Thursday, September 29, 2011

Quote of the Day on Guy Who Built Gates' Garage

"Focusing on infrastructure as the crucial support of entrepreneurial activity is like crediting the guy who built young Bill Gates’s garage with the start of Microsoft. Yes, Gates needed a roof over his head, and garages are useful. But it was Gates who had the ambition to do more in his garage than store his car and lawn-care products. Incalculably more important than his physical surroundings were his imagination and business sense."

~Rich Lowry at NRO responding to Elizabeth Warren's claims that private entrepreneurs and business owners owe much of their success to the government:

"There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did."

Russ Roberts responded yesterday in the Wall Street Journal.   

HT: Don Boudreaux

29 Comments:

At 9/29/2011 8:50 AM, Blogger morganovich said...

boudreaux had a great link on that:

https://www.facebook.com/photo.php?fbid=10150332983894872&set=a.447435709871.225414.367822059871&type=1

 
At 9/29/2011 8:55 AM, Blogger Tom said...

Bill Gates could have done just as much and more with half the amount of government as we have today. We would all be almost twice as rich, including Mr. Gates.

 
At 9/29/2011 8:56 AM, Blogger Tahoe said...

Warren's comments are beyond laughable. That's like saying the 2B trader loss was infrastructure related. Although certainly an argument for stronger oversight - these actions all require someone to act in a particular way. Entrepreneurs find a way regardless of circumstances - while infrastructure can support and assist, it is not the driver in my view.

 
At 9/29/2011 8:59 AM, Blogger morganovich said...

also:

i find this whole "you could never have done this without government" argument ridiculous.

sure, we all benefit from having stable law and order and defended borders. no question.

so what? why does that mean the successful should pay more?

we all benefit from grocery stores too.

i can go shop at the same store as joseph keller.

we can buy the exact same ingredients.

from this, he can make a dazzling dinner that has (justly) made french laundry so famous. i can make something mediocre.

we both needed the grocery store.

but why should we ask him to pay more of it just because he is better at using what it provides? that's outlandish.

if it worked like taxes to pay for government, then we'd charge him 10X as much because he can make a dinner worth $50 and i can make one worth 10.

in such an example, it's easy to see how the incentive to create value is destroyed. it's obviously an absurd way to price food and counterproductive.

yet many argue that not only should we price government that way, but that we need to slant the payments even further.

even a flat tax is nothing like flat.

under a flat tax, i get the food for $5 and JK pays $25 for the same food.

that's nothing like flat.

flat is we both pay $5.

this whole "progressive tax" augment being couched in percentage terms is an absurd framing of the issue that would be laughed out as marxism anywhere else (like food).

 
At 9/29/2011 9:33 AM, Blogger Jon said...

Is Bill Gates not dependent on the development of computers? This was exclusively funded by the government for decades. Bill Gates is one of the best examples of how success in America is dependent on the government.

 
At 9/29/2011 10:03 AM, Blogger morganovich said...

jon-

computers were not "funded" by the government.

the government was a customer.

that is TOTALLY different.

the government did not form companies or start an industry, they had issues they wanted solved and private industry came up with a solution.

further, aren't computer dependent on electricity? that was privately developed. so was metallurgy, etc. your whole augment there gets pretty absurd if you apply it iteratively.

 
At 9/29/2011 10:15 AM, Blogger Moniker said...

In a perfect world, I'd be happy to agree that each of us should pay the same amount of tax, but it's simply not feasible.

Back of the envelope math: Federal income tax revenues from individuals amount to about $900b. We have about 300m people in the country. I don't have an exact figure, but for the sake of argument, let's say 20% of the population is too young to be included in the tax pool. Now we're left with 240m people.

On your plan, that would amount to federal income tax of about $3,800 per person. Each person would still have to pay FICA, SS, state & local, sales tax etc.

Unless wages go up, I'd estimate that 30% of the population is too poor to make that federal income tax payment (20% are living at or below the poverty line).

Wage increases would make our products less competitive in the world market. That won't help in this economy at all.

So, really the question is who picks up the tab for those who can't pay. Should it be the middle class or the wealthy? The system currently places a heavy burden on the middle class with steep rates.

Are you advocating that the middle class should pay even more, while those earning capital gains and paying at a 15% rate get a break?

That said, I appreciate your suggestion because it might get people who currently don't pay taxes more aggitated over excess government spending.

 
At 9/29/2011 10:40 AM, Blogger Jon said...

Morganvich, this does not make Gates any less dependent. The government takes tax dollars and says "Create this thing we'll call computers because we have certain needs." Nobody in private industry was interested in providing the funding needed to create them. That funding was critical.

