Thursday, October 16, 2008

Wealth Distribution...Where Does It End?

Redistribution of wealth. We’ve heard it all over the news recently, though it has been shouted by opponents of Barack Obama’s fiscal proposals for months now. And what has poured gas on the growing fire is a recent comment in which Obama stated, “I think when you spread the wealth around, it's good for everybody.”

Many people call it socialism or communism. Even Fidel Castro has twice verbalized his support for Obama as a candidate. And former Communist Party USA member Frank Marshall Davis is spouted as a lifelong mentor in Obama’s book, “Dreams From My Father”.

At the heart of socialism is the notion that all people should be equal, that classes of people should be eliminated. Those who have, should be taxed and robbed, and the loot should be passed on to the less fortunate in a Robin Hood fairy tale fashion.

Doing so has immense negative consequences. First, the less fortunate have no motivation to improve themselves or their input to society. Government gives them what they need. As a police officer, the majority of people I come into contact with are lazy and jobless, paying for their groceries, rent and beer with government help. They are disabled by age 20, due to their “nerves”. They are simply walking the path their parents walked. And they all know that if they were gainfully employed, their standard of living would drop. They would rent a $300 apartment instead of enjoying the $600 government subsidized apartment they currently enjoy. They would be forced to buy Natural Ice instead of Budweiser, or maybe be unable to afford alcohol of any kind. Socialism destroys their will to be meaningful in society.

A second effect of wealth distribution, is that it punishes success. Those with entrepreneurial talent or skills of high demand will have no motivation to improve their businesses. All of their hard work will be taken from them and given to others.

Laws of economics show that people naturally move into markets where their return on investment is greater. The jobless population will find new skills that are in demand and will pay better. Businesses will decrease production of goods that are in less demand, and increase production of those goods that increase profits. The motivator for every person is success. In a socialistic environment, there is no motivation besides avoiding success and reaping government subsidy.

So here is my question: If America travels down the road to wealth distribution, where will it end? How do we define wealth, or equality? Some families have three vehicles and others have none. Will excess vehicles be taken from the wealthy and given to those who must walk or use public transportation? That sounds extreme, but it is no different than Obama’s proposal. Taxing those individuals and small businesses with annual revenue greater than $250,000 may mean those individuals and businesses are unable to buy an extra vehicle. And the receivers of government help may then be able to purchase vehicles they otherwise couldn’t afford. There is simply no difference between the two scenarios.

What if we consider beauty as wealth? Surely, American society values beauty, we see that fact all around us. Will the government mar the faces of America’s “beautiful” to discourage success that may be derived or accelerated by those faces? Will the government pay for cosmetic procedures for the genetically unfortunate? And will fat be taken from America’s overweight, and put on the small population that metabolize food efficiently?

I know these ideas seem ludicrous. But it is imperative that Americans understand that people are equal in importance, and should have equal rights. That does not mean that all people are inherently equal. Some are fit to be teachers, others plumbers, yet others, CEOs. No one person is better than another. America has always prided itself as a melting pot. Socialism is simply an effort to make every person the same.

Wednesday, October 1, 2008

The Haves and the Have-Nots

In his book, “The World Is Curved: Hidden Dangers To The Global Economy”, author David Smick proposes that our global economy has grown past any one government’s ability to manipulate it or even rescue it. He believes that the delinquent actions of a very few on Wall Street has created a “class-warfare” mentality. A class of people whose entrepreneurial or executive leadership skills command millions of dollars increasingly frustrates the proverbial have-nots.

The have-nots wield undeniable political strength. We have seen that demonstrated this week, when masses of Main Street constituents have pleaded for an alternative to the proposed $700 billion rescue plan. Our leaders are forced to choose between a looming economic collapse, and the responsibility to represent the people.

A class-warfare mentality could prove devastating to our economy if it leaks into legislation.

Smick writes:

Total wealth in an economy involves more than compiling a list of a country’s physical and financial assets. Wealth involves intangible assets such as property rights, an honest and efficient judicial system backed by the rule of law, a workable government, an appreciation for and nurturing of human capital…. In other words, intangible assets include something as simple as a society’s tolerance for successful risk-takers becoming rich…. That is why tinkering with this new global system to make it seem fairer, or to use confiscatory taxation to try to create a feeling of a greater security for society in general carries with it the potential to produce unintended consequences. (85,86)

In other words, Smick fears that, in an effort to create an environment of monetary fairness and to dismantle a growing hatred towards the elite, government may feel compelled to pass legislation that would inhibit the entrepreneurial class that drives our economy. Such legislation may come in the form of additional taxation or barriers to funding ventures. Doing so would cause people in the U.S. and other countries to look elsewhere as a base for new operations, improving foreign economies while shrinking our own.

Which brings me to my chief concern with our current financial predicament. Between Wall Street and Main Street lies a gorge of ignorance. Every year high schools across America send their graduated youth into the work world with a handshake and a pat on the back. These graduates (of which I was formerly a member) know nothing of balancing a checkbook or creating a budget. They have been given no real-world advice on how to plan for retirement, or how to use investment instruments to send their kids to college. The average American has little or no savings, is laden with debt, and is envious and misunderstanding of those who seem out of touch with their plight. We are all quick to blame the “Wall Street fat cats” who have created bundles of toxic debt and spread them around the world’s economies. But we have yet to blame ourselves for purchasing homes and cars we cannot afford, or force-financing them through unconventional means (ie, ARM loans). Someone else is always to blame.

Sure, our economy needs additional injections of liquidity, and a restoration of confidence. Sure, nobody knows how to truly accomplish the latter. But looking at the long term, I believe enhanced financial education for our young adults will not only allow future generations to become better spenders, savers and investors, but I believe it will also allow the entrepreneurial spirit to continue to build wealth for Americans of every class.