Column
2018-2 (10/22/18)
Our world is filled with conflicts.
In the realm of politics and government these conflicts run rampant.
Most of these conflicts are fueled by emotions rather than facts and
reason.
One of the core conflicts is, Who
should own the wealth? Before considering this conflict we need a
common understanding of what wealth is.
Everything of value is part of our
wealth. Contrary to a popular belief there is no such thing as
inherent value. Individuals value certain things because of the
belief that those things will some how contribute to the individual’s
satisfaction.
Individuals seek to increase their
satisfaction. Anything that an individual believes will increase his
satisfaction has value to him. Anything that can be used to produce
or preserve those valuable things also has value. Thus, consumer
goods and the production goods that can produce consumer goods are
all part of our wealth.
Most people can’t afford to own the
production goods needed to produce the consumer goods they want.
They depend on production goods provided and owned by others.
The only way to increase our standard
of living is to make better production goods that in turn make
workers more productive. Someone has to pay for developing and
providing these better production goods. Even if we don’t develop
better production goods, someone has to pay to replace the old ones
when they ware out.
Not all invested wealth belongs to the
rich. Much of it does. Diverting wealth from investment to
consumption spending depletes the investment in production goods
which is indispensable to prosperity. It is the equivalent of eating
the seed corn.
It is possible to tax away investment
for several years without obvious consequences. Sooner or later
productivity and prosperity will start to slip away. It may not
matter who owns the investment in production goods. It is vital that
some postpone consumption and invest in production goods.
Taxing the rich investors isn’t
painless for everyone else. When investment decreases, the poor and
middle class will feel the pain from decreased productivity long
before the rich do.
Those who have the least are hurt the
most when productivity declines. Most rich people could still live
very well if their incomes were cut in half. What would happen to
the poor and middle income people if they lost half of their income?
There is another way to pay for
excessive government spending, for a while. To some extent the US
government is already using it. Governments have unlimited capacity
to create new money. They don’t even have to print it. Just punch
a few keys on the computer.
There is one small problem.
Government has zero ability for avoiding the consequences from
creating new money. The new money gets its value by sucking it from
the existing money. The price of everything goes up. Create enough
new money and all the money becomes worthless. This is nothing more
than an indirect way of diverting wealth from investment to
consumption spending.
Zimbabwe performed that magic a few
years ago. Venezuela is doing its best to join the club. A recent
article reported that price inflation in Venezuela is rolling along
at about 48,000 percent per year. Suppose that report is wrong and
the inflation rate is only 24,000 percent. Would it make any real
difference?
So far the government's solution is to
issue new Bolivar bills with five fewer zeros. A million old
Bolivars become 10 new ones. This will not do a thing to solve the
underlying problem of overspending by government. And, yes, it can
happen here.
The people who call themselves
socialists want the US government to provide trillions of dollars
worth of more “free” stuff. Paying with taxes on businesses and
the rich will be a disaster. Paying with new money will likely turn
out even worse. Will anyone scream STOP?
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Copyright
2018
Albert
D. McCallum
