Tuesday, September 24, 2013

Wealth and Poverty by George Gilder

I am on a George Gilder kick, so I had to read his most well-known book, Wealth and Poverty. He does not disappoint. Gilder makes the MORAL argument for capitalism. He states in the very beginning, “No nation can grow and adapt to change except to the extent that it is capitalistic, except to the extent, in other words, that its productive wealth is diversely controlled and can be freely risked in new causes, flexibly applied to new purposes, steadily transformed into new shapes and systems.”

He starts with the axiom that another’s fortune is ultimately everyone’s fortune. This idea does not arise naturally in man, but his book sets out to prove it. Because capitalism depends on a mutually beneficial transaction, one cannot benefit without another benefitting as well. Therefore, the success of capitalism begins with the desire to please another. It begins with giving. A man gives his time, his sweat, his ingenuity, his resources, hoping his risk will lead to another finding the resultant product desirable and therefore, he himself will ultimately benefit as well. The man invests in the future and the unknown for future gains. The collectivist remains mired in the past and “certainty.”

The nature of wealth is largely misunderstood. Wealth is not dollars or money, but is “assets that promise a future stream of income.” Money can be and is squandered with nothing to show for it. Wealth accumulates and promises future returns. This is why, usually in America, the rich themselves do not get richer. Rather someone willing to take a risk and bet on the future will pass the already rich in wealth. This leads to the false illusion that the already rich getting richer. Rather, those with ingenuity and the ability to create wealth surpass the already rich. True wealth resides in an adaptable, compelling, and flexible mind. But a capable and innovative mind often needs money invested in his ideas. This is the role of the already rich, who can only consume so much. They invest in the up-and-comers.

The nature of poverty is also misunderstood. Gilder states, “every successful ethnic group in our history rose up by working harder than other classes, in low-paid jobs, with a vanguard of men in entrepreneurial roles. But the current poor, so it is supposed, can leapfrog drudgery by education and credentials, or be led as a group from poverty, perhaps by welfare mothers trained for government jobs. These views depict the current poor as a race so alien to the entire American experience, so radically different in motive and character from whites, that one can speak in terms of a new form of bigotry.” Although he pulls back from actually calling liberals racist, he points out that they do have a different set of rules for how they see non-whites. But the truth is, whether white or black, “the ONLY dependable route from poverty is always work, family, and faith.”

In fact, what we often perceive as racism is actually a class clash. Many upper class people are reluctant to expose their children to lower-classes and their values. Because it is values that are the only way out of poverty, it is harmful to the poor to accept and pander to them, thus assigning “them to permanent poverty.” In pursuing egalitarianism programs like welfare, we promote the very things that destroy the work ethic, family connections, and faith necessary to escape poverty. Yet, some prefer keep alive the myth of racism as an explanation for poverty in order to stay in power.

Gilder believes, “There is something, evidently, in the human mind, even when carefully honed at Oxford or the Sorbonne, that hesitates to believe in capitalism: in the enriching mysteries of inequality, the inexhaustible mines of the division of labor, the multiplying miracles of market economics, the compounding gains from trade and property. It is far easier to see the masters of these works as evil, to hunt them as witches, favored by occult powers or Faustian links.” And this is why there is a never-ending, sometimes bloody, war on wealth. 

This war leads to liberal policies that hurt far more than they help. They create “moral hazard” which encourages the opposite behavior of what is desired. Unemployment insurance promotes unemployment, AFDC promotes fatherless families, Social Security discourages concern for the elderly and breaks generational links. In depriving poor families of the incentives necessary to promote wealth, we create people whose “response to this reality is that very combination of resignation and rage, escapism and violence, short horizons and promiscuous sexuality that characterizes everywhere the life of the poor.” The are not reflecting their economic conditions, but rather responding to liberal policies and incentives in a rational manner. Men in these circumstances have no reason to delay children and family until after they have faithfully gained the work ethic to support them. They have every financial incentive not to. Until we make work, family, and faith more rewarding than the dole, welfare and poverty will continue to explode.

Other pernicious idea also continue to keep lower classes from rising. We have focused too much on “discrimination” as a cause and have resorted to credentialing to combat it. Credentialing keeps competitors out of the labor market and therefore hurts the most vulnerable. We raise the minimum wage and keep huge segments of the labor market from finding a job. The high unemployment rate of young, black males bears out this truth. We task the government with “creating jobs” with make work programs that are often demoralizing and counter productive.

Often, we hear, “Tax the rich” as a way to take care of the poor. Here we see an especially negative effect. Taxing the rich will not affect their consumption. The truly rich actually consume very little of their wealth. Most invest the vast majority of it. Taxes come out of their investments, not their consumption. In fact, high taxes actually encourage consumption. After all, if the government is going to take it anyways, why not enjoy it and blow it on luxuries instead? In addition, the Laffer curve has shown that high taxes result in less monies collected overall. So the “Tax the rich” mantra is another liberal policy doing the opposite of what it purports to do.

To achieve a prosperous society, we must have a forward-looking economy of faith. “Socialist and totalitarian governments are doomed to support the past. Because creativity is unpredictable, it is also uncontrollable. If the politicians want to have central planning and command, they cannot have dynamism and life.” Creative dynamism, necessary to the health and wealth of a society, frightens those with a fear of the unknown. Risk cannot be negated in ever-changing growing economy. Government regulation agencies can only live in the past. Every new, unknown, unproven idea is discarded and unworkable when the rules of the past are applied to it. It’s why we don’t have the long-promised hovercrafts! How can that kind of innovation escape the myriad rules governing transportation?

“Liberals want wealth without the rich. Yet most real wealth originates in individual minds in unpredictable and uncontrollable ways. A successful economy depends on the proliferation of the rich, on creating a large class of risk-taking men who are willing to shun the easy channels of a comfortable life in order to create new enterprise, win huge profits, and invest them again.” Danger and uncertainty, risk, waste and inefficiency are the engines of prosperity and success. These very necessary elements to the human condition are what the liberals want to deny, suppress and plan away. They operate with jealousy and covetousness and want to take the wealth from the rich for their own purposes. 

He ends with, “At any time in human history, a rational calculus of our possibilities would lead to a prediction of doom. But over the millennia, the race has flourished. It has thrived, however, chiefly on one condition, on a cluster of conditions, combining faith and freedom with risk and work. It is chiefly when we give up on chance and providence, when we attempt to calculate and control our own destinies through ever greater regulation by a demiurgic state, that disaster occurs.”

Human creativity, unleashed, and in relationship with God, promoting the Biblical values of Charity, Faith, and Hope, is the greatest resource we have to achieve true prosperity for all. 

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