There’s an old saying about the lack of wisdom involved in “biting the hand that feeds you.” It refers to people who, with naivetand arrogance, complain about the virtues of those they in fact need to flourish, or even survive. You might call it “the spoiled brat syndrome.”
Economist George Reisman describes it beautifully, when writing about the sorts of people who participate in the “Occupy Wall Street” protests.
Reisman writes, “In addition to not realizing that the wealth of the so-called 1 percent is the foundation of the standard of living of the so-called 99 percent, what the protesters also do not realize is that the ‘greed’ of those who seek to become part of the 1 percent, or to enlarge their position within it, is what serves progressively to improve the standard of living of the 99 percent. Of course, this does not apply to wealth that has been acquired by such means as obtaining government subsidies or preventing competition through protective tariffs and other forms of government intervention. These are methods that are made possible to the extent that the government is permitted to depart from a policy of strict laissez-faire and thereby arbitrarily reward or punish firms. Apart from such aberrations, the way that business fortunes are accumulated is by means of the high profits generated by the introduction of new and improved products and more efficient, lower-cost methods of production, followed by the heavy saving and reinvestment of those high profits.”
Some people in the Occupy movement have complained about things such as subsidies to the bank industry. On the one hand, they have a point. Why should billion dollar companies be receiving government money? At the same time, what caused the collapse in the banking industry in the first place? Years of government regulation and intervention led up to the disaster of 2008, the impact of which we all still feel daily. During both the Clinton and Bush administrations, government provided incentives and imposed regulations to drive up the number of home ownerships in the society. In effect, government required profit-making banks to loan to people whether these people represented acceptable risks or not. A reasonable person might have said (and a few did), “Maybe this isn’t the best idea. If the private banks wouldn’t lend in the first place, then maybe there’s a good reason for that, economically speaking. If government pushes the private market to lend when it otherwise wouldn’t, then won’t there be a terrible consequence down the road?”
And of course, there was. The problem is that nobody has learned that lesson.
The take-away most people have about the housing/mortgage crisis of 2008 is that, “Profit is evil. We have to get profit-making entities under control.” But profit isn’t the problem. If we had left the private market alone, the motivation of profit — and survival — would have prevented private banks from making subprime loans and engaging in other lending practices that were bad business for them, and ultimately bad for the economy as a whole. If we had let business and the private market be what they are, there would have been more disappointed people unable to buy houses back in 1999 and 2004, but no disaster of the magnitude we eventually saw.
As economist Reisman points out, it’s business and capitalism that lift the standard of living for everyone. If we didn’t have business and capitalism, and we didn’t have people constantly taking risks in order to make a profit, then we’d have nothing but stagnation. When a member of the “99 percent” puts gas in his car, it’s because a giant oil company is successfully making a profit at producing and manufacturing gas. No profit-making oil company? No gas. No automobiles. We’re all either walking or bicycling. No more airplanes, no more cars. No more trucks to deliver food, clothing, iPhones and all the things we take for granted. Is this the sort of primitive civilization the 99 percent wants? It’s sure what you’re going to get — to one degree, or another — if you bite the hand that feeds you.
Profit-making companies are not altruistically lifting the standard of living for the sake of mankind. If you think that’s what I’m saying, you’re right to sneer. But that’s not what I’m saying. What I’m saying is that the profit motive underlying laissez-faire capitalism (i.e. real capitalism, not the hampered kind we unfortunately have) is what lifts the standard of living for all.
In short: Because there are people who want to make a profit, there are people who make it their business to innovate, produce and distribute.
If Occupy Wall Street and other quasi-socialists got their way, government would gradually start to take over everything. Government would be running the whole show. We’d reduce or (to them, best case) eliminate profit altogether. But what on earth will this lead to, in practice? A world without profit is a world without motivation. It’s a world without incentive. It’s a world without moral hazard, in which those able and willing to produce the most are the ones who are relegated to the fringes of society.
Do we really want the caliber of people who are our politicians to become the main producers of society, and the profit-makers to be humbled or even eliminated? They already tried this in Soviet Russia, Maoist China, North Korea and Cuba. How well did that work out? That’s the direction we’re going under Obamaism, and so far as I can see this is the direction both parties are taking us. Remember that the mortgage disaster was bipartisan. It would have happened under a Democratic administration just as easily as a Republican one, because both parties had the same policies with regard to forcing lenders to lend when they otherwise wouldn’t.
Occupy protestors have taken to the streets, snarling at profit. I propose precisely the opposite. Long live profit and the profiteers who make our lives so much more civilized, comfortable and rational than they otherwise could be.
Source for Reisman quote: ‘In Praise of the Capitalist 1 Percent” by George Reisman, Ph.D., Mises Daily online, 10/21/11.