possibility of post-Goldman penury, he describes not one but two instances of taking public transportation, noting as an aside that “[m]any Wall Streeters can spend north of $10,000 a year on taxis alone.” The accounts are rueful—“I saved sixty bucks”—but juxtaposed with his birthday largesse, which is subsequent to these accounts and conspicuously so, a central preoccupation of the book comes into relief. The problem is not having money, but not having nearly enough.

    If you take a step back, this seems absurd. From the vantage point of most Americans, not to mention the broader world, Greg Smith is rich. Indeed, according to the U.S. Census Bureau, the median household income between 2006-2011 was in the range of $50,000, or roughly one tenth of what Smith was making during that time. But Smith is not most people, and he doesn’t have the luxury of stepping back without also stepping beyond his social world. That world includes people who are not only making double or triple what Smith made, but also individuals like Gary Cohn, the president of Goldman, who made just over $53 million in 2006, or more than 100 Greg Smiths.

    As a financial matter, being rich in a much richer man’s world has a tendency to bury you in what Cornell economist Robert Frank calls an expenditure cascade. In a paper he co-authored with Adam Seth Levine, Frank starts from the curious fact that “aggregate savings rates have fallen even though income gains have been largely concentrated in the hands of consumers with the highest incomes.” He explains this by showing that that wealthy scale their consumption not by the expenditures of the broader public—a benchmark that would leave their bank accounts flush—but by the people at the very top of their social group. This is the time-honored tradition of keeping up with the Joneses, but when the Joneses can afford 100 times what you can, the race can lead you right of a cliff. 

    Still, while Smith’s need to make more money occasionally announces itself by way of some pressing financial concern—on same day the stock market bottoms out, Smith splits with his long-time girlfriend who had been “adamant that she didn’t want to work when she had kids”—he is well aware that his frustration has less to do with how much he actually makes than what that number says about him. Reflecting on the significance of “bonus day,” the day in December on which bankers meet with their bosses to discover the full amount they will make for the year, Smith admits that there is “an absurd amount of emphasis placed on these meetings. For many people, the session determined a person’s entire self-worth.” And yet, he continues, “however arbitrary the number handed down by the partner might be, there was also a real poignancy to the bonus meeting. Many people had spent the year working eighty-five-hour weeks, killing themselves for the firm. They expected something in return.”

    By late 2011, Smith had come to expect more from Goldman than Goldman was willing to give him. At his last bonus meeting, he requested a promotion to Managing Director and a million dollar payout. Both requests were denied.

    Smith does not disclose these details in his book—they were leaked by Goldman to discredit him in advance of its release—but they come as no surprise to anyone who reads it. They merely underscore the salient psychological fact of Greg Smith’s experience and the essential lesson of income inequality among the economic elite. Namely, that beauty is in the eye of the beholder, but wealth is a matter of whom you behold.

    John Paul Rollert teaches business ethics and leadership at the Harvard Extension School.

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  • A Tale of Two Smiths: What Capitalism's Founder Would Think of Goldman's Greed

    Apr 20, 2012John Paul Rollert

    money-and-greed-150Adam Smith made a distinction between self-interest and selfishness -- and he knew that too much of the latter would lead a nation to ruin.

    money-and-greed-150Adam Smith made a distinction between self-interest and selfishness -- and he knew that too much of the latter would lead a nation to ruin.

    It has been over a month since Greg Smith’s letter of resignation sent Goldman Sachs into full PR panic mode. Since then, the firm has completed its great “muppet” sweep, Mr. Smith has secured a blockbuster book deal, and Lloyd Blankfein has found himself fighting off stories of a growing power struggle at the top of Goldman high command.

    All of this makes for good copy, but it risks obscuring the enduring moral dilemma at the heart of the original letter. Namely, when it comes to doing business, can we make a meaningful distinction between self-interest and selfishness? Or, apropos of Mr. Smith, should a place like Goldman ever hold itself to a higher standard than “How much money did we make off the client?”

    Another Smith certainly thought so: Adam Smith, the founding father of modern economics. He first made his name as a moral philosopher with The Theory of Moral Sentiments, a careful diagnosis of the concern we have for others, the attention we show ourselves, and how the tension between the two underwrites a common code of ethics.