Not to say other things that weren't created by the government weren't also important. Electricity and what not. The claim is not that people get there ONLY with the government. It's that people are in fact dependent on the government and also other things.

 
At 9/29/2011 11:04 AM, Blogger Moniker said...

Morganovich -
Minimum wage is around $8 (with some variation among the states). That translates to an existance at or about the poverty line of $22k.

If you tried to impose a system where everyone shares the income tax burden in equal portions, each person would have to pay around $4k (my assumptions are that federal income tax receipts were around $900b from individuals in 2010 and about 240m people are potential taxpayers, which excludes about 20% of the population -- a guess at the number of children).

No one earning 22k can pay 4k in federal income taxes. Either wages have to come up, or the system stays as it is.

The current system divies up the tax liability among those able to pay. The middle class pay more of their income as a percentage, and the wealthy more in absolute terms (assuming most of the wealthy have significant income subject to tax at lower cap gains rates). A reasonable solution.

The system acknowledges that a substantial portion of the population can't pay, and the rest of us share that extra burden.

The statistic that 51% don't pay at all is a figure based on 2009. It's not typical. That was a recessionary year with a ton of people unemployed.

In any event, a more equal distribution of the tax burden would have major implications for the economy because it would require an increase in wages. Our goods and services would become less competitive in the world market and lots of businesses would not survive a minimum wage hike.

 
At 9/29/2011 11:04 AM, Blogger Buddy R Pacifico said...

Jon, you are wrong about Bill Gates being dependent on computers developed by the government.

The first computer was built by Howard Aiken at Harvard. Aiken was funded by $200,000 from IBM's Thomas Watson. Aiken did not mention IBM when he first introduced the computer and Watson was furious.

 
At 9/29/2011 11:42 AM, Blogger Jon said...

If computers had not progressed beyond the first computer developed Bill Gates would not be who he is today.

It is not my claim that nothing associated with the computer was independent of the government. I just mentioned the need for electricity, which was made possible by people like Tesla and others. My claim is that for decades the research required to develop computers to where they are useful was in fact funded exclusively by the government. Without that funding there would be no Microsoft. Billions of government dollars made that possible.

Without government funded R&D there would be no Microsoft. Yeah, you need other things as well. For instance researches have to eat food, and food is produced by private farmers. Fine. I'm not saying there was zero non-government involvement.

 
At 9/29/2011 11:56 AM, Blogger morganovich said...

jon-

no. your argument is totally flawed.

1. the first computers were not developed by or for the government.

2. if the government had never wanted one, they would have been developed anyway.

you are completely making this stuff about the government developing the computer up.

that is simply not what happened.

even if it were, it would be more valid to say that the government was dependent on private industry to develop the computer, not the other way around as you are trying to ague.

the first computer was developed by pascal in 1642, over a century before the united states even came into being. this was advanced by leibnitz. then boole brought in binary. in 1801 jaquard figured out how to store programs on punch cards.

the tabulating company, which invented an automatic hole puncher in 1888. in 1925, his company changed its name to IBM.

you have absolutely no idea what you are talking about when you make such absurd claims.

 
At 9/29/2011 12:18 PM, Blogger Buddy R Pacifico said...

morganovich has correctly described a history of computing. In my comment above, I should have described Aiken's machine as likely the first programmmable digital machine -- the start of the digital age.

 
At 9/29/2011 12:20 PM, Blogger Jon said...

There's obviously serious reading comprehension problems here. Here's what I'm saying:

The development of modern computers was critically dependent on government funding.

Here's what my critics pretend I'm saying:

The development of modern computers was critically dependent only on government funding.

You've successfully refuted your straw man. Try addressing what I actually said.

 
At 9/29/2011 12:30 PM, Blogger Sean said...

morganovich,

if it worked like taxes to pay for government, then we'd charge him 10X as much because he can make a dinner worth $50 and i can make one worth 10.
You forget: there is price differentiation based on the wealth of the payer in the market all the time: MP has shown multiple examples in the past. Go pay for a jacket or a taxi in India as a foreigner or a native and you'll pay different prices.

 
At 9/29/2011 12:36 PM, Blogger Sean said...

Elizabeth Warren's comment, in context, is quite correct: "There is nobody in this country who got rich on his own".

How much of that should we attribute to government... eh? Hard to say. But for damned sure nobody got there from nothing all alone.

 
At 9/29/2011 12:56 PM, Blogger Jon said...

Quoted via the footnotes to Chomsky's "Understanding Power".

