Wealth and Virtue

Unsuccessful people confuse income with wealth. Wealth is more than income. Smart people use income to build wealth; stupid people trade wealth for income. Wealth stabilizes. It helps people become secure, lets them be more productive and makes them better citizens. It is difficult for those without wealth to be free and independent. Think of Maslow. A person without wealth remains perpetually near the bottom, and not only of the income distribution.

Wealth is more than money. It also includes a complex of good habits, sound education, prudence and self control. Some high income individuals can't be wealthy. They don’t have the intelligence or self control. Many celebrity deadbeats fall into this category. The day the income stops is the day they are bankrupt. Some low income people have been able to build substantial wealth. And some rare people are wealthy without significant material possessions.

This also applies to whole countries. A place like Saudi is a high income but not wealthy. Take out the oil and it reverts to sand. Switzerland is high income and wealthy.

Government and society should not be neutral in the matter of wealth creation. Prudent government policies encourage wealth creation; feckless government policies just protect incomes. What sorts of things can government do to help?

First is to support good and rigorous education with a moral component. I am not talking about religious morals, but simple prudence. The old story of the grasshopper and the ants is a good moral story. Education once taught this kind of thing. Do kids even read the Grasshopper and the Ants anymore? In the PC version, do the ants have the responsibility to care for the grasshopper?

Second, support the creation of wealth in the form of basic shelter. The government should not be neutral in a choice between owing a home and renting shelter. There are sometimes calls to treat renters “fairly”. Forget about it. Encourage them to become owners.

Third, the tax system should encourage saving and investing. This is the most controversial part. The dividend and capital gains rates were reduced to 15% in 2003. They certainly should stay at that level and not be allowed to return to their higher levels, as they are slated to do in 2008. Deferred pension plans, Roth IRA and educational accounts are also very good ideas We should favor low income investors with a tax credit, so that they too have the opportunity to build wealth.

I know that I will be accused of stating the obvious. But if all this is so simple, how come all those grasshoppers don't do it? And why do they demand that their government in effect punish those who do? And how does the politics of envy get confused with a policy of justice.

Posted by Jack at November 22, 2005 9:36 PM