I’ll have a cost-benefit analysis, less the costs and heavy on the benefits, please

Daniel Henninger, in his Wall Street Journal opinion article, Obama’s Colossal Politics, correctly and succinctly identifies two causes of runaway government.

First, there’s the bad cost-benefit analysis, that overplays the benefits and doesn’t consider the costs:

 “If there’s just one life that can be saved,” Mr. Obama said Monday in Minnesota, using standard Washington risk-benefit analysis, “then we have an obligation to try it.”

Then there’s this:

When serious scientists try to solve a problem, they ask, What works? When Washington takes on a problem, it says, Why not?

Why not? We must look like we’re trying.

Top Down

I enjoyed and recommend reading Daniel Henninger’s Wall Street Journal column, What Would Clint Eastwood Do?

Here are some of my favorite passages:

Taxes are a nation’s Rorschach test. In taxes you discover how a nation wants to be known to others. The burden of taxation may say that a nation more than anything wants to produce (say, Malaysia), or taxes may say that what a nation most wants is to be thought of as fair (Belgium).

What Mr. Obama wants, with the symbolic billionaire Warren Buffett propped at his side, is a wealth tax that redefines the U.S.

No more certain sign exists that a nation has chosen to step off its historic upward path than the creation of wealth taxes. A nation imposes a wealth tax when it wakes up one day to conclude that it has become embarrassed, rather than proud of, its wealth, which is to say, its national success.

We are not talking here about the vast wealth that closed, crony economies direct toward a small plutocracy and no one else, though this rigged scam seems to be Barack Obama’s understanding of the modern American economy. The reality is that since its inception the U.S. has been an open, free economy that let wealth, including vast wealth, flow to dreamers, geeks and college dropouts whose unpredictable success multiplied into greater wealth for others.

Henry Ford’s automated car-assembly line spawned a galaxy of parts factories filled with workers. Apple’s little machines brought forth a universe of devices and applications.

The timing of such productive explosions is mysterious. The Obama wealth tax will smother and stifle this mysterious force.

Later:

The Obama budget says one reason for its wealth taxes is to provide sufficient revenue to protect “the investments we need to grow the economy and create jobs.” He does the investing, and the economy grows.

These passages stand well on their own, but I’ll connect two dots.  President Obama understands American society to be a closed, crony plutocracy.  His budget says that he now believes he runs that plutocracy.

He does the investing…

This sentence inspired the title of this post.  If Obama is going to take more from successful investors through a wealth tax and then decide to how to “invest” (i.e. distribute to cronies) those funds for the future, we are turning more top down.

I think we’d be better off if we let successful investors invest and keep the bureaucrats out of it.

By the way, where is investing for the future spelled out in the Constitution as a duty of government?

Also, wouldn’t it be great to see the “Buffett rule” be used to lower taxes for the rest of us, rather than raise taxes for the wealthy?  Is that supposed to make us feel better?  Man, I pay a lot in taxes, but at least the rich guy is paying the same rate?  Does that really feel better than, Now I am paying less in taxes?

“Giving back”

Syracuse University's Carnegie Library. Taken ...

Carnegie Library at Syracuse University

This post from Don Boudreaux and this opinion piece from Daniel Henninger at the Wall Street Journal are about  “giving back” to the community.

Boudreaux takes exception to the use of the phrase after receiving a promo piece from Ritz-Carlton touting their “giving back” to the community activities.

Please, though, unless your profits are the product of dishonest deals or theft, please drop the rhetoric of “giving back.”  This sort of talk implies that you possess something that isn’t rightfully yours.

Henninger defends against the idea that the government must act as the intermediary of “giving back” by pointing out that voluntary philanthropy seems to be working well:

Since the Pilgrims, no nation has seen more wealth flow back from those who earned it into the welfare of the nation they inhabit.

Andrew Carnegie alone built more than 1,600 libraries in the U.S. Today, according to Internal Revenue Service data, there are some 110,000 grant-making private foundations in the U.S. Beyond the foundations bearing the names of famously undertaxed plutocrats such as Warren Buffet and Bill Gates there are another hundred thousand or so, often run by modestly wealthy families whose foundations support a vast array of needs—scholarships, schools, hospitals, cultural institutions and even causes across the political spectrum, no doubt including windmills.

