What is Elizabeth Warren Talking About?

“There is nobody in this country who got rich on their own. Nobody. You built a factory out there – good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory… Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along”

–Elizabeth Warren

It’s been all over, and we’ve all heard it rehashed. What is Elizabeth Warren talking about?

No one is claiming that anyone got rich on their own. In purely free markets, entrepreneurs ‘get rich’ by providing for exactly what consumers demand. If people want iPhones and you try to sell them books, you will lose money. So from the very beginning, we can see Warren is presenting the issue incorrectly. Anyone who tries to claim they got rich alone should be dismissed as a crank.

More crucially, why must the government provide the services she demands payment for? Roads, public education, security, etc. All government provided, they must be paid for, right? But think for a minute, what other enterprise acts that way?

Suppose you come home from work one day, and there is a man in your house. He has just finished installing a brand new whirlpool bathtub, replete with jets and bubbles. Awesome, thanks! The man wipes off his hands and hands you the bill, which is $10,000. Holy Smokes, what’s wrong here?

In market exchanges, you contract with people for goods and services in advance. In a purely voluntary exchange, no one could force a service or good upon you then demand payment, it’s absurd. This is only exacerbated by the fact the man has no idea what to charge you. The market price would be what two people agreed to exchange, but because he jumped the gun, he charges what he feels right, even if you don’t agree.

The government acts similarly when it provides all of these public services. It has no idea what the real cost of providing them is. Why does the budget on public schooling, infrastructure projects, and the military go up seemingly every year? The real cost of something is what you forsook in exchange. (Ex. the $10,000 used to pay for bathtub was going to be used on a car, so the cost of the tub is the car) Since the government takes the payment in the form of taxes with no regard to voluntary exchange, it has no way of calculating costs.

What Warren must first argue is that the government must provide those services, then that we should all have to pay for them. Warren also invokes the sacred social contract. I won’t go there, yet. Suffice it to say that some people have yet to sign that contract. But remember, something is amiss when someone knocks on your door demanding payment for something you never decided to buy.

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One Response to What is Elizabeth Warren Talking About?

  1. nfreiling December 26, 2011 at 3:16 pm #

    This is an insightful take. You are right in that no one gets rich “on their own”. But unfortunately, this mantra is what many proponents of the free market are using to defend the “1%”. I think a lot of the criticism of the market and wealthy entrepreneurs would quell if proponents of the market sought to educate the critics about how capitalism works (like you did in this post), and not defend the super-rich because they worked so hard to get there (which implies that we have no right to criticize them for taking lush vacations, driving Maseratis, etc.). No matter how strongly you convince someone that an entrepreneur worked hard to get to where he/she is and therefore deserves to keep his/her earnings, critics will still say it is immoral for them to keep so much money while so many are poor and without employment.

    Until the critics understand that getting wealthy is a sign of one’s success in meeting the demands of his neighbors, critics like Warren will remain at large.

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