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.