It's Going to Hit the Fan

Several years ago I worked for a small firm that got acquired by a public company.  The acquisition was a windfall for all of the senior people in the firm relative to what they could otherwise have expected.  Acquisitions were extremely rare in our industry, which is dominated by partnerships rather than corporations; to this day ours is the only real acquisition.  Prior to rumblings of being up for sale, it was a fairly cohesive and comfortable place to work.  Some of that cohesion was starting to erode independent from the impending sale of the company, due to too many people knowing too much about how each was paid.  This problem was exacerbated significantly with the actual sale on the horizon, to the point where people really couldn’t stand each other, and there were mutual resentments in many combinations. 

The problem stemmed from the power of the founding partner to make compensation decisions in a unilateral way.  This unilateral decision making was unavoidable, and existed before it came time to divvy up the sale price, but the windfall from the sale increase the stakes, and with it the feelings that decisions were being made without reference to true value.  Without a sale, arbitrary deviations in salary from what the “market” would pay would have worked themselves out, as people would have left or such decisions would have come more into line with the market reality.  By cutting everyone in on what for the buyer was a laughably silly deal, suddenly the market didn’t matter – there were ways to split the cash that made everyone better off than what the market could offer.  All good, right?  No, now we all hate each other.  No one, predictably, agreed about claims of comparative worth once the market was thrown out of the equation. 

I think of this often in the context of our country’s current path.  There is an old joke about presidential elections among conservatives: when a conservative wins the presidency, liberals express the ardent wish to leave the country; and when a liberal wins the presidency, conservatives express an ardent wish for liberals to leave the country.  The problem for conservatives is that we are in the most conservative country on the planet, so there is no other viable alternative.  As much as we may feel like we are getting screwed in the good old US of A, staying here still leaves me better off that the alternatives, much as sticking out the acquisition left me and all others involved better off than the alternatives.  We don’t have the ability to vote with our feet.  And, even if there were a more conservatively governed country, the accident of geography makes us inclined to stick by our birthplace and our neighbors.  We’re stuck.

The fact that we’re stuck makes us subject to being screwed by unilateral decisions completely outside of our control.  Every tick away from free markets – where you are rewarded for the exchange of your labor and capital based upon the free and voluntary choices of those purchasing your services – and toward big government – where your ultimate reward for the exchange of your labor and capital is altered from the implicit judgment of free and voluntary choices by unilateral decisions made by people you didn’t vote for – makes the feeling that you are getting screwed all the worse.

We all feel entitled to something.  There are basically two choices regarding what we actually get – either we get what others are willing to pay us in free and voluntary exchange, or we get what we can finagle for ourselves through the force of government.  If you are getting less than what you think you are entitled to under a system of voluntary exchange, your own assessment of your worth may be inflated.  Nevertheless, your only option is to supplement what the market is willing to give you voluntarily with a forced result – i.e. taking someone else’s income or property for yourself.  You can do this with robbery, or you can do it with Big Government.  The first option everyone understands to be completely illegitimate, the second option we are currently celebrating. 

I think many of us have lost that moral clarity; we have a feeling of entitlement that extends beyond what people are willing to pay us freely, and seem to have no problem taking what we think we deserve by force of government.  This feeling of entitlement is complicated by the fact that most of us are both contributors to the U.S. Treasury, and recipients of the goodies, especially subsidized education, social security, and medicare - all middle class entitlements.  We have the sense that we are already paying more than what we’re getting.  Clearly, many people must be net beneficiaries of Big Government, but I would bet you that most who are net beneficiaries feel they are getting screwed.  We all recognize that the decisions are out of our control, and even if we are better off, much as I and others were in the course of the acquisition, we all think we are getting screwed in favor of others.  Once you legitimize government trumping the market with respect to such things, people take on a mindset wherein their sense of entitlement has less and less to do with what they can offer to others in exchange, and more and more to do with arbitrary factors that there can never be consensus over. 

Big government does various insidious things.  First, it has led many of us away from concentrating on what we can do to improve our ability to serve others in market exchange, which impoverishes both those sucked in as well as those who would otherwise benefit from such exchange.  Second, in the place of such concerns, many have self-identified as part of a victimized group (minorities, women, union labor, etc.)  and identified others as part of a victimizing group (Wall Street, corporate America, rich people in general).   Naturally, the subset within such groups who really have very little to offer in a system of free exchange will latch onto the notion that they are part of a victimized group.  Having identified yourself as a victim gets you over the hurdle of forced redistribution in your favor.  On the basis of such grouping, the preferred redress among those thought to be victimized is not to stop the perceived victimization, as justice would require, but to use government to turn the tables.  Finally, the last problem, and the one that is perhaps most severe – is that there will be very little consensus between and among people regarding real versus perceived victimhood, real versus perceived victimizers, and what such claims imply for entitlements.   If you, like me, believe that most perceived victims have illegitimate claims, you will clearly resent those claims being forced on you via government.  This is true even among those who self-identify into different victim groups – blacks, who are culturally very conservative, take great offense at the GLBT population comparing their historic plights.  They do not see the GLBT community as entitled to the same things they are entitled to.

There will never be a consensus that government should be in the redistribution game.  There will never be a consensus as to the ranking of claims among those who believe that government should be in the redistribution game.  All of this has led to some divisiveness in our political culture, but it has been fairly restrained in comparison to where I think it is headed.  What will make the kettle boil over is this fact: the current status quo – where the promises of the government have largely been perceived as something the government could deliver on with some minor tweaking to the tax rates of the richest among us – is about to be seen for the lie that it is.  Promises will be broken, and in the scramble to preserve what has been expected, there will be an ugly reckoning.  Whereas animosities were built between and among me and my colleagues over the division of what was essentially manna from heaven, what we face in the near future is the Government taking away what it has promised and what most everyone in society feels they are entitled to, and the manner in which it allocates the pain from that broken promise will likely cause violence.  The Government will accept no responsibility for this state of affairs – it will fuel the flames by blaming others.

One other aspect of my business experience bears mentioning.  Within one year of being acquired, I left the firm and struck out on my own.  Though grateful to have been a part of the sale, it was liberating to be going out into the market, where what I earned I earned, in contrast to the feeling that I had been gifted something in the acquisition.  There is a pride of independence – of taking ownership of your life – and the corollary is that there is a resentment in being dependent on someone else.  Such independence used to be recognized as an achievement, and a stigma was attached to dependency.  Even if we are getting what we think we are entitled to from government, there is a latent resentment.