As for the essay, it’s literally incoherent. It continuously elides back and forth between two meanings of wealth which it, itself, claims to carefully distinguish. Just look at the very first quoted paragraph.
What does “it” refer to in the last sentence just quoted? Wealth in which sense? It has to be wealth in the “inventory” sense to have anything to do with any ongoing policy debate he’s addressing. But letting “wealth” mean [ithat* goes against what he just said in the prior sentence.
It’s classic equivocation of the most blatantly (self-)deceptive kind.
I haven’t dismissed anything. I just said I didn’t want to spend the time checking his statements to determine which are correct and which are religion. This guy has rejected an entire branch of science in favor of religion. And he’s not just a casual Creationist like my mother-- who is a Creationist because she’s not well educated and hasn’t thought it about much. This is a guy who studied evolution and rejected it in favor of religion, then spent considerable amount of time trying to convince other people.
That’s why the essay is wasted in the National Review. ‘Coals to Newcastle’, ‘Preaching to the converted’ - choose the most apt cliché. Now, had it been in the New York Times, well, then there could be a dialogue. Maybe.
What I was most interested in after reading the OP was how Gilder’s approach could help the poor rather than the billionaires.
I think Kimstu’s quote makes it clear that Gilder simply doesn’t care about the poor, since he considers them to be immoral.
Since what I’m looking for in an economic system is one that provides the greatest good, which includes helping the poor, I can’t really subscribe to his ideas. It’s certainly not something I would feel comfortable offering up as a way of understanding how I think.
One thing not mentioned in the piece, probably for good reason, is that much of the “wealth” created latterly has not consisted of any product - not a factory, not an idea, not a service; nothing but ‘speculation rewarded’. It is but somebody else’s money now yours (on paper, at least) and often really represents no more than the fruits of greed, and not innovation or change. I believe it is that type of wealth that will sow the seeds of capitalism’s destruction (if it hasn’t already).
Okay, let’s debate some of the actual content, since we’re getting reasonable questions about it.
For example, let’s examine this statement:
I will give you several examples of this. The first is Elon Musk. He made his (first) fortune by creating Paypal. Would anyone disagree with the statement that Paypal has been a general boon the economy? It has removed friction from internet transactions, helped to prevent fraud and keep companies on the straight and narrow. It’s given people a way to buy products without constantly compromising their financial security. It filled a tremendous need, and as a result Elon Musk got rich.
Because Musk was able to demonstrate that he had the capability of running a large technical organization, he managed to raise capital and use his own wealth to finance Tesla Motors, which was another company that took on a very difficult problem and succeeded at it to a greater extent than anyone had anticipated. The conventional wisdom on Tesla was that it was a crazy enterprise doomed from the start. It still has its challenges, but its relative success is largely credited to Musk - for his business skills, his engineering acumen, and his ability to inspire confidence in employees and customers.
Musk then traded on his reputation and invested more of his wealth in SpaceX. SpaceX was another extremely risky venture that many insiders felt was doomed from the start. There was no way he could compete with the big boys like Lockheed Martin or Arianespace, or United Launch Alliance. Not only that, but unlike other startups, SpaceX developed most of its hardware in-house: rocket engines, capsule, etc.
SpaceX has been incredibly successful. At the current rates it is offering for space launch it is saving the U.S. over $1 billion dollars per year in launch costs over the alternatives. It has been a strong contributor to the economy, hiring ex-NASA people as they have been laid off and creating many new jobs.
What would have happened if millionaires were taxed at 75%, as the socialists in France just did? Republicans would generally say that people like Musk wouldn’t have the incventive to do what they did. That’s partly true, but there’s another important effect that Gilder is talking about - a tax rate of 75% would take away 3/4 of Musk’s money, reducing his power and influence, and would hand it over to bureaucrats who haven’t proven they know what to do with it at all.
If the U.S. had a 75% tax rate on millionaires, there would likely be no Tesla Motors and no SpaceX. And the taxed money would have just vanished into the maw of Leviathan government. The U.S. would have been much worse off, but would never have known it because you can’t see the road not taken.
Musk’s story is played out on smaller scales a million times over in a capitalist economy. Most new businesses fail. The ones that succeed are often successful because the person running them is smarter or harder working than his competition. Or perhaps he was able to learn more from his failures, and leveraged that knowledge into success. So money flows to him, and he is then able to expand his business or invest in new businesses.
I could give you examples all day. James Cameron had to prove that he was a better than average filmmaker before he could get anyone to invest a lot of money in him. Then he made blockbuster films, and amassed a personal fortune. He is using that fortune and his knowledge and drive to build ocean exploration vehicles, fund environmental causes, invest in private space efforts, etc. The capital moved to the guy who had already demonstrated excellence at using it.
If you tax the rich, you move capital away from the people who have shown themselves to be good stewards of money, and you give it to people who haven’t. The economy suffers as a result.
Are there rich, spoiled trust-fund babies out there who will squander their wealth? Sure. There are also rich people who got lucky, or managed to be at the right place at the right time. But those people generally don’t hold on to their wealth anyway. If they don’t manage their wealth, it ultimately flows to people who will use it better. And their excesses are a drop in the bucket compared to the reinvestment of wealth that most rich people undertake.
Gilder’s point is that the left often just looks at the materialistic aspects of the economy. They see who’s currently got the money, and who doesn’t, and they think they can redistribute it to be more ‘fair’ without harm to the economy. But what you’re actually seeing is a snapshot in time of a dynamic process of capital movement. A capitalist economy is constantly churning, constantly testing the holders of wealth and power. As needs change and new information is discovered, the status quo comes under fire from competition, and either proves itself worthy of retaining the wealth, or it loses it. We all benefit from that process.