Winfried Ruigrock and Rob Van Tulder, The Logic of International Restructuring, New York: Routledge, 1995. An excerpt (pp. 220-221):

[O]ver the 1950s and 1960s, the Pentagon paid more than one-third of I.B.M.'s R&D budget. The Pentagon moreover acted as a "lead user" to I.B.M., providing the company with scale economies and vital feedback on how to improve its computers. In the 1950s, the Pentagon took care of half of I.B.M.'s revenues, enabling it to move abroad and flood foreign markets with competitively priced mainframe computers. Thus, I.B.M.'s defense contracts cross-subsidised its civilian activities at home and abroad, and helped it to establish a near monopoly position throughout most of the 1950s, 1960s and 1970s. Along similar lines, all formerly and/or currently leading U.S. computers, semiconductors and electronics makers in the 1993 Fortune 100 have benefited tremendously from preferential defense contracts. . . . In this manner, Pentagon cost-plus contracts functioned as a de facto industrial policy.

The same mechanism can be observed in the aerospace industry. In the 1950s, for instance, Boeing could make use of government-owned B-52 construction facilities to produce its B-707 model, providing the basis of its market dominance in large civilian aircraft. The National Aeronautics and Space Administration (N.A.S.A.) has often played a role comparable to the Pentagon. . . . [G]overnment policies, in particular defence programmes, have been an overwhelming force in shaping the strategies and competitiveness of the world's largest firms. Even in 1994, without any major actual or imminent wars, ten to fourteen firms ranked in the 1993 Fortune 100 still [conducted] at least 10 per cent of their business in closed defence markets.

 
At 9/29/2011 12:57 PM, Blogger Jon said...

Laura D'Andrea Tyson, Who's Bashing Whom?: Trade Conflict in High-Technology Industries, Washington: Institute for International Economics, 1992. An excerpt (pp. 88-90):

In its early years, up to 100 percent of the [semiconductor] industry's output was purchased by the military, and even as late as 1968 the military claimed nearly 40 percent. In addition, there was a derived defense demand for semiconductor output from the military's large procurement of computer output throughout the 1960s. Direct and indirect defense purchases reduced the risk of investment in both R&D and equipment for semiconductor producers, who were assured that a significant part of their output would be sold to the military. The willingness and ability of the U.S. government to purchase chips in quantity at premium prices allowed a growing number of companies to refine their production skills and develop elaborate manufacturing facilities. . . .

The government continued to pay for a large share of R&D through the early 1970s, providing roughly one-half of the total between 1958 and 1970. As late as 1958, federal funding covered an estimated 85 percent of overall American R&D in electronics. . . . [T]he military, which remained the largest single consumer of leading-edge components throughout the 1960s, was willing to buy very expensive products from brand-new firms that offered the ultimate in performance in lieu of an established track record.

 
At 9/29/2011 12:59 PM, Blogger Jon said...

Andrew Pollack, "America's Answer to Japan's MITI," New York Times, March 5, 1989, section 3, p. 1. An excerpt:

At a time when more industries are seeking Government help to hold their own against Asian and European competitors, Darpa [the Defense Advanced Research Projects Agency] is stepping into the void, becoming the closest thing this nation has to Japan's Ministry of International Trade and Industry, the agency that organizes the industrial programs that are credited with making Japan so competitive. . . . [U]nder the rubric of national security, the Pentagon can undertake programs like Sematech [a research consortium to help the U.S. semiconductor industry compete] that would arouse opposition if done by another agency in the name of industrial policy. . . .

Many fundamental computer technologies in use today can be traced to its backing, including the basic graphics techniques that make the Apple Macintosh computer easy to use; time-sharing, which allows several people to share a computer, and packet-switching for routing data over comptuer networks. . . . C. Gordon Bell, head of research at the Ardent Computer Corporation and one of the nation's leading computer designers [states,] "They are the sole drive of computer technology. That's it. Period." Darpa does no research on its own, only finances work.

 
At 9/29/2011 1:06 PM, Blogger morganovich said...

jon-

"The development of modern computers was critically dependent on government funding."

no, that is total BS.

they were dependent on the ideas of pascal, leibnitz, and boole, among others. you keep acting like something radical was invented. it wasn't.

what you call a "modern" computer, is just a better implementation of those same ideas. it was an engineering issue, not one of creation. computers had been around for centuries.

you also still totally miss the distinction between being a customer and being a creator.

the government didn't create anything. the government had a need. someone else created a solution and was paid for it.

this was not the government driving an industry or deciding it was important and funding it.

it was the government wanting to buy something and private industry providing it.

you also act like it would never have happened otherwise, which is ridiculous. it might have happened 3 years later or it might have happened at the same exact time as IBM would have pitched it to someone else who would have said yes.

