Do the Rich Really Create Jobs?

Posted on December 12, 2010 by

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The debate over raising taxes, or letting tax cuts expire, seems to be coming from three different perspectives.

1.  Keep the tax cuts even for the super rich.

2.  Keep the tax cuts for only for those marginally wealthy or worse.

3.  Let the tax cuts expire.

Judge Napolitano on Fox Business Network’s “Freedom Watch” claims that we should keep the tax cuts for everyone, including the super rich.  His claim is that the super rich are the ones who create jobs.  I have no problem keeping tax cuts for everyone but I do want to question why many rich people are rich to begin with.

Many wealthy people are wealthy because the state restricts their occupation so that there are huge costs and barriers to entry for new participants.  These people may become so wealthy that they are able to hire other people, and this would “create jobs,” but how many jobs are lost because of these barriers to entry?  One such profession is that of a Certified Public Accountant.  CPA’s are the only people, by law, able to audit a corporation.  With the passage of Sarbanes Oxley the demand for CPA’s likely increased due to all of the new requirements set on corporate accounting by the Securities and Exchange Commission.  CPA’s make a lot of money and hire a lot of people.. but is this the kind of “wealth” we want to be creating?

How many wealthy people are engaged in political “rent-seeking” like this?  Rent-seeking is the act of seeking a sustained income through political means (there is a larger definition but this is what I am dealing with here).  This could also be described as protectionism, guilding, creating barriers to social mobility, or any number of things.

If we draw up a list of some rent-seekers or protected industries, through intellectual property laws, licensing, or regulation, we see that almost ALL of the wealthy can be accounted for in one or more of these categories.

These are off the top of my head and is by no means exhaustive.  The not so obvious ones will have a short explanation in paranthesis:

1.  Movie Industry (Intellectual Property Proptection)

2.  Automotive Industry (Production regulations = barriers to entry)

3.  M.D.’s

4.  Lawyers

5.  Athletes (Stadium subsidies, Intellectual Property)

6.  CPA’s (legal monopoly of certain functions, costly barriers to entry)

7.  Stock Brokers (licensing)

8.  Software Manufacturers (Intellectual Property Protection)

9.  The Oil Industry (Barriers to Entry via Regulation)

10.  Recording Artists (Intellectual Property)

11.  Record Labels (Intellectual Property)

12.  Airlines (Regulations)

13.  War Profiteers (Tax Money Payments)

The list could go on and on.  Social mobility is absolutely destroyed with barriers created by the Government to help their friends.   Another wealth confiscating theory is the “iron triangle.”  The iron triangle is a political science term that illustrates the relationship between the legislative branch, government bureaucracy, and interest groups.

So yeah.. I am very skeptical that tax cuts for the wealthy will create jobs in an “iron triangle” “rent-seeking” society.  The alternative would be a society with no special privileged.. one with free markets.  In a free market society the only way to gain wealth is to pander to the needs and wants of other people in society.  In a rent-seeking society, rent-seekers spend a lot of time seeking out ways to gain monopoly privileges, protection, and other forms of assured wages.

Give free markets a shot… not crony capitalism.

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Posted in: Statist Logic