Is Wealth Zero Sum -- Revisited

There seems to be a whole group of people who view wealth not as an abstraction or even in terms of tangible goods, but solely in terms of “currency” with a sub-text regarding the inequities of wealth distribution. It is this idea that wealth should be shared and that all wealth has been gained at the expense of others, that seems to be the foundation of the “Occupy Wall Street” movement as well the anti-capitalism forces found in academia today. Even the academics and social philosophers admit that wealth can be created and destroyed so they restrict their arguments to currency – usually in dollars and Euros but the argument can be applied to any form of fiat currency. But perhaps the best illustration of this view of wealth is to use art as an example. For example many of Van Gogh’s paintings initially sold for tens of dollars and that same painting today is worth millions, but was wealth created? The value increased but not because of any tangible change, only the demand increased and even that value is not realized until the painting is resold at its greater value. This illustration can be applied to stocks, bonds, or virtually any form of investment. Certainly there was no creation of wealth only a change in demand and the value of the investment as a result of the demand. The point is that when a country prints more currency it is not creating more wealth until that currency is exchanged for some tangible gain or goods, but the law of supply and demand remains. So no wealth is created by increasing the supply of currency but that doesn’t mean that the sum of wealth is finite, it just means the supply may exceed the demand at that specific point in time. For some inexplicable reason some argue that wealth – in terms of currency – is zero sum because printing more money doesn’t create more wealth. Taken at face value that is probably true but only if the law of supply and demand is suspended or held static. That means the value of some tangible asset will be increased because the supply of currency has exceeded the demand – momentarily. Those that subscribe to this fallacious argument then claim the economic policies of a country allow for some to become very rich while some become poverty stricken. Of course this is the very foundation of capitalism because as an economic philosophy it allows for the unequal distribution of wealth. The unasked question of course is how did the rich become rich and how did the poor become poor. Furthermore, how is rich defined and how is poor defined. The reality is that some have taken advantage of the opportunities presented by capitalism while others have expected to be taken care of – by the government, which is the very foundation of socialism and communism. The argument then shifts to the belief – not fact – that the wealth being created in a capitalist society by entrepreneurs, employers, and individuals is not shared or returned to society as a whole. This is a fallacious argument because those individuals with the greatest wealth pay the most in taxes while those with the least wealth pay little or even no taxes at all. It is the taxes of the wealthiest that pay for defense, for roads, for environmental control, energy, and all of the services provided by the government. Does capitalism permit inequality in wealth? Certainly it does, but it also provides equal opportunity for the individual to become wealthy while those who choose not to take advantage of those opportunities remain at a lower income level. I submit that wealth is NOT zero sum and that wealth can be and is being created daily, but that wealth creation is not the result of an increased supply of currency. To equate global wealth in term of currency is a specious argument because the demand for currency is elastic. This means that the total global wealth will wax and wane determined by the law of supply and demand. Therefore, those arguments regarding the inequality of wealth distribution have nothing whatsoever to do with wealth being finite. They are simply a philosophy that believes that wealth should be shared through governmental force, even though this philosophy has failed in every instance that it has been tried. The result has universally been universal poverty for the masses and even greater privileges and wealth for the elites.

Musings on a Wednesday

So many things astonished me today – not because I was surprised at them but because I was so accurate in the expectation of their occurrence. But before I launch into that discussion perhaps we should review the liberal establishment in general. The most basic thing about the liberal establishment is that they love people and want to help them no matter how much they hurt them. Take the black community for example. Under Jim Crow they had intact families and a cohesive community. While this isn’t a plea to return to segregation, the reality is that the death of Jim Crow brought white guilt to the surface. Suddenly we had affirmative action, busing, handouts, and government programs aimed at redressing past wrongs. Then the professional racists like Jesse Jackson emerged along with the Reverend Wright who saw racism in any attempt to enforce the law or expect civil behavior – the result has been a generation dependent on welfare and government handouts along with the demise of the nuclear black family and a cohesive community. The liberal community continues to fight poverty and injustice within the black community no matter how morally destructive their solutions are, because they are convinced they are right. Now we have the Occupy Wall Street movement, endorsed by the liberal community in the form of the President, Nancy Pelosi, the SEISU, Acorn (under various names), and of course George Soros. On May day – the International Communist Holiday – the OWS die hards were out once again – rioting, destroying property, but only on the bastions of liberalism on the West Coast and of course NYC. The turnout was pathetically small but the participants – when interviewed for TV – demonstrated such ignorance of even basic economics that it was astonishing. One young man – representative of them all – came down squarely against any idea of personal responsibility. He wasn’t actually against capitalism because it wasn’t clear that he even understood the term, but he was for government programs. He felt the government should give “free stuff” like food, shelter, healthcare, and “other stuff”. Nothing was mentioned about employment or who was going to pay for all of this stuff – it was the government’s responsibility to just give this “stuff” to the people. This really demonstrates the essential liberal philosophy which is that the government should take care of all people and that the rich should be forced to share their wealth through confiscatory taxes. The of course we have that genius in the White House who has just committed $2B to Afghanistan even though that country is a country in name only and one of the most corrupt in the world. He has just announced his campaign slogan of FORWARD which I presume is intended to prevent people to look backward and to evaluate his track record. That track record is littered with broken promises, unfulfilled promises, and failures. This is a president whose track record is even more pathetic than Jimmy Carter’s. It was easy to predict that he would ignore his track record and simply promise to do better while his opponent will undo all of the giveaway programs and entitlements. The only surprise was that he didn’t blame George Bush as part of his campaign.

The Chinese Bubble

The socialists and communists never seem to learn that central planning and government control is a failure, is expensive, and never seems to accomplish any of their objectives. Currently the feeling seems to be that China (formerly known by the politically incorrect but accurate title – The People’s Republic of China) is taking over the world. Everything seems to be made in China and the PRC seems impervious to the economic woes of the world. But is this real? Is the PRC the economic success that they want you to believe or are they practicing the tried and true strategy of the USSR, which is that if you say it’s true then it must be true?

It is important to understand that there is no private capital in the PRC and that everything is controlled by the government. This means that all new construction, production volumes, and imports are strictly controlled and subsidized by the government. Given this strict control and oversight by the government the PRC must be a booming success but alas – it is looking more and more like the PRC may have created a bubble that is nearing a tipping point.

The Central Planning philosophy seems to be “if you build it they will come”. Meaning that if you build a mall or apartment complex the consumption will follow which has left the government holding empty buildings, empty malls, and ongoing construction projects which will yield even more empty buildings and malls. You must remember the bedrock philosophy of socialism is employment not efficiency so the harsh rules of capitalist supply and demand are ignored and not viewed as relevant. The result is that there is a housing glut with substantially more housing available that is needed, but that really only applies to the coastal region. The interior of China continues to be rural with a standard of living equivalent to most third world countries.

But this problem of excess capacity isn’t limited to housing but is prevalent in manufacturing as well. Chinese manufacturers continue pumping out huge amounts of steel, cement, aluminum, and other products to the point that it is unlikely the economy can absorb the output. When the world economy took a down turn China did not cut back but continued churning out massive amounts of product. Now the world economy has cut back and the domestic Chinese market cannot absorb the surplus. In a capitalist economy the individual businesses would simply reduce output, eliminate inefficiencies, and reduce headcount but these solutions are not possible with central planning, because employment is the objective. Furthermore, Chinese industry is heavily subsidized and relies strongly on imported raw materials. The pressure on the Chinese government is tremendous and the question is – how long can they maintain this drain on their economy?