Last week, in a Martin Luther King Day public interview, writer Ta-Nehisi Coates asked democratic socialist Rep. Alexandria Ocasio-Cortez (D-N.Y.) why he was a bad guy if he became a billionaire by selling widgets.
AOC replied that the billionaire “sat on a couch while thousands of people were paid modern-day slave wages [to make the widgets for him]. … You made that money off the backs of black and brown people [and] … single mothers … who are literally dying because they can’t afford to live. And so no one ever makes a billion dollars. You take a billion dollars.”
The audience received that last statement with enthusiastic applause. Ouch! The statement was just flat-out wrong, a product of woeful economic ignorance about how the world works.
Let’s address a few of the errors underlying AOC’s comments.
First, the entrepreneur: Let’s debunk the myth of the exploitative business owner lazily sitting around while others do all the work. Traditional economics teaches that there are three factors of production—land (resources), labor (manual and/or mental), and capital. That paradigm leaves out the most important factor: the entrepreneurial mind, the person with the vision to organize the other factors of production.
Land, labor, and capital don’t arrange themselves spontaneously; entrepreneurs perform that crucial, indispensable function.
For an entrepreneur to succeed in a business venture requires long hours, taking risks, having to compete with other enterprises, having to constantly be prepared to adapt to the fickle, ever-changing preferences of consumers, laboring under the burden of at-times oppressive taxes and regulations, dealing with unpredictable macroeconomic conditions, etc. This is hard work. It’s more than a little ironic that AOC dismisses entrepreneurs as lazy fat cats sitting around on couches when she’s the one sitting on an easy chair disrespecting entrepreneurs’ hard work.
It’s important to realize that not everybody possesses entrepreneurial talent, just as not everyone has the talent to play basketball. And just as most basketball players do not have the talent of a LeBron James or James Harden, so few entrepreneurs have what it takes to rise to the heights of a Bill Gates or Jeff Bezos.
I haven’t heard AOC complain about the excellence of the most accomplished, famous, and wealthy athletes and entertainers. Why, then, does she scorn and loathe the most accomplished, famous, and wealthy entrepreneurs? This is both morally inconsistent and oddly perverse, since the entrepreneurs who supply us with “widgets” (cell phones, computers, cars, airlines, food, shelter, clothes, and an amazing variety of consumer goods) do more to sustain human beings in our everyday lives than do athletes and entertainers.
It makes no more sense to say that it’s “unfair” that some people have more entrepreneurial talent than others than it is to say that certain people have more artistic talent than others. Plus, one of the ways in which capitalism is morally superior to feudalism, mercantilism, and socialism is that under capitalism, there’s freedom of entry.
Nobody is debarred from attempting to become a successful entrepreneur—to hire workers and devise new ways of satisfying consumer demand. Building a business and keeping it profitable requires vision, stamina, energy, and hard work. If making big bucks really were as easy as sitting on a couch, there would be a lot more rich entrepreneurs than there are.
By the way, the racist element in AOC’s statement needs to be addressed. Entrepreneurs employ white people as well as black and brown people. In fact, AOC herself disrespects black and brown people by not acknowledging the sterling accomplishments of many black and brown entrepreneurs. She may not be aware of it, but immigrants—whether documented or undocumented, but often people of color—engage in entrepreneurial ventures at a higher rate than native-born Americans, so let’s not knock entrepreneurs.
Second, wealth creation: She seems to believe that billionaires amassed their billions by some immoral process, cruelly and unjustly extracting money from masses of helpless victims. This is the old zero-sum view of the world that darkened human thought in the 16th century—the notion that one person’s gain is another’s loss. This is a fallacy, a fundamental error.
Here’s how billion-dollar fortunes come about: In a free market based on private property, people only make exchanges if they perceive they will be better off by making the exchange. We exchange what we value less for what we value more; otherwise, the trade wouldn’t happen. Thus, both parties to any voluntary transaction gain value—that is, voluntary exchanges are positive-sum, i.e., mutually beneficial, not zero-sum in which one side benefits at the expense of the other.
The billions of dollars of profits earned by large enterprises are mirror images of the billions of dollars of value they have created and supplied to others. A billion-dollar fortune is a sign that many members of society have been benefited by the activities of that enterprise. The profits/benefits of consumer and producer are roughly comparable. True, the economic value of the producer is more concentrated—its profits are produced by, say, a few thousand people, while the value they created for others is often spread out among tens of millions of consumers.
But the essential point, which seems to elude the comprehension of AOC and other “redistribute the wealth” ideologues, is that both sides are richer.
Third, profits: In an economic sense, profits are new value created. The entrepreneur arranges factors of production with a current market value of X. If consumers value a product enough to purchase sufficient units at prices that give the producer an income of X (the pre-existing market value) plus however many dollars, that’s a profit. It’s also more value (wealth) than existed before.
That’s how producers literally make/create new wealth. They don’t take it, they really do “make” it. Actually, it’s rather ironic for a congresswoman to accuse billionaires of “taking” rather than making/creating wealth when she and her colleagues take, rather than make, trillions of dollars every year.
Fourth, in addition to her ignorance of basic economics, AOC embarrassed herself with the ridiculous statement that the employees of billionaires “are literally dying” because their allegedly stingy bosses pay them so little. Where are these so-called victims other than in her imagination?
And what about American corporations’ foreign sweat shops? While wages in those sweat shops are low by American standards, they’re often above-average wages in the host country, sometimes exceeding the wages of government-employed teachers and doctors. Would AOC rather that corporations not hire these people at all so that they have no regular source of income?
The economic history of our country shows that wages rise (as they have been in recent months) when there are more “greedy capitalists” seeking to “exploit” people by employing them. From a public policy point of view, if AOC thinks workers aren’t paid enough, she should advocate policies that encourage business formation. (Or, she could start her own business and pay her employees higher wages, instead of sitting on an easy chair and complaining that other people aren’t doing what you want them to do.)
People need more capitalists and billionaires bidding for their services, not fewer, so let’s not wage war against job creators.
The ideology embraced by AOC and other socialists is not only egregiously but also dangerously wrong. It leads people to attack the wealth creators who are the economic benefactors of our society. As such, it’s an attack against prosperity itself.
This anti-wealth ideology is warped, counterproductive, and ultimately anti-human. Let us counter and resist and expose this ideology with all our might before it destroys us.
Mark Hendrickson, an economist, recently retired from the faculty of Grove City College, where he remains a fellow for economic and social policy at the Institute for Faith and Freedom.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.