Yaron’s sparring partner from Demos, David Callahan, and Callahan’s colleague, Jack Temple, have put out a report on the six things Facebook’s IPO allegedly says about America’s economy.
Let’s take a look at what they have to say.
1. Growing Inequality
According to Callahan and Temple, the IPO will continue the trend of growing inequality in America. “Facebook’s founders and investors have scored historic gains in recent years even as most U.S. households have been flat and their wealth assets have declined.”
The truth is, most Americans today are better off than they were thirty years ago. That’s not to say the last thirty years have been a paradise for the average American. Growth has been relatively sluggish. But the reason why is not because innovators are amassing huge fortunes—it’s because government has been suffocating economic growth through regulation and reckless amounts of spending.
2. Disconnect Between Corporate Success and Job Creation
Facebook has grown into one of America’s largest and most successful companies while employing relatively few employees. According to Callahan and Temple, “Facebook’s high valuation and relatively tiny labor force shows that building successful companies no longer necessarily means creating many jobs that grow the middle class.”
But the fact that Facebook can create so much value with so few resources is a good thing. It’s the definition of “efficiency.”
The reason it might sound bad is that unemployment today is so high. But there isn’t unemployment because there are too few jobs to go around, or because some companies are able to do more with fewer employees: It’s because of government intervention into the economy.
3. Insider Advantages
Callahan and Temple bemoan the fact that “the well-connected insider investors who parlayed their wealth and contacts into a piece of Facebook equity” are the ones who will primarily benefit from this IPO. This is “a common story in today’s unequal economy. Ordinary investors have been largely excluded from this opportunity.”
The truth? “Insiders” really just means “professionals who gave Facebook lots of money before they went public.” If it weren’t for those investors, there wouldn’t be a Facebook. They deserve to benefit from their good judgment.
The lesson Callahan and Temple want us to draw from this is that “the rich get richer.” Well, yeah, sometimes. But what about all those “insiders” who invested in companies that went broke? Should “ordinary investors” complain that they were “excluded” from those “opportunities”?
4. Lottery Economy
According to Callahan and Temple, some of the people benefiting from the Facebook IPO didn’t do so through merit, but “from pure luck.”
So what? Their gains didn’t come at anyone’s expense, and if they aren’t truly competent and capable, their gains will eventually turn into losses.
The real question is: what’s the alternative? For Callahan and Temple or their buddies in Washington to determine which of us “merit” our wealth and which of us don’t?
5. Tax Avoidance
Callahan and Temple bemoan the fact that Facebook and some of the people profiting off the IPO will be able to avoid certain taxes.
Translation: We should be angry that people are keeping more of the money they earn. That money belongs to the government!
What should really upset us is that the government taxes so much of our wealth in the first place.
6. Civic Inequality
“The new wealth created by the IPO will empower Facebook stockholders to exercise significant sway over American politics, policy, and culture through campaign donations and philanthropy,” write the authors. They call this “civic inequality.”
But this notion of “civic inequality” is in reality a package deal. It lumps together two very different things, in this case cultural influence and political influence, or what Ayn Rand called economic power and political power. Money can and should give you economic power. But it shouldn’t buy political favors.
Today, however, money does buy political favors. But the problem isn’t the money—it’s the fact that government officials wield arbitrary power to intervene in the market, to regulate, to redistribute, to pick winners and losers. This power turns businesspeople into supplicants who must woo and please the authorities, if they want to survive in the political jungle. The solution isn’t to restrict our right to free speech through campaign finance laws, as Demos would like. It’s to restore capitalism. When the government only has the power to protect individual rights, then no fortune can buy you special favors and handouts from the state.
Callahan and Temple assure us that their goal “is not to disparage or demean the success of an important company that has created a service enjoyed by millions. Nor is it to question the right of successful entrepreneurs and investors to become extremely wealthy.”
What can you say except: they have a funny way of showing it.