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Tuesday, June 17, 2008

"The Winner Take All Economy"

In a wide ranging interview, Barack Obama talked about the challenges of the economy and some of the things he wanted to solve.

In an interview with The Wall Street Journal, the Illinois Democrat said that he was trying to put together tax and spending policies that dealt with two challenges. One is the competition from rapidly growing developing countries, like India and China. The other: the U.S. becoming what he called a "winner-take-all" economy, where the gains from economic growth skew heavily toward the wealthy.

Furthermore, he talked about some of the ways he would try to resolve these problems.

Sen. Barack Obama shed new light on his economic plans for the country, saying he would rely on a heavy dose of government spending to spur growth, use the tax code to narrow the widening gap between winners and losers in the U.S. economy, and possibly back a reduction in corporate tax rates.

Now, anyone that believes in Capitalism and free market economies should be frightened by all of this. Not only is Obama proposing more centralization and government control through increased government spending, but the statement that the economy is "winner take all" totally misunderstands the concept of Capitalism.

Capitalism is now and always has been winner take all. The concept of capitalism is always about a race to the top and huge rewards for the first to get there. The point of capitalism is to create competition because competition spawns innovation. You don't want to reward mediocrity but excellence. Yet, Obama wants an economy that rewards mediocrity.

Look at any major innovation over the last hundred years and what you will find is that the industry started with hundreds of players and wound up with a handful. We used to have nearly one hundred auto makers and now we have three. The same thing can be said of televisions, television stations, and telephone companies. Look at the internet. We used to have an industry where any Tom, Dick and Harry could put a .com behind their company name and become wealthy. Now, we only have a select few left.

What Barack Obama wants to do is punish those at the top and take from them and give to those in the middle. Of course, those at the top are overwhelmingly the entrepeneurs that took a risk and found fortune. That isn't the behavior we want to punish but encourage. What Obama wants to do is punish the Sam Walton's and Steve Jobs of the world, and transfer some of their wealth to the working stiffs that each of them hired. Except that it wasn't the working stiff that took the risk. It was Walton and Jobs. If their risk aren't overwhelmingly rewarded, then there will be no incentive to take a risk.

Sure Apple and Walmart seem like sure things now, but they weren't when Jobs and Walton first dreamed them up. Walton and Jobs didn't take the risk of entrepeneurship to make a bit, or be comfortable, but rather, they did it to become overwhelmingly rich. It is this greed motivation that spawns innovation.

Does anyone believe that Bill Gates would have dropped out of Harvard to start Microsoft if he didn't think he would become fabulously wealthy. If this greed motivation is punished with punitive taxes that are then transferred to the working stiff that took no risk, then the innovation that comes with that greed also dries up.

Yet, it is innovation that drives Capitalism. Of course, Barack Obama misses the most important point. While capitalism benefits those at the top overwhelmingly, it ultimately benefits everyone. Our GDP is bigger than the next four countries combined. Is that mere coincidence, or is it the capitalistic system we all live in.

Anyone that attacks the "winner take all" system in the interest of fairness and equality is in fact attacking the very capitalistic nature of our system that makes our economy what it is. It is another rehash of old school class warfare in which entrepeneurs are punished for the successes that their risk brought. It's a populist message that may in fact resonate, and that is what makes it so dangerous.

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