    One of the principal villains of Smith’s work was Bernard Mandeville, an occasional philosopher who impishly elided fine-grained distinctions. His scandalous work,The Fable of the Bees, was an allegorical poem involving a thriving beehive that bore more than passing resemblance to 18th-century England. Accounting for the affluence and ease the bees enjoyed, Mandeville made two contentions sufficient to give any high-minded economist heartburn. 

    First, he claimed there was no essential difference, morally speaking, between the con man and the merchant. Both were driven by selfish instincts to get the better of their fellow man (or bee), and to that end, both trucked in deceit. Yes, the con man broke the law, but the merchant hid behind it.

    Mandeville’s second claim was even more scabrous: So be it. Vice, not virtue, kept the wheels of commerce turning, with the benefits shared by all:

    Thus Vice nurs’d Ingenuity,

    Which join’d with Time and Industry,

    Had carry’d Life’s Conveniences,

    It’s real Pleasures, Comforts, Ease,

    To such a Height, the very Poor

    Liv’d better than the Rich before,

    And nothing could be added more.

    If these lines sound a little bit like "greed is good," then you get Mandeville’s point. Human beings are selfish, and thank goodness for it. Otherwise, we might end up like the bees, who are nearly wiped out after a spell of virtue saps their ambition, spoils their economy, and exposes them to outside attack.

    When he stepped forward to challenge these views, Smith knew that he had to provide a compelling distinction between pursuits that are self-interested and those that are merely selfish. He granted Mandeville that there was “a certain remote affinity” between them insofar as both are motivated by a concern for personal well-being, but he appealed to common sense in saying that that we don’t view all human desires equally. My interest in having a clean shirt is not only legitimate, it's laudable, whereas my longing for a panda skin sportcoat is not only illegitimate, it’s an outrage.

    Fair enough. But how exactly do we make these distinctions? Smith says we come by them naturally, by engaging others and discovering where our desires echo, overlap, and, finally, are at odds with one another. This process, iterative and ongoing, defines our moral sentiments, the felt necessities of right and wrong that shape and restrain our actions. It also defines for us what Smith called “a fair and deliberate exchange,” the very type of interaction at the heart of a commercial enterprise. 

    When he turned his attention to economics, Smith did not think of himself as devising a system that was antagonistic or even alien to the one he had already developed. A free market provided individuals a space to engage each other in the pursuit of their own private interests, but that realm was not free from moral sentiments, nor should it be. Engaging in business was no less a part of human interaction than raising children or making friends, and the idea that a commercial sphere dominated by the grossest behavior would not contaminate the rest of society was not only silly, it was dangerously naive.  

    This was Smith’s greatest difference with Mandeville: He did not believe that a nation in which people pursued their interests irrespective of one another would be affluent. It wouldn’t even be stable. Riven by “hostile factions,” society would seethe with conflict, for people with different interests would view each other with “contempt and derision.” In such an environment, Smith observed, “[t]ruth and fair dealing are almost totally disregarded,” for the interests of others have no moral claim on us.

    Is Goldman Sachs such an environment? Greg Smith says so, but only the people who work there know whether the culture is as “toxic and destructive” as his letter claims. Yet to the degree that clients are viewed with contempt and derision, especially by leadership, Adam Smith would say that we should hardly be surprised, as the other Mr. Smith seems to be, by “how callously people talk about ripping their clients off.” This is to be expected. The line between selfishness and self-interest, in business as in all human pursuits, appears only when we feel that the interests of others occasionally require us to restrain our own. When we stop caring, that line disappears, and with it some very worthy things — personal integrity, self-respect, professional pride — that money can’t buy.

    John Paul Rollert is an Adjunct Assistant Professor of Behavioral Science at the University of Chicago Booth School of Business.

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  • Pre-Occupied with Fairness: The Moral Crisis of Modern Capitalism

    Nov 9, 2011John Paul Rollert

    occupy-journalThere's no good explanation for why Wall Street continues to suck up vast amounts of money except that there is a flaw in the system itself.

    occupy-journalThere's no good explanation for why Wall Street continues to suck up vast amounts of money except that there is a flaw in the system itself.

    The Occupy Wall Street protesters were not immune to the news of Steve Jobs's passing. "A ripple of shock went through our crowd," Thorin Caristo, a leader of the movement's web outreach, told the Associated Press. He later called for a moment of silence from the stubborn assembly at Zuccotti Park, and the 99% paid tribute to an exceptional member of the other club.