If you tax away the money every time it arrives in a big enough pile somewhere, you destroy the entire process.
Now, the article does not deal with it, but one can use some logic here, In Britain the rich have a higher tax rate than in the USA, If what it was said was truly accurate then England would be worse and totally destroyed the upper mobility of all.
What I think is happening is that even the poor have better opportunities thanks to the enhanced safety net many have over there, and that is obtained thanks to the taxation levels over there, that means that there are less risks involved in starting a small company, or indeed, one could find that people can surprise you and start a great enterprise with less things to worry.
Thanks to items like an enhanced social security and access to health care they even do not worry that mental health will not be available if in the attempt to be independent you hit a bad spot in your life, or/and on the way to becoming a billionaire, just ask JK Rowling.
Gigo: Does your cite count state income taxes, too? In CA the top rate is something like 11%, so that would put it pretty close to Britain if there isn’t a comparable local tax there.
Do you really think that this accurately describes the essay?
I found a straw man argument against an attitude of Far Left philosophy that plays no role in the current political process. Tied to that was a bait-and-switch series of anecdotes in which he lauds entrepenurial efforts while pretending that that is the whole of Capitalism.
I am a Capitalist. On the other hand, his complaints that we
are silly. Have there been occasions where specific actions were counterproductive? Sure. On the other hand, against his ringing endorsement of the “altruism” of Capitalism, and its “morality,” I note the company at which I worked where the officers raided the pension plan of the employees in order to fund a leveraged buyout to take the company private. The employees were left with a pittance of annuities and the officers wound up taking home the bulk of that money when they later sold the company. (The government did pass a law to “harass..and oppressively regulate” companies to prevent such actions the next year, but it was far too late for the employees of that company.) I saw the same company decide that health insurance was too expensive, so they hired a brokerage firm to begin handling all the employees’ health insurance. Remarkably, once that change had occurred, every single medical procedure suddenly was found to have exceeded Usual, Customary, and Reasonable guidelines and most employees were left paying hundreds of dollars out of pocket to cover benefits that were clearly enumerated in their medical plan. I think a bit of harassment and oppressive regulation was seriously justified and sadly lacking in that case.
Had Gilder’s essay focused on entrepeneurship while admitting that Capitalism was imperfect or had he actually attacked genuine impediments to entrepeneurs instead of attacking a handful of Left wing professors from the 1970s and 1980s who hardly represent any serious threat to Capitalism in 2012, it might have actually represented a serious statement. As it is, he simply posted a counterbalance to actual Left wing rhetoric, (rhetoric that hardly plays out in the real world where the “Left” in the U.S. looks pretty much like the Center or the Center Right in the rest of the world). His views are an appropriate “balance” to the (nearly non-existent) Far Left–with just about as much accuracy in a world where the 90% tax rate on the wealthy has not been seen since the early 1960s and even the 70% rate of 1980 is 30 years in the past. The current rates in the mid-30% range are hardly a serious burden, given that Microsoft, Xerox, Apple, Adobe, Southwest Airlines, and dozens more all started under burdens at least twice as heavy.
Sam: I’m as much of a capitalist as you are, and while you might find some versions of “the Left” that you refer to on this MB, it’s not really a serious movement in the US or Canada. Sure, at some point taxes become punitive and stifle innovation. But the discussion in the US centers around a few percentage points one way or another. 75% rates are not coming back here, and I’d be surprised if they popped up in France, either.
This makes no sense at all. What are the characteristics of people who are not “good stewards” of money? They spend it quickly. That is good for the economy. Being a good steward slows down that movement of money, which is bad for the economy at best, and at worst, your good stewards park it overseas in tax shelters and foreign bank accounts, which I’m sure does someone’s economy some good, just not so much for us.
I think the tax goes into effect at the beginning of the year, so in that sense it hasn’t been implemented yet. But everyone’s talking about it as if it’s a done deal.
Well, we’ll see. It’s much easier for French nationals to get out of Gar Paree than it is for Americans to get out of Dodge. Just hop across the border to Belgium. It would be a stupid thing to do.
Of course I agree with you, but European socialists haven’t let capital mobility stop them before. France already has a 19.76% national sales tax and a 7.5% social services tax on earnings, on top of their income taxes. The economy is sputtering, businesses like Peugeot are laying off thousands of workers, and the French elect a socialist.
I was there on election day - there were riot police in the streets in case of a Sarkozy win. When Hollande won, there was cheering in the streets and you could hear horns honking all through the area of Paris I was in.
We’ll see how happy they are about it in the next couple of years, I guess.
Ah, the ennui will descend like the smoke from an aging courtesan’s cigarette, filled with the bleakness of the shattered promises of a long-forgotten youth.
Mindless spending is most assuredly not good for the economy. Even Keynes would say that demand side stimulus only makes sense during a period of abnormally low demand.
I don’t think you understand what wealth is. You think you can make an economy stronger by just speeding up the flow of money. Absent direction, all that does is screw up the flow of information in the economy and make it less efficient.
Wealth is not money. The wealth of a country is a function of its productive capacity, the strength of various institutions that lead to a more civil society and which provide stability, security, and infrastructure, and by intangibles like the local knowledge held in the minds of the public, work ethic, risk tolerance, and public trust. Critical to all this is the free flow of information in the form of prices and the right to keep the profits of your labor. This ensures that capital flows to the people and institutions that have demonstrated an excellent ability for turning it into productive goods and services that people want.
In short, the wealth of a country is determined by its capability to provide the goods and services the people want. To do that requires intelligent investment of resources, not just mindless spending.