Monday, May 25, 2009

Wealth is for the Wealthy

There is a prevailing issue in our American idea of wealth, and i don't know where we went wrong.
Somewhere along the way we have gotten this idea that, if someone is wealthy its because they have taken things away from the rest of us. This is almost entirely false.
Sure there are nasty people who create pyramid schemes, and there are thieves. But the prevailing majority of the wealthy are that way for a good reason. These people are the people who pinch their pennies and work really hard. These people are people who didn't allow themselves to get into debt. This allows them to save their money and invest, instead of making payments and staying behind. These people made sacrifices, like comfort and having brand new things.
This leads me to a question for all Americans; do we believe that someone who works hard to earn their living and lives frugally should be aloud to keep accumulated wealth? I say duh, but many of us are inclined to say no. Why is that you say? Because we have this idea that wealth is finite. We think of it like rare baseball cards, there are only so many Babe Ruth cards in circulation. This is what gives those cards their value. This is not how wealth works.

There are a specific number of dollars in circulation yes, but there is not a limited amount of value in this world. The saying "it takes money to make money," is right on. When an entrepreneur opens a business it takes money. They might have saved up for it, or they might have taken out a loan. Either way it took money to make money.

This is where understanding wealth gets exciting. When resources are correctly used to meet a demand with a supply, when that balance is achieved, you end up with more value that you started with. This will be better explained with an example. Lets say i have saved up enough money to open a coffee shop. Lets say it cost me $250,000 to start the coffee shop.
After six months of booming business i break even, because people love my coffee that much. Two years later my coffee shop is bringing in $400,000 a year in net income. Now the question is asked how much can i sell this business for? Well it depends on who would be buying it from me, but chances are i can make a sale at $1,000,000.(These numbers are completely for example are are not intended to resemble a coffee shops real monetary values.) Now if you consider my initial investment of $250,000, and the sale of the coffee shop at $1,000,000. I have a gain of $750,000, that is delicious profit my friends.

Not only did i come out on top, but the surrounding community did also. Now they have high quality coffee to drink at reasonable prices. Because of this they were able to focus on their work better than before and are more productive. Each individual who is a regular to this coffee shop also enjoys the friendly greeting from the baristas making their coffee. Then thay start their work day in a good mood which also helps them get more work done in less time, then they have a sense of pride in their accomplishment.(I might be getting a little carried away, but its possible.) All this to say that each individual customer that is effected positively creates more value because of the good or service. This community therefore has more value, and the standard of living goes up. This is an example on how wealth encourages more wealth. Another valid point to observe is all the employees of the coffee shop, now they are making radical lattes and white mocha frappachinos. Before this there was no job for them, now they can earn a living. Their income will now get spent in that community and pay local taxes for schools and roads... and so on

I hate/love to point this out but when government creates jobs they don't create wealth 99% of the time. Some of their jobs are necessary, some could be done by private companies. Here is the main reason, these jobs are not run efficiently because the "owner" is not footing the bill, the people are, you and I. There is no incentive for those jobs to be economical, because there is no competition. For an owner of a business who doesn't have to pay the bills, why would he search for the best price on materials. Why would he require a level of excellence from his employees. Their is no incentive, and our entire system is built on incentive. Socialism has no incentive, everyone remember the USSR and how high quality all their buildings and equipment were? Nothing but the best(little sarcasm) things falling apart and exploding left and right. That was socialism my friends. Government run anything ultimately is inefficient, look at the railroads, and the education system that has mysteriously lost millions over that last few years.
The reasons are the tax payers(that's us) are paying, and the government has no incentive.

So to the strange ones out there who would prefer the government taxes them 80% and then acts in their best interests, you should know the best interests of the government is to let the wealthy keep their wealth. Because that will grow the GDP and the standard of living for all of America. A growing desire to live off of the state was a chief reason the Roman empire fell.
Would you rather not have to make any decisions, or would you like to live somewhere things are growing? How nice would it be to turn on the TV today and hear "the American economy is booming as usual!"

Let the wealthy keep their wealth, it does not belong to us. Redistribution of wealth = stealing.
This leads to the death of capitalism, so keep her alive, thrive, incentivise.

3 comments:

  1. Interesting post...I'm currently reading a lot by Cornel West, who is not an economist, but would have much, I think, to say in regard to your ideas. At the risk of putting words in someone else's mouth: 1) the idea of investing a given amount -- say the $250K you've mentioned -- to start your own business is only a goal capable of being reached by a small percentage of Americans, mainly because the lower class doesn't have the skills set to get the necessary capital to accomplish this; but 2) I completely agree with your assessment that the government isn't the solution. At the same time, the government is perhaps the only available option for the millions of people at the lower end of the economic spectrum to get the help they need (thru education, government loans, etc.) to obtain those skills, but of course, the government can never provide the necessary motivation to accomplish this...hence, the Catch-22 we find ourselves in...

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  2. Yeah John, i know what you mean. It's not easy, the point i was trying to make is that wealthy citizens create more wealth. The government has to use money they get from the citizens by taxes to do anything. That money would be better invested and used to create wealth by those who earned it in the first place. The government tends to squander things, and hinder growth.
    At the same time many of us would not be as educated without public education and some of the government programs we are used to.

    You brought up another great point, that the people also need the required skill set and capital, which requires education and experience, wisdom and savy. Politicians are just politicians not businessmen, they understand business about 1% of the time. So why trust them with business decisions.

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  3. Interesting...with regard to politicians (and bureaucrats, of which, in a sense, I am one working for state government) couldn't agree more...but it's fascinating to me -- truly -- that so much of what's in the 'conservative' media right now attempts to vilify Obama and his attempts, in the conservative media's description, at 'redistribution of wealth.' We already have redistribution of wealth -- that's what taxes are...and yet, somehow, we don't think of this as being the same thing. I'm about to blog about it myself, but keep on writing' -- I'm really interested to keep reading here!

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