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The Hands that Prosper

From my article in American Thinker, Everything that Counts


When Piketty suggests that we tax the wealth of the richest, exactly what does he think will happen to it?  The government will spend it – but on what?  Does he think that some politically motivated bureaucrat will allocate that capital to a more socially useful purpose than Warren Buffett would?  In which hands would that capital seek growth and job creation?  In which hands will it most likely pay farmers not to grow, and workers not to work?

Our safety net succeeds in eliminating the crushing poverty known by the third world.  Our challenge is to avoid replacement of the soul-deprivation of numbing poverty with the soul-deprivation of dependency.  Our biggest problem with the health of the poor in America is not starvation, but obesity.  As Paul Ryan framed it, we do not want to turn the safety net into a hammock.

Wealth more often dissipates in a few generations and moves to stronger hands.  Dynasties are rare; most fortunes are lost in a few generations.  We do not really need centrally planned redistribution; this problem generally takes care of itself when capital deployment is subject to competition and human frailties.  Inequality is a natural outcome of the competitive allocation of capital, and we are all better-served when capital is in strong hands and deployed wisely.  Rarely are those hands attached to the long arms of the government.

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Inequality vs Mobility

From my article in American Thinker, Everything that Counts:

Vast inequalities may harbor the potential for social unrest, but that is muted by social mobility.  Oprah and Andre Young (Dr. Dre) may have been born in poverty, but that has not kept them from rising to the top one tenth of one percent.  Here is a defining question: did the dramatic rise in the fortunes of Dr. Dre and Oprah increase or decrease inequality as a whole?

Here is the central problem with Piketty’s task: the data on inequality measures categories, not individuals.

Individuals rise and fall among categories, often taking leaps as luck and talent unfold.  Oprah’s success increases inequality, but her success also demonstrates an increase in mobility.  Individuals may buy a lottery ticket knowing that the odds are against them if they know that their opportunity is equal to other lottery ticket buyers.  They will be less likely to buy a ticket if they think the game is rigged (i.e., crony capitalism).  For many, the mobility and the equality of opportunity are most important.  We hold no grudge against the winner, because we understand that the winner could be we.

While Piketty reviews a history of inequality, we should realize that the inequality of the feudal society of the middle ages, where force kept the poor in a lifetime of poverty, is vastly different from the inequality from a system where innovations spur spectacular success, while benefiting large proportions of other people.  Does anybody with an iPhone hold a grudge against Steve Jobs and his billions of dollars of wealth, or the wealth of Sergi Brin of Google?

All inequality is not equal.

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Detroit’s Suicide


There are many who blame the woes of Detroit on the decline in the auto industry, but the auto industry did not decline- it just moved.  Paul Krugman passes the decline off to the normal creative destruction of capitalist progress.  Bullshit, again.  A small businessman who used to be in Detroit explains the decline very clearly.

Don Wilkie writes in American Thinker, How Detroit Almost Killed My Business.


As mentioned earlier, when I left Detroit I had 20 employees.  But, 10 years earlier I had 5 employees.  As the business grew I had to hire more people.  As it turned out, to get one good employee, I had to hire about 8.  So to get an additional 15 people, I had to hire over ten years approximately 120 people.  This is when doing business in Detroit really started to get expensive.

When an employee left my employ, whether by quitting or being fired, they immediately went to the Unemployment Office where they were given unemployment payments.  Employers such as me went to great lengths to make sure that if someone was fired it was for a good documentable reason, in an effort to avoid having to pay for unemployment.  In practice, that didn’t matter too much.  The likelihood that the State would grant benefits was extremely high, maybe 80%.  If you protested you had to appear before a state “referee,” who was, unsurprisingly, very biased in favor of the claimant.

But as bad as unemployment costs got, they were nothing compared to Workman’s Compensation.  Here is the way the game was played:  If you were on unemployment it was understood that you were “ready, willing and able” to work. If you were on Workman’s Compensation it meant you were injured and could not work.  So, an employee always went for Unemployment benefits first and when they ran out, suddenly discovered that he was injured, usually with a bad back.  In Detroit, an employer almost never won a Comp case.