Great points.  But I think there’s a more important point that we overlook when thinking about “giving back”.

Before business owners donate a dime to charity they have already “given back” a great deal just by the mere existence of their business.

First, they’ve given back in the form of the value they create for customers who voluntarily pay for the business’s product or service.  It’s this value that differentiates us from our cave dwelling ancestors, gives us the standard of living we enjoy, enables government to exist and generates the wealth that can be donated to charity.  And that is not well understood by most people.

Many people seem to view businesses as criminal-like organizations designed to exploit customers, even though most of these same people take delight and comfort in many of the products these enterprises make available to them.  This has to be some sort of paradox or dissonance.

Second, businesses have “given back” in the form of the gainful employment they’ve provided to the employees of the business.

Because of the value of the products and services and the jobs it provides, I contend that owning and operating a successful business often does more good for the community than a charity and is the source of what allows us to donate to charity.

Even wealthy folks don’t seem to grasp this.  Once they earn their wealth, they often create charitable foundations to “give back”.  I don’t begrudge them of their right to do this.  But, I wonder if they consider whether that’s the best use of their wealth.

Henninger cites Andrew Carnegie for building 1,600 libraries.  I love libraries and I think they add tremendous value to a community.

But, we ignore opportunity cost and we don’t ask what would we have if Carnegie didn’t build a library for us?  Would we have nothing?  I don’t think so.

Donations were not used to open thousands of Blockbuster video stores across the nation, which is essentially a for-fee library.  Donations were not needed for Netflix and RedBox to find better ways to lend videos.

We might have something very different without Carnegie’s libraries, but I believe we would have something.  Without Carnegie, libraries might look more like Blockbuster than the august buildings we have now (see picture).  But, is that really so bad? Do we like libraries because of their grand buildings or because they give us access to a wide range of books, periodicals and reference materials?  My local library is not in an extravagant building and that doesn’t stop me from using it.

Rather than over build beautiful free libraries, perhaps Carnegie could have paid for the less fortunate to use Blockbuster-like fee libraries that may have emerged.  He could have invested in for-fee libraries and built an organization that could be sustained by its users rather than third party funding sources.

Which brings us back to opportunity cost.  Was there a more effective way for Carnegie to use his money?

I would argue yes.  We’ll never know how much better off and how many more jobs we would have now had Carnegie decided to invest and grow more businesses instead of building libraries that might have been built anyway.

The same goes for many of the other wealthy who are “giving back”.  They may find creative and effective ways of donating that will produce great value.  But, all I ask is that they consider that, for some, the best thing they may be able to do is to reinvest and teach others how to carry on their efforts.

Get out of the way, please

A friend who wishes to go by Lane Meyer sent an e-mail pointing out an excellent passage from Wall Street Journal columnist Daniel Henninger’s piece, A Ronald Reagan Budget.

But the Obama prescriptions reflected Democratic Party politics of our time, which insists that prosperity begins inside someone’s head in Washington and then flows out to the country. The country is a taker of what Washington creates or allows—whether the Obama health-care plan or anti-carbon regulations. Reagan-Ryan argues that prosperity is born inside the heads of several hundred million citizens, and that the government’s first responsibility is not to kill the yeast.

Both the Beltway Democrats and the conservative deficit hawks share the conceit that the nation’s future revolves completely around what they do in Washington. This reduces the people to bystanders. That may work for Europe’s parliamentary systems, but it’s not the way things work here. Successful politics here draws people into its drama, and that means offering something bigger to believe in than deficit reduction. And guess what, progressives: The “safety net” isn’t what moves a nation, either. Think bigger.

Paul Ryan’s budget is inevitably about what Washington does (or refuses to do). But its underlying rationale is to reorder the relationship between Washington and the American people—country first, Washington behind.

It would be tough to word that any better.

If you come across anything you think is especially post-worthy, please let me know.