    The gesture failed to move some. National Review's Daniel Foster envisioned "viscera of a thousand heads exploding from the sheer force of cognitive dissonance," while conservative columnist Michelle Malkin said that the protesters honoring Jobs's life and work "without a trace of irony" provided the "teachable moment of the week." The lesson, it seems, is that one cannot critique capitalism without also rejecting every single capitalist, a conclusion that is not only logically flawed but one that was famously rejected by William F. Buckley, Jr., the ideological avatar of the modern conservative movement and a founder of the National Review.

    In a column written just a few years before his death, Buckley condemned what he called the "institutional embarrassments" of capitalism, CEOs whose enormous compensation packages defy the gravitational pull of poor stock performance. Buckley was no equalitarian, and he drew a contrast between the "executive plunder" reaped by certain CEOs and the allowances that may be made for the likes of a Thomas Edison. Were such a person alive today, he said, "it would be unwise to cavil at any arrangement whatever made by a company seeking his services exclusively."

    Unwise, but more importantly, unwarranted, for at the heart of Buckley's argument is an appeal to fairness. It does not seem unreasonable that a Thomas Edison, or a Steve Jobs, be paid a lot more than the rest of us. But when it comes to people who not only fail to create value, but actually supervise its destruction, it seems outrageous that they should make more over a long lunch than most people make in an entire year. Or, as Buckley puts it, "What is going on is phony. It is shoddy, it is contemptible, and it is philosophically blasphemous."

    To be clear, were he still with us today, Bill Buckley would not be occupying Wall Street. His aim was to save capitalism from itself, and he would likely chide the protesters for trying to save us from capitalism. Still, the sense of moral outrage that infuses his column -- aptly titled "Capitalism's Boil" -- is not altogether different from that expressed by the weather-weary demonstrators. Doubtless, there are some who want to uproot capitalism altogether and replace it with some other system for distributing scarce goods, but one suspects that most who have turned out are simply looking to air the familiar grievances of the financial crisis (joblessness, soaring poverty, crushing debt) and shame those on Wall Street who cashed in on a crisis they helped create.

    The same may be said with even greater confidence for the support the movement is enjoying across the country. It is not the case that a nation of closet communists has finally found a voice; rather, the protesters have come to embody a common sense that something is wrong with American capitalism -- that the system simply isn't working. In this respect, the focus on Wall Street is both apt and overbroad. Overbroad because, if you brush the complex instruments that precipitated the financial crisis, you won't find the fingerprints of every banker on Wall Street. Apt because the success of the financial sector as a whole not only defies the experience of the last few years, but the story of the American middle class for over three decades.

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    Paul Krugman has famously called this period The Great Divergence. "We're no longer a middle-class society, in which the benefits of economic growth are widely shared," he said in the inaugural post of his New York Times blog. "Between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent." During the same period, the percentage of the nation's wealth held by the top 1% grew from 20.5% in 1979 to 33.8% in 2007. These trends have helped to set the U.S. apart from other developed countries in terms of wealth inequality. According to the C.I.A World Fact book, the U.S. currently ranks 39th in unequal wealth distribution, edging out Cameroon and Iran but just behind Bulgaria and Jamaica. By contrast, the UK comes in at 91st place, with Canada 102nd and Germany 126th.

    The financial sector doesn't tell the whole story of growing inequality, but it certainly plays a central role. As Simon Johnson described its meteoric rise in a 2009 essay for The Atlantic:

    From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

    The inequality within the financial sector is more striking still, with the most successful managing directors taking home enough to buy and sell a brace of lowly associates. Again, the numbers speak for themselves: In 1986, the highest paid CEO on Wall Street was John Gutfreund of Salomon Brothers, who made $3.1 million. In 2007, the CEO of Goldman Sachs, Lloyd Blankfein, made just short of $68 million.

    To be sure, Americans have always had a high tolerance for economic inequality, particularly compared with their European peers. The quintessential American tale is still the rags to riches story, and for Democrats and Republicans alike, 'class warfare' is an accusation to be rebutted, not an open call to arms. Indeed, as the unlikely tribute to Steve Jobs attests, even for those who are willing to roundly object to the growing gap between the very rich and the rest of us, the problem is not inequality per se, but giving a satisfactory account for it. As Bill Buckley well understood, economic systems have to give a moral account of who wins, who loses, and why, particularly insofar as those systems are shaped by democratic choices. It is not hard to give a compelling account for why someone like Steve Jobs grows far richer than the rest of us -- his success tends to vindicate capitalism, not undermine it -- but the same may not be said for the financial sector in general. The problem isn't that the average banker doesn't work hard (the hours are grueling) nor that his work isn't essential to helping maintain a modern, civilized society (it is); the problem is that the same may be said for an ER nurse or a sixth grade teacher, and it isn't immediately clear why one should make 10 times as much as the other.