After a period of time, my insurance company put me in what was called the “Assigned Risk” pool.  What that meant in practice was that my Workman’s Compensation insurance costs doubled overnight.  Every new employee hired became a huge financial burden not in terms of wages but in terms of Unemployment and Workman’s Comp costs.

But perhaps the scariest thing that could happen to an employer was being summoned in front of the Civil Rights Commission, to face charges of “Wrongful Discharge.” Here you had to prove a negative, that you did not violate someone’s rights.  This happened to me three times.  If the Commission determined you were guilty, which were two out of three for me, the remedy was to pay all of an employee’s wages from the time he was separated from your employ to the time of the Commission’s finding.  Since the system moved very slowly, an employer could be faced with paying as much as two years’ salary.

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One does not have to travel far to find these similar problems in many other locations.  It is having a chilling effect on business start ups and employment nationwide.  Detroit just took it to a slightly more ludicrous extreme and it has been going on longer than other locations.  It is a test tube of disastrous progressive policies, economic naivete, political corruption, and the subjugation of any accountability to fears of being called racist.

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The Tools of Capitalism

George Gilder in The New Edition of Wealth and Poverty made an interesting observation that capital is the tool of capitalism like books are the tools of the intellectuals and academics.  This analogy led me to my article in American Thinker Craftsmen of Capital published on 9/29/12.  (I submitted it as Capital Craftsmen.  I like their title better.)


Capital is the tool of the capitalists.  Those who create it know far better how to deploy it than those who seek to expropriate it in the name of fairness, social justice, or whatever other rationalization the intellectuals and elites may conjure.  Just as the craftsman learned through trial and error, so does the capitalist.  Failure is part of the process.

As George Gilder so profoundly noted in his new edition of Wealth and Poverty, capitalism works best when knowledge is matched with power.  When knowledge and power are matched, we get iPhones, Apples, Microsofts, Amazons, the vaccine to eliminate cervical cancer, J.K. Rowling’s Harry Potter books, Facebooks, and Googles.  When political power is exercised without knowledge or in place of knowledge, Gilder’s definition of regulation, we end up with Solyndras, a collapsed housing market, and dozens of financial regulatory agencies that were unable to stop the worst financial collapse in eighty years.

Warren Buffett may be willing to pay more taxes, though he apparently is not willing to do so voluntarily, as Mitt Romney did.  But the critical question is not how much the wealthy are able or willing to pay, but where the capital will generate the greatest economic growth.  Capital is a tool that, in the hands of Buffett and other capitalists like him, has generated billions of dollars of wealth, jobs, and tax revenues.

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Unfortunately, thought provoking philosophers are rarely heard on the campaign trail.  Coverage is directed to emotional juveniles and political campaign as a performance art.  It does no good to complain about poll sampling and media bias.  The champion of our free market must connect philosophical truths to the masses at an emotional level.  The takes an extraordinary communicator.  It remains to be seen if Romney and Ryan are up to the task.

Wealth an Poverty was written on the eve of the Reagan Revolution, the supply side tax cuts and the 25 year economic resurgence from the stagnation of the 1970′s, from Nixon through Carter.  Gilder added 40,000 words to this edition but the core was written over thirty years ago and remains pertinent.  Gilder raises better answers by raising better questions.  I have posted several excerpts from his book on this blog and you can access them with the search feature above to the right.

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The Other Side of Government Help

From my recent post in American Thinker, What Government Really Does for My Business, 7/17/12

These are just the recent additions to decades of regulations that have chiseled away at company profits and potential for decades.  “Every snowflake pleads innocent, but it is still an avalanche.”  As bad as this economy is now,  image how much worse it would have been had this administration had its way in passing the Card Check bill and the disastrous Cap and Trade bill.

We are fully aware of the benefits of a government to provide a secure environment to grow, and the infrastructure to move our products. But those in business are also keenly aware of the ever increasing burdens inflicted on those businesses by poorly thought out, never ending, always changing regulations and mandates.  You can’t brag on the benefits without accepting responsibility for the burdens.

The greater debt is owed by the president and his leviathan government to the taxpayers and businesses who fund his endless golf outings, Michelle’s expensive vacations, and the utopian statist nightmare he has foisted on us.

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