Obama lectures, mocks hardworking Americans

The controversy surrounding President Obama's admonishment that "if you've got a business -- you didn't build that. Somebody else made that happen" has defied the usual election-year pattern.

Normally a political faux pas lasts little more than a news cycle. Weeks later, Obama's comment is still a big deal.

Although supporters pooh-pooh the controversy, claiming the statement has been taken out of context and that he was referring only to public infrastructure, the full video isn't reassuring. Whatever the meaning of "that" was, the president on the whole was clearly trying to take business owners down a peg, dissing their accomplishments.

As my Bloomberg View colleague Josh Barro has written, "You don't have to make over $250,000 a year to be annoyed when the president mocks people for taking credit for their achievements."

The president's sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants -- Main Street, not Wall Street. The president didn't simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.

"Bourgeois Dignity" is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today's buying power), to the current global average of $30 -- and much higher in developed nations.

That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book's subtitle: "Why Economics Can't Explain the Modern World."

Most of "Bourgeois Dignity" is devoted to knocking down alternative explanations for the sudden and enormous escalation in living standards. In particular, McCloskey draws on the last half-century of economic-history scholarship to debunk what most people outside the field assume was the critical ingredient: savings and wealth accumulation. We might call this explanation "capital-ism." She argues, the emphasis on capital simply gets the facts wrong.

First of all, savings were high centuries before the economy took off. Given medieval crop yields, just preserving enough grain to plant next year's crop implied a savings rate of at least 12 percent, compared with no more than 10 percent to 20 percent in modern industrial economies. And, contrary to Max Weber's story about a new Protestant Ethic, savings rates were roughly the same in Catholic and Protestant countries or, for that matter, in China.

Besides, as economic historians discovered in the 1960s, the economic takeoff didn't actually require large amounts of capital. Early cotton mills, for instance, were relatively cheap to set up. "The source of the industrial investment required was short-term loans from merchants for inventories and longer-term loans from relatives -- not savings ripped in great chunks from other parts of the economy," McCloskey writes. "Such chunk-ripping capitalism' awaited the Railway Age."

There had always been enough capital. What was different, she maintains, is how people thought about new ideas. Creative destruction became not only accepted but also encouraged, as did individual enterprise. "What made us rich," she writes, "was a new rhetoric that was favorable to unbounded innovation, imagination, alertness, persuasion, originality, with individual rewards often paid in a coin of honor or thankfulness -- not individual accumulation restlessly stirring, or mere duty to a calling, which are ancient and routine and uncreative."

This is a radical claim, and one that McCloskey plans to demonstrate further in her next book, "The Treasured Bourgeoisie."

You might be inclined, therefore, to sneer at innovation -- or even, as Daniel Bell did, to write a book condemning it as a "cultural contradiction" of capitalism -- and at bourgeois virtue. If you think that capital, not insight or innovation, is the critical ingredient, it's also a short hop to the belief that the entrepreneur doesn't deserve praise for building the business.