Wednesday, May 29, 2013

What are the rich good for?

Why do we allow rich people to control such a disproportiate share of the wealth of our nation? Shouldn’t we tax all income in excess of $100,000 at 100% and confiscate all wealth in excess of $1 million in order to distribute it to more deserving people and promote the general (as opposed to the selfish) welfare?
Let’s try to answer that question by starting with another question, to wit: What do rich people do with their money?
Well, first of course, they buy lots of Dom Perignon champagne, by the case, the tank or the acre-foot; after all, they have to bathe in something. But after buying enough Dom Perignon to maintain adequate hygiene, enough private jets to have access to adequate shopping and enough mansions to get an adequate night’s sleep, even the richest among us come to a point where they have to do something to replenish the coffers, lest the good times come to an abrupt end. In a feudal system, the solution is simple; exact more tribute from the serfs that you own. In a crony-capitalist system, you may exact more favorable legislation, ‘loans’ and grants from the politicians that you own. But in a system where the lowliest of citizens has private property rights and is protected by a Bill of Rights, the meddling with which is further constrained by a Constitution, the problem is a bit more complicated. A rich person who wants to stay rich in a free, capitalist market is obliged to undertake some project that can turn an honest profit.
And so rich people tend to do a lot of investing and speculating in greater proportion to the rest of us who work for a living. The rich person buys stocks, bonds, mutual funds, puts, calls, offshore trusts and other instruments and generally bets on which way the market is likely to go, or which companies are doing the best job of meeting the most urgent needs of consumers, while keeping employees and other stockholders reasonably satisfied. In short, the rich person (or any other person, for that matter) who wishes to stay (or become) rich in an uncorrupted, free-market capitalist society, is obliged to perform a socially useful service, or lose his/her wealth and status to those who do it better. He or she must put some portion of his or her wealth at risk of loss, with no guarantee of success or profits, the immediate consequences of which is the hiring of employees at wages and conditions sufficient to persuade them to forego other alternatives, and the production of products and services that meet someone’s urgent needs.
The fact is, the original question is wrong. We do not have permanent classes of rich and poor people in the United States, as is the case in many other parts of the world, sometimes by law. No other country in the history of the world has had such social mobility as the United States. American individuals pegged in various categories or percentage rankings in terms of their wealth or income, move in and out of those levels over the course of their lives. People tend to earn less money when they are young than when they are experienced. People of modest means who sell a house after 30 years of making mortgage payments may have a one-year blip on their income radar that makes them look ‘rich’ on one year’s tax return. But one-time blips are a far cry from permanent status. Quote Thomas Sowell: “More than half the people in the top one percent in income in 1996 were no longer at that level in 2005. Among those in the top one-hundredth of one percent in income in 1996, three quarters were no longer at that level in 2005”. Wealth (and poverty) categories and individual people are entirely different things, though the one frequently gets talked about as if it were the other. Which suggests that there is no economic or moral justification for targeting the ‘rich’ for special attention, higher tax rates or other discrimination and control. Citizen-voters should be as suspicious of legislative initiatives to soak the rich as they are of those which shield establish interests from competition, i.e. protect the rich as they are.
The ‘rich’ don’t exist as they are portrayed in the media and by the political Left, and don’t control anything permanently. And in a free society under the constitutional rule of law, that is as it should be.