    Buckley said of the CEO pay packages he so despised that "extortions of that size tell us, really, that the market system is not working," meaning that the free market, left to its own devices, does not allow for such gross distortions. This is certainly the account conservatives prefer when they try to explain Wall Street's inordinate success. According to them, anti-competitive regulations, cheap money from the Fed, and the cozy relationship between the big banks and Washington have allowed the financial sector to prosper not because of capitalism, but despite it.

    To liberals, this sounds ridiculous. After 30 years of lower taxes, freer trade, weaker unions, and a general trend toward deregulation, the idea that growing inequality and Wall Street's exceptional success somehow defy the natural tendencies of capitalism is an astonishing exercise in wishful thinking. The forces of the free market alone may not explain these trends, but they seem hardly at odds.

    Increasingly, the Occupy Wall Street movement has been faulted for not taking explicit sides in this dispute, but like Buckley in his column, the aim of their protests is not policy prescription, but moral persuasion. When your house is on fire, you don't stand around wondering whether faulty wiring or an arsonist is to blame. You raise a hue and cry until your neighbors fill the street.

    John Paul Rollert is a doctoral student at the Committee on Social Thought at the University of Chicago. His essay, "Does the Top Really Support the Bottom? - Adam Smith and the Problem of the Commercial Pyramid," was recently published by The Business and Society Review.

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  • Make Way (Again) for the "Job Creators"

    Sep 28, 2011John Paul Rollert

    the-situationWhat do Bill Gates and the Situation have in common? Republicans think they're equally vital to our economy.

    the-situationWhat do Bill Gates and the Situation have in common? Republicans think they're equally vital to our economy.

    With the announcement last Monday of President Obama's plan to pay for his jobs bill with, among other things, the so-called "Buffett Rule," we're going to be hearing a lot more about the "job creators." Over the last year, Congressional Republicans have consistently invoked them as a hex of sorts against any proposal to raise new tax revenue. "I am not for raising taxes in a recession," Eric Cantor declared last November, when the Bush tax cuts were a bargaining chip in the protracted budget debate, "especially when it comes to the job creators that we need so desperately to start creating jobs again."

    Ten months, no new taxes, and one debt ceiling crisis later, Cantor said the same thing last week in response to the president's jobs bill: "I sure hope that the president is not suggesting that we pay for his proposals with a massive tax increase at the end of 2012 on job creators that we're actually counting on to reduce unemployment." Given that 44 percent of the nation's unemployed have been without work for at least six months and more Americans are living below the poverty line than at any time in the last 50 years, one marvels at Cantor's faith in the truant "job creators" as well as his forbearance in the face of human misery. To the jobless, he is counseling the patience of Job.

    But who exactly are these "job creators?" The phrase is not new. Republicans have been using it for years to underscore a particular vision of capitalism in which those who have benefitted most by the system are also most essential to its continued success. As long ago as 1991, Newt Gingrich characterized Democratic opposition to a cut in the capital gains tax as evidence that liberals reject this vision. "They hate job creators," he told a gathering of Senate Republicans, "they're envious of job creators.  They want to punish job creators." With no apparent sense of irony, Gingrich added this was proof liberals "believe in class warfare."

    A more telling example for our current political impasse is the debate over the 1993 Clinton budget plan, which aimed to cut the deficit by, among other things, raising the top income tax rate. Congressional Republicans fought the bill tooth and nail, no one more so than former Texas Senator Phil Gramm. On the eve of its passage, he expressed the hope that the bill would "defy history" and prove that "raising taxes on job creators can promote investment and promote job creation." Gramm, of course, did not think this was very likely to happen. "Only in Cuba and in North Korea and in Washington, D.C., does anybody believe that today," he said, "but perhaps the whole world is wrong."

