FPC Blog


Why Wealth Bashing? – Financial Policy Council

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It is an oft-repeated axiom that a person can learn a whole lot about a society by how it treats its poor; but just as much may be learned by looking at how that same society treats its rich. Indeed, the economic future of the poor—and our nation—will be determined in the coming decades by how we treat the people in this country who create great wealth. It will be determined by our understanding of the so-called rich and by our need to foster and protect this minority of true wealth creators.

It is an unpopular thing to say, I know. Rich people need help? Rich people need to be protected? Rich people a minority? “Give me a break,” people say. “They just seem to keep getting richer!”

I am talking here about the entrepreneur who risks all of the capital he can muster from his family and friends to build a company that fills an underserved niche in the market, provides a needed service, or develops a new technology. These are the people the plundering bureaucrats and career politicians have deemed “the rich.” These are the people they have targeted for appropriation to support their unsustainable way of life.

In their narrow view of the world, rich people become “rich” by either inheriting their money or appropriating wealth through manipulation of the system with their cronies, or are self-made entrepreneurs.

The first group is so small that they don’t really matter. The second group is easy for the bureaucrats to intimidate and the politicians to plunder with ever-widening regulations and more oppressive oversight; but, again, there are not that many people who fall into the crony-capitalist category. The overwhelming majority of people I refer to as “the rich” are independent-minded, maverick entrepreneurs and business owners who risk their own capital, sweat, and tears to provide a good or service of value to the world around them.

Regrettably, too many Americans, and far too many of the intellectuals and politicians, understand neither these people we call “the rich” nor the methods they have used to become rich in the first place. Did hedge fund managers and investment bankers game the system and walk off with a lot of money? Yes. But, again, having a lot of money no more makes you rich than growing up next door to the Greenwich Country Club gives you class. The rich are people like Bill Gates, Warren Buffett, Larry Page and Sergey Brin, and Michael Dell. They have provided value to the world and been rewarded for their efforts. They also know, better than the federal government, how they should best utilize that wealth.

Most people don’t think they actually know anyone who is truly rich. Not really. They experience them in the abstract, through magazine articles, newspaper stories, or Lifestyles of the Rich and Famous clips. They catch a glimpse into their psyches through statements they make in the media or interpretations of their latest business maneuver. They try to quantify their importance in their own lives by studying policy statements and annual reports or poring over ratings and statistics that rank their net worth and their influence; but the study and the analysis is always through the prism of someone else’s ideological lens. In that respect, our opinions about the rich are a sort of societal inkblot test, revealing more about ourselves than anything else. Our analysis of the raw data confirms our deeply held notions about the rich and, in the end, has more to do with our views on capitalism itself.

Those who are vested in the philosophy of the Left, believing capitalism creates unfair outcomes, have statistics to confirm their outlook. It seems absurd on its face that the top 1 percent of American families control 90 percent of the nation’s wealth. Wouldn’t it be possible, they ask, to contrive an economy that is just as prosperous but with a fairer distribution of wealth? Couldn’t we cap the earnings of the rich at $50 million? Or even $100 million? The defenders of capitalism and free markets on the Right say “no.” They contend that the bizarre inequalities we see are an indispensable part of the processes that create wealth. They imply that capitalism doesn’t make sense, morally or rationally, but it does make wealth. So don’t knock it, they say.

What nonsense! It has very little to do with the reality of the rich. It is really quite sad that defenders of the rich or even the rich themselves can’t come up with a better economic or moral case! Quoting Adam Smith and supply side economists just doesn’t cut it. American novelist and homespun philosopher Mark Twain reportedly noted that a person can lie with the numbers but the numbers don’t lie. The rich have most of the money. That’s why they are called “the rich.”

So who are the rich?

To begin with, you probably won’t find many rich people in the Who’s Who or Most Likely to Succeed lists compiled during their high school or college days. They probably didn’t get the highest SAT or ACT scores in high school, and they probably weren’t considered a member of the popular clique by their classmates. They are certainly not the best looking, and they probably didn’t get where they got through the force of their personalities, charisma, or celebrity. A great number of the richest among us never finished high school, and many who did manage to get into college never graduated. That’s because the rich in this country are chosen not by blood, credentials, education, or service to the establishment. The rich become rich based on their performance and their relentless desire to serve the customer. The entrepreneurial knowledge that is the crux of wealth creation has little to do with glamorous work or with the certified expertise of advanced degrees.

