Wealth Redistribution vs Liquidation

Let me start with I would prefer if wealth were more equally distributed in our society. I say that as a conservative. Why? Because the more distributed wealth is the more people have a vested interest in our society staying as it is… and I like our society. But with that as a premise, let me be crystal clear, the candidates running for President in the Democratic Party have no plan for redistributing wealth, their plans are largely about liquidating wealth and that is bad for every one including and especially the poor.

To help illustrate think of a wealthy banker in a small town with a billion dollars. That billion is invested in small businesses all over town, in people’s homes and people cars. Almost everything in town of value has been acquired in one way or another by borrowing from this rich banker. The lifestyles of nearly all the citizens depend on this guy. Their jobs, their cars and their homes are all the result of this guys investments.

The town comes to realize if they redistributed the wealth of this wealth banker, it would amount to a significant sum of money to each of them. So they implement a wealth tax and each year they take 10% of the wealth away from the wealthy banker and redistribute it to the people. Everyone is happy except the banker. Their lifestyles surge as they spend the money on vacations they could never have afforded before or on restaurants, etc.

After a while the wealthy bankers wealth has been redistributed… but has it? The banker has no more money, but the citizens in town don’t have money either. So when someone goes to the bank to borrow money to buy a house, there is no money to loan. When someone wants to buy a car, their is no money to finance the care. When someone wants to start a business, there is no one there to provide a business loan. The wealth was not “redistributed”, it was “liquidated” through more consumption.

Once the money is gone, jobs begin to disappear as businesses cannot finance themselves. Houses drop in value, because no one can get loans to purchase them. People drive older and older vehicles because no one can finance a new car. In other words, the citizens of town never realized how much their lifestyle depended on the wealth of the wealthy banker.

Could the story have ended differently? Yes. If concurrent with the redistribution of wealth every recipient was prohibited from spending any of the wealth, but instead was forced to invest it in the local bank. Then the bank could have continued to make loans, but rather than use the money of the wealthy bank to finance the town, the wealth would be coming from the savings of the citizens.

Now getting back to 2020. Which Democratic politicians are promoting redistribution of wealth and which ones are promoting liquidation of wealth. How do their proposals insure the wealth being redistributed is “invested” and not “consumed”? How are they going to tell the recipients of the redistributed wealth, that it is their money, just not their money to spend? Over decades the total wealth of this nation has increased and that increase is responsible for funding the slow and relentless growth in our standard of living even when the wealth is not our wealth. Its simple existence, allows people to borrow some for personal investments like their own homes, cars, or even education and some for commercial investments like new businesses that create new jobs or more equipment that makes people collectively more productive.

As a conservative I have deep reservations over taxing people over and over again because they are wealthy. My reservations are threefold. First, at the “fairness” level, some progressives are saying it is “unfair” to be a billionaire and so we have the right to take your money away. But I do not understand the argument. If I willingly use Facebook and pay nothing for it, why is it unfair that Mark Zuckerberg for example is a billionaire?

Did Zuckerberg take advantage of me? Or did he give me something I valued enough to surrender a great deal of personal information for? Furthermore, does he pay taxes that are due under our tax code. If he paid his taxes and still has billions left over, then that is good for me and him. For me, it means he will continue to invest in other things since I sincerely doubt he keeps billions under his mattress at home. Those investments benefit us all. I may think Facebook has become ubiquitous enough to require some regulation, but that is totally different than saying Zuckerberg does not deserve his billions.

Secondly, wealthy people have options we don’t have including moving away where they will be taxed less (they generally are not tied down by a job) and taking their money with them (no matter how hard the government tries to prevent that). They also have access to some of the best legal and tax experts in the world, who will find ways for them to avoid taxes, but also cause them to invest in sub-optimal investments which hurt all of us. We need billionaires investing in our economy, we don’t want them to leave or stop investing.

Thirdly, as a nation our standard of living is built on both our individual savings and collective savings. A pilot may not own the jet he flies, but unless someone owned the jet, he would not earn what he does flying airplanes. Someone has to finance that jet. This concept that “national” savings are important to every American is totally lost on those running for President in the Democratic Party for 2020. They have grabbed hold of the appeal of being “Robin Hood” and taking from the rich to give to the poor, without any plan to insure there is enough capital in the economy to support us collectively. Only when they outline how they will replace the lost “savings” of the rich through increased savings by the rest of us can any of their ideas make sense to all of us.

This gets to the heart of the problem with socialism and why capitalism is so successful. Socialism discourages investment and capitalism rewards investment. Because socialism discourages investment, socialistic societies tend to crumble over time as more and more wealth is liquidated. The short term illusion of greater income from the liquidation of wealth under socialism is simply that… an illusion. Simply said politicians that have no plans to insure a society accumulates the wealth it needs to keep improving people’s lives over the long term are being deceitful.

Is there a better way for society to accumulate wealth without it being disproportionately concentrated in the hands of a few people. I believe there is. IRAs and other targeted retirement plans, home ownership, personal investing and even products like “whole life insurance” are all helpful tools. But just as important as “tools” is the education that a population must have to understand how important their “savings” are not just to themselves but to society as a whole. Societies that place high value on saving are societies where lifestyles improve the most over time.

I am reminded of the movie, Marry Poppins, where the banker tries to explain how important savings are even in small amounts and how England was built on those savings. Instead the child flees the bank to feed the birds. While we might cheer the child’s unselfish desire to feed birds and certainly compassion is important for any society, the ability to care for the poor and raise society overall over time depends on a society’s savings. So when you hear a politician promising higher standards of living for people, search for where they are demanding we “save” more… if they aren’t… all they are doing is wealth liquidation… and then all of us will be poor someday…