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By - November 9, 2011

Occupy Wall Street: The Rich Can’t Help Benefiting the Poor

Wall Street Occupiers ImageWhat the Occupy Wall Street crowd fail to appreciate is the rich can’t help benefiting the poor.

Money is simply a medium of exchange.  It has no inherent value.  It is extremely useful to facilitate trade between humans.  Trade is voluntary.  People who provide goods or services make money from other people who voluntary surrender their money.  In that sense, money is simply a certificate of satisfaction someone has provided you a good or service and you voluntarily parted with your currency in recognition of the value provided.

In a free market, if you become wealthy, it means you are providing a tremendous amount of satisfaction to your fellow man.  You are benefiting society.  But there are really only two voluntary things the rich can do with their money:  1) Spend it; or 2) invest it.  Whether money is spent or invested by the wealthy, it all continues benefiting fellow man (provided your fellow man is productive).

If a billionaire buys a jet plan, a $100 million dollar home, and a yacht, he has just injected millions of dollars into factory jobs.  All of his jobs are supporting learned professionals in their respective industries with good wages.  Further, the maintenance on the plane, home, and yacht will continue to provide good jobs.

Senator Ted Kennedy realized this the hard way.  He shepherded a bill to increase a luxury tax on yachts through the Senate only to devastate the yacht industry in Massachusetts.  A 77 percent drop in purchases, with 25,000 job layoffs. He then sought to repeal the luxury tax.

His son clearly learned from his father’s mistake.   Rep. Patrick Kennedy, Rhode Island Democrat, introduced legislation for a tax break on yacht purchases, a 20-percent tax credit to anyone who bought a new custom luxury vessel, of at least 50 feet in length, in the United States.

Further, if a billionaire doesn’t spend, but invests billions, whether in banks or corporations, the money also goes back into the market to productive uses which benefit the poor.  If it goes into a bank or bonds, it funds business expansion, construction, factory expansion.   It goes into salaries and raises.  Plant expansion.  Safer working conditions.

Billions of dollars in pension funds for teachers, policemen, firemen, laborers, and others are invested in mutual funds and bonds supporting businesses.  The institutional investors control the largest blocks of stocks of corporations like Exxon Mobil.  Corporate investment are funding pension retirements for workers and retirees all over America.

In contrast, the Occupy Wall Street movement argues the money is better served by high taxes and redistribution to individuals at the opposite end of the income spectrum.  Free health care.  Free tuition.  Free food.

The argument, although it has never been well articulated by the left, is that money, like any commodity, has a diminishing marginal utility.  If someone has a million, the $1 million car, is only marginally better than the $500k car, so let’s tax him, make it so he can only afford the $500k, and buy $10k cars for 50 people so the poor can go to work for free.

While the appeal of this system is obvious, it presents certain moral hazards.

First, it creates a disincentive for the wealthy to seek greater gains.  Why would a heart surgeon work six days a week if he knows any income he produces after working three days a week is going to be taxed at a combined state and federal rate of above sixty-percent?  Society should encourage skilled labor to be productive.  This is accomplished through economic incentive.  As Adam Smith correctly noted in 1776, it is not through the benevolence of the baker we have bread.

Second, it creates a disincentive for the poor to strive to better their circumstances.  A person who might have worked for a scholarship will not strive for free tuition.  A student who has not interest in academics will flounder under free tuition when he/she would be better suited to working in a trade.

Third, investors should seek to put their capital to the most efficient uses.  When a tax code is punitive, it encourages investors to shield their revenue by putting it into less productive, tax preferred uses, or to simply hide it through frivolous expenses, expansions, and purchases.  Tax dodges.

Finally, most highly compensated individuals in this country are learned professionals and/or small business owners.  They often come into high salaries at the end of their respective careers, often after years or decades of nominal incomes.  The top salary earners in this country will not stay at the top for very long, just as professional athletes and entertainers have good years followed by long retirements.  Some of today’s Occupy Wall Street protesters will be tomorrows millionaires.  Ironic, isn’t it?

The capitalist system is not perfect.  It is perhaps the worst system of income distribution, except for every other system.   As Sir Winston Churchill noted, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

All the same, the wealthy are a blessing and not a burden to society.  Class envy and confiscatory taxes diminish everyone’s standard of living.  A European socialist model would lower everyone’s standard of living, which is why the poor in this country generally live in larger homes than Europe’s middle class.  We at Tomorrows Online Marketing would like the Occupy Wall Street Movement to explain that.

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Comments (3)

 

  1. occupied says:

    Investing in mortgage backed securities doesn’t benefit the poor. It has left them homeless and with dwindling retirement accounts. Trickle down economics have already failed us, that is why people are protesting. The failure of this system described above has already occurred.

    Governing in accordance to a rigid philosophy is not an option for millions of people. There are people who demand solutions now. Who demand homes and food. It doesn’t matter if they are less productive or more productive than the wealthy because they are fighting for their right to live.

    At this point these people, and those who the wealthy occupy protesters stand up to represent, are willing to test the theories this author discusses. That is why they occupy.

  2. Marshal Johnson says:

    Hey, Occupied, hop off the cross. We need the wood.

  3. Publious says:

    Investing in mortgage-back securities does benefit the poor. It allows banks to bundle and sell mortgages. This means banks have more money to lend to new borrowers and it provides generally secure financial investments, which help support pensions for Americans in retirement. The problem with the mortgage-backed securities market was government pressured banks to lend to individuals who would not normally qualify for loans. Because the mortgage-back securities were being sold, the banks did not exercise the degree of caution they would have if they would have bought and held the asset. Part of the blame is at Freddie, Fannie, and other lenders who were not concerned about risk because of their special status.

    Government in accordance to a rigid philosophy is not a good option, which is the essence of federalism. A limited central government and a laboratory of fifty states, each of which is closer to the people and has flexibility to set its own laws.

    There have always been people who demand solutions now. Hungry people. People who need food. Capitalism and a Republic are not a panacea. They are the worst systems in the world, except for every other system. The poor in this country generally live better than the richest people did a century ago. The alternative to private property rights — communism — has been an abysmal failure everywhere it has been tried. The equal sharing of misery.

    The Occupy Wall Street protesters have some noble ideas — eliminating cronyism, for example — but they are sadly ignorant in their views on capitalism, which has done more for world peace and prosperity than a billion Nebraskans for Peace bumper stickers ever could.

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