Great wealth rarely comes from speculating and creating nothing. The John Paulsons of the world are a very small and very lucky group. Most major wealth creation comes from doing what other people consider insufferably boring: navigating the tedious intricacies of software languages, designing more efficient garbage collection routes, or designing a system for stocking fresh products on the shelves in grocery stores is not glamorous. These people don’t immediately conjure images of mansions, limousines, and vacations in the hottest spots of the world in Gstaad, Monte Carlo, or Cabo San Lucas.

Improving the speed and efficiency of butchering livestock, customizing insurance policies, or tramping the wilderness in search of petroleum leases seem far removed from the glamorous life. Memorizing building codes, speeding up the delivery of a hot pizza, or hawking pet supplies all seem like mundane and tedious tasks, but these are all paths that individuals have taken up the mountain of accumulating wealth in America. In short, America’s best entrepreneurs usually perform work that others overlook or spurn. They do it better, faster, and at a better price than the competition. For that, they become the rich.

Because these men and women often overthrow rather than embrace established norms, the richest among us are usually considered rebels and outsiders. Often, they come from places like Omaha, Nebraska; Blackfoot, Idaho; or Mission Hills, Kansas—places usually mentioned in New York either with a condescending smirk or as the punch line of a comedy routine. From Henry Ford to Apple cofounder Steve Wozniak, much of America’s greatest wealth creators began in the “skunk works” of their trades, with their hands on the intricate machinery that would determine the fate of their companies. Bill Gates began by mastering the tedious intricacies of programming languages. Sam Walton began with a nickel-and-dime Ben Franklin variety store in Newport, Arkansas. Larry Page became the first kid in his elementary school to turn in an assignment from a word processor because his parents were both computer science professors at Michigan State University. Familiarity with the core material, the grit and grease, the petty tedium of their businesses liberates entrepreneurs from the grip of conventional methods and gives them the insight and confidence to turn their industries in new directions.

The truth is that great wealth is often created by the launching of great surprises, not by the launching of great enterprises. Unpredictability is a fundamental part of great wealth creation, and, as such, it defies every econometric model or centralized planner’s vision. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the fraternity of their peers. By their very definition, innovations cannot be planned.

From the outside looking in, one would assume that once wealth is acquired, life becomes one endless vacation full of idle play and relaxation. One would be quite wrong. The richest among us are faced with another equally daunting task once they have accumulated great wealth. Just as a pot of honey attracts flies as well as bears, it doesn’t take long for a seemingly endless stream of bureaucrats, politicians, raiders, robbers, relatives, short-sellers, long talkers, managers, missionaries, and manipulators to come calling. They all have this strange notion that they can spend your money better than you can and are somehow entitled to a portion of your money for granting you the privilege of their expertise. They are, for the most part, leeches, con artists, and moochers.

Leading entrepreneurs in general consume only a tiny portion of their holdings. They are often owners and investors. As owners, they are initially damaged the most by mismanagement or exploitation or waste of their wealth. Only the person who created the wealth has a true appreciation of its value and what it represents. As companies such as Oracle, Lotus, and Google have discovered, a software or tech stock can lose most of its worth in minutes if fashions shift or investors question management decisions.

A Harvard Business School study recently showed that even when you put “professional management” at the helm of great wealth, value is likely to grow less rapidly than if you give owners the real control. A manager of Google might benefit from turning it into his own special preserve, making self-indulgent “investments” in company planes or favored foundations that are in fact his own disguised consumption. It is only Sergey Brin and Larry Page who would see their respective wealth drop catastrophically if they began to focus less on their customers than on their own consumption. The key to their
great wealth is their resolution not to spend or abandon it, but to continue using it in the service of others. They are as much the servants to as the masters of Google.

This is the other secret of the richest among us and of capitalism itself. Under capitalism, wealth is less a stock of goods than a flow of ideas. Economist Joseph Schumpeter set the basic parameters when he declared capitalism “a form of change” that “never can be stationary.”

The landscape of capitalism may seem solid and settled and ready for seizure, but capitalism is really a mindscape. Volatile and shifting ideas, and the human beings behind them, are the source of our nation’s wealth, not heavy and entrenched establishments. There is no tax web or bureaucratic net that can catch the fleeting thoughts of the greatest entrepreneurs of our past or our future.

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