 
At 9/29/2011 1:12 PM, Blogger morganovich said...

oh, and all those quote from the 50's and 60's are irrelevant to bill gates.

that's all mainframes. gates never sold to that market.

the government did not fund the PC.

sure, some of the technology that got incorporated got advanced by companies selling to the government, but those technologies were, in turn, based on innovations that had taken place for centuries.

without boole's binary, the whole thing is a wash.

you are applying your own silly metrics selectively and far too broadly.

if you are going to srgue thet the PC needed the mainframe, then you have to accept that the mainframe needed pascals mechanical computer, booles binary, hollerith's punch cards etc.

further, by you standards, every product the government has ever ordered a version of is federally funded R+D.

did they invent the humvee? the hammer? the zero g pen? the mailbox? the taser gun? pretty much all of taser's sales go to government, but the government was not involved in development. they were just a customer that decided they liked it.

you line of thought seems to imply the feds create everyhting they buy.

 
At 9/29/2011 1:23 PM, Blogger Sean said...

morganovich,

"The development of modern computers was critically dependent on government funding."

no, that is total BS.

they were dependent on the ideas of pascal, leibnitz, and boole, among others. you keep acting like something radical was invented. it wasn't.


You critically confuse research with development. And Shockley et al were as important to the development of the computer as Pascal, Boole, and Babbage, because the logical ideas were around long before the materials technology to make them reality.

There are all kinds of great basic research that are a long haul away from a consumer because of the big step between basic research and full development.

 
At 9/29/2011 1:38 PM, Blogger Sean said...

morganovich,

you also act like it would never have happened otherwise, which is ridiculous.
I'm wary of this argument because it could be applied to pretty much anything. By that logic, no entrepreneur is really worth much of anything because another would take his place if he weren't there. So this argument is just as strongly applied for progressive taxes, lower CEO pay, and board witch-hunts.
And poo-poohing the governemnt as a customer also ignores the value of demand: after all economics ought to be supply and demand-based, not simply supply-based.
Whether the government is a valuable "demand-leader" can legitimately be debated on either side, I think.

 
At 9/29/2011 3:27 PM, Blogger Marko said...

Hate to quibble on grammar, but that should be Gates's not Gates'.

Just because Gates ends in an s, doesn't mean it is plural. s' is only used for plural possessive.

Look it up in Strunk and White.

 
At 9/29/2011 3:40 PM, Blogger PeakTrader said...

"Private entrepreneurs and business owners owe much of their success to the government."

How can they owe when they overpaid?

A big refund is appropriate.

 
At 9/29/2011 5:39 PM, Blogger Hydra said...

HP started in a garage too. ZLook what happened to them.

 
At 9/29/2011 6:13 PM, Blogger Hydra said...

Morganovich:

If you look around you can find many things that are not priced on a flat curve.

You and I may have the same boat, but if you drive yours twice as fast you will use four times the fuel. Why is that not as good a model for government usage as a flat model?

What evidence have you that a flat cruve is a better fit than a power curve?

"Who Gets what From Government" Benjamin Paige

Programs designed to help the poor have very little redistributive effect, and are mostly offset by programs that favor the rich.

Organized interest groups are a dominant power in politics, and they are dominated by the wealthy.


Likewise, who gets hurt when government shuts down? The military (and large military contractors), American companies that do business abroad (Big companies mostly), New Homeowners (not street people), etc.

The tax foundation for example does report that the to 20% use more government services than the 3rd and 4th quintile, but not as much as the bottom quintile. (not nearly as much as they pay, either).

But, looking at the charts on household txes paid and services used, it appears a lot of money is going somewhere, and my guess is that business gets a good deal of service, and wealthy families that own businesses benefit from that.

But here is the real problem: if you intend to keep the same revenue and have a flat tax (whether truly flat or a % flat) some more burden would shift to lower incomes.

How will you collect that money from people that simply do not have it? Even if we can agree some kind of flat tax would be more fair, as a practical matter, the money has to come from those that have it.

 
At 9/29/2011 6:17 PM, Blogger Hydra said...

1. the first computers were not developed by or for the government.

==============================

Weren't the first ones developed for the government to solve systems engineering, logistics, and codebreaking functions, for the wartime military? Problems so big that no one else had them in sufficient quantity to order computers?

 
At 9/29/2011 7:33 PM, Blogger Sean said...

Hydra,

Weren't the first ones developed for the government to solve systems engineering, logistics, and codebreaking functions, for the wartime military
Most of the early big ones built were for this purpose, yes. That's indeed where the money for development came from, without which it would have been much longer before they were an economic proposition. Think how long businesses like IBM and DEC were saying how useless PCs were and would always be *after* the concept of the computer was already proven.
These business types can be very stubborn about their view of the world ;) Google McNealy and PC for even later boneheadedness :)

 

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