    Hindsight suggests that the world wasn't wrong so much as Phil Gramm, along with every other Republican member of Congress. Not one of them voted for the bill, which cleared the House by only two votes and required Al Gore's tie-breaking vote in the Senate. While higher taxes on the "job creators" proved no obvious hurdle to economic growth -- the economy grew for 116 consecutive months, the most in U.S. history -- it did cut the deficit from $290 billion when Clinton took office to $22 billion by 1997 and helped put the country on a projected path to paying off the national debt by 2012.

    So much for ancient history. If the term "job creators" is no new addition to the lexicon of American politics, it has enjoyed quite a renaissance since President Obama took office. A Lexis-Nexis search of U.S. newspapers and wire services turns up 1,082 individual mentions of "job creators" in the month before the debt ceiling deal was reached, or just 175 fewer mentions than for George W. Bush's entire second term.

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    Jon Stewart, for one, did not fail to notice the uptick. "Republicans are no longer allowed to say that people are rich," he noted during the deficit ceiling debate, "You have to refer to them as 'job creators.'" Stewart's observation is funny only to the extent to which you believe that saying you're a member of the top tax bracket and saying that you create jobs is not an obvious redundancy. If you believe, however, that the cast of Jersey Shore has just as much claim to being called "job creators" as Bill Gates or Steve Jobs, then Stewart's joke not only falls flat, but misses the point. The wealthy are the "job creators," whether or not they spend their time actually trying to create jobs.

    The problem, of course, with upholding a definition of "job creators" that does not turn on the dedicated effort to create jobs is that it becomes hard to figure out what distinguishes the "job creators," as a group, from everyone else -- at least beyond their relative wealth. All Americans spend, save, and invest in varying degrees; most just do so with a lot less money.

    In this light, the "jobs creators" rhetoric highlights a theory of capitalism in which those at the very top of the economic pyramid end up supporting the base. We might call this theory the Visible Hand of Capitalism in order to distinguish it from Adam Smith's Invisible Hand. In The Wealth of Nations, he famously located the enduring success of capitalism in an increasingly complex system of work and exchange that sees "the assistance and co-operation of many thousands." In such a society, no single group can be meaningfully called the "job creators." They are as much the managers of capital as the men on the factory line.

    As an intellectual matter, the Visible Hand of Capitalism has enjoyed support from figures as disparate as Destutt de Tracy, the French philosopher and economist whom Thomas Jefferson championed, to the steel baron and indefatigable philanthropist, Andrew Carnegie. As a rhetorical matter, however, the phrase "job creators" appears to come directly from the work of Ayn Rand. She favored the term "creators" to describe an elite caste in society and her highest human ideal.

    John Boehner made reference to Atlas Shrugged, Rand's most famous novel, in a speech he gave recently to the Economic Club of Washington, D.C. "Job creators in America are essentially on strike," he said, in an obvious nod to the decision by the "creators" in the novel to go on strike in defiance of an intrusive federal government. The nation immediately begins to falter, and the books concludes with its hero, John Galt, giving a marathon address in which he explains to the rest of the country why America is crumbling. The nation, in brief, has scared away the very people who keep the economy working, leaving behind those who are ill-equipped to fend for themselves. Describing the economic and social theory underpinning this vision, Galt says:

    In proportion to the mental energy he spent, the man who creates a new invention receives but a small percentage of his value in terms of material payment, no matter what fortune he makes, no matter what millions he earns. But the man who works as a janitor in the factory producing that invention, receives an enormous payment in proportion to the mental effort that his job requires of him. And the same is true of all men between, on all levels of ambition and ability. The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all of their brains.

    For all that it lacks in human decency, Rand's vision of who makes capitalism work at least has the advantage of isolating a group of people who actually create something. By contrast, the current "job creators" rhetoric seems to elevate a group of people whose shared tax bracket is their only outstanding trait.

    As the debate over the president's jobs bill takes shape, the "job creators" rhetoric is certainly deserving of a little more scrutiny, especially by those who don't qualify for the distinction. Otherwise, they might as well accept the judgment of a far greater authority than even John Galt:

    The fault, dear Brutus, is not in our stars,
    But in ourselves, that we are underlings.

    John Paul Rollert is a doctoral student at the Committee on Social Thought at the University of Chicago.  His essay, "Does the Top Really Support the Bottom? - Adam Smith and the Problem of the Commercial Pyramid," was recently published by The Business and Society Review.

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