Ryan Advocates Wealth Creation, not Wealth Division

Paul Ryan spoke the other day stating that the Romney/Ryan plan would foster wealth creation instead of wealth division.  I, and the rest of America, would welcome more details, but at least someone running for national office has the right idea.


 

Cronyism Destroys Wealth

In an excellent opinion piece in the Wall Street Journal, Koch Industries CEO Charles Koch recently sounded many of the themes of this blog, noting that voluntary transactions create wealth through "win-win" outcomes--that is, both sides of a voluntary transaction, producers and consumers, are better off, and therefore wealthier, as a result of the transaction. He points out that in countries in which economic freedom is the norm the poorest segment of the population is ten times better off than the poor in other countries.  As Koch says:

The role of business is to provide products and services that make people's lives better—while using fewer resources—and to act lawfully and with integrity. Businesses that do this through voluntary exchanges not only benefit through increased profits, they bring better and more competitively priced goods and services to market. This creates a win-win situation for customers and companies alike.

Only societies with a system of economic freedom create widespread prosperity. Studies show that the poorest people in the most-free societies are 10 times better off than the poorest in the least-free. Free societies also bring about greatly improved outcomes in life expectancy, literacy, health, the environment and other important dimensions.

Koch goes on to make the observation, as I do, that government interference in the economy makes the economy worse off.  While I have pointed to a variety of interferences, such as wealth redistribution, boondoggle spending, and over-regulation, as causing wealth destruction, Koch points to another one increasingly common since the 2008 financial crisis: cronyism (or what Ayn Rand called "crony capitalism").  In this version of wealth destruction, the government is a biased umpire in the game, picking winners and losers, usually in favor of those who pay most for government's influence.

Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.

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We are on dangerous terrain when government picks winners and losers in the economy by subsidizing favored products and industries. There are now businesses and entire industries that exist solely as a result of federal patronage. Profiting from government instead of earning profits in the economy, such businesses can continue to succeed even if they are squandering resources and making products that people wouldn't ordinarily buy. 

Koch points out, too, that American business, routinely viewed as Republican in its politics, too often capitulates to the temptation of cronyism to seek the patronage government can bestow, thereby corrupting government and economics and feeding the statists' hunger for power.

To end cronyism we must end government's ability to dole out favors and rig the market. Far too many well-connected businesses are feeding at the federal trough. By addressing corporate welfare as well as other forms of welfare, we would add a whole new level of understanding to the notion of entitlement reform.

If America re-establishes the proper role of business in society, all kinds of benefits will accrue. Our economy will rebound. Our liberties will be restored. And when President Obama tells an entrepreneur "You didn't build that," everyone will know better.