The Rising Tide That Carries All Ships

This article was featured in The Bulletin (Philadelphia-area newspaper) on 8/18/10. You can read the newspaper version online here or read the print column every other week.

At the age of 18, I took a job as a janitor at a local private middle school. The job paid just above minimum wage and involved extremely difficult physical labor. Worse, some might say, I was doing this menial labor for the rich kids in town. But I needed to save money for college, and this was the best job I could find. So for that summer, in the thick Pennsylvania heat, I scrubbed floors, shoveled dirt, and cleaned bathrooms. It was terrible, but it was a job—and I was thankful for it.

Looking back, I was never resentful of the students who attended that school. Their attendance meant they needed a janitor, and the steep tuition their parents paid funded my modest wages. Without that school I probably wouldn’t have had a job.

My small story demonstrates a truth that is critical to the current national debate: The economy is a rising tide that carries all ships. In other words, in a free market economy, success for some leads to opportunity for others. The entrepreneur who becomes wildly rich through the success of his venture also creates thousands of jobs for others at his company. Those jobs create income. That income is then used to purchase products throughout the economy, increase demand, and boost growth, all of which create more jobs. The cycle continues.

To make it concrete, consider the world’s richest man, Bill Gates. Did Microsoft’s success make Bill Gates wealthy? Yes—his net worth is over $50 billion. Did his company better the lives of millions? Yes—not only has Microsoft created thousands of jobs (it currently employs over 100,000 people), it has also helped lead a technology revolution that’s made business more efficient, information more accessible, and quality of life much higher. Bill Gates’ success was, in many ways, the world’s success.

Oddly enough, however, progressive policy discourages this type of prosperity. The more you make, the argument goes, the more government ought to confiscate. The U.S. already has the highest corporate tax rate in the industrialized world, and the Obama Administration is planning sharp increases in the top marginal income tax rate, despite the fact that many small businesses are organized as “individuals” and will feel the increased burden directly. If taxes can be used as disincentives (high taxes on tobacco, for example), and tax breaks as incentives (first time home-buyer tax credit; environmental product purchases etc.), why disincentivize success through exceptionally high corporate and income taxes?

Because liberal pundits and politicians see a much different world. For them, the economy is a fixed game, where the wealth of the rich increases the poverty of the poor. Rather than a rising tide, the economy is seen as a finite pie—if one person takes more, there is less for another.

This type of thinking has given rise to divisive rhetoric that forwards class warfare and demonizes industry. Proponents of this theory say they “favor the little guy,” will attack the “fat cat rich,” and call for us to “spread the wealth around.” Sound familiar? Or, consider recent comments by Howard Dean, former head of the Democratic Party: “In contradistinction to the Republicans…[Democrats] don’t believe kids ought to go to bed hungry at night.”

This, however, is an unfortunate distortion of both economic and philosophical reality. Study after study demonstrates that broad economic growth benefits everyone through technological advancements, creation of jobs, and specialization of labor (through which each worker’s value is increased). On tax policy, a recent study of 91 fiscal stimulus programs in 21 developed economies from 1970-2007 by Harvard economist Alberto Alesina found tax cuts are far more simulative than redistributive government spending. Christina Romer, in a study she conducted prior to joining the Obama Administration, found large economic multipliers from tax cuts, which she concluded “have very large and persistent positive output effects.” Tax increases, she also found, hurt growth. This of course has all been proven out through the exceptional growth in GDP and economic output following John F. Kennedy’s tax cuts in the 1960s and Ronald Reagan’s in the 1980s.

The common liberal retort is that, while the economy may grow, the rich simply get richer. But they ignore that the poor and middle class also get richer. Their relative increases may be less than that of the rich, but a better life is a better life.

Even putting considerations of liberty and property rights aside, low taxes are necessary catalysts and incentives to encourage the kind of growth that helps the whole of society. There exists, however, cognitive dissonance: The “rich” benefit directly from tax cuts; the poor benefit indirectly from resulting economic growth. Not understanding this nuance, many mistakenly throw the baby out with the bath water. They must realize there is simply no progressive utopia where the economy grows despite excessive redistributive fiscal policy.  

Conservatism believes the best way to care for the poor is through a free, open, and prosperous society where success for one leads to opportunity for another. It is a beautiful, unifying philosophy.  If you’ve ever traveled the world, you’ve witnessed the power of free, market-driven societies—someone at the current poverty line in the United States is richer than 87% of the world. China, India, and a host of emerging nations learned this lesson quickly when quality of life boomed after adopting free market principles (though they still have a long way to go).

John F. Kennedy said it best in 1963 when facing the difficult choice to cut taxes in the midst of declining federal revenues: “Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle.” The free economy is a rising tide that carries all ships, a powerful mechanism for broad prosperity, opportunity, and more importantly, unity for all.

-Matt Benchener is Supervisor of Newtown Township and Founder of TruPolitics.net