Setting The Bar Low

Listening to younger people than me posit theories of wealth.  There are common themes that I hear.

• Wealth is concentrated in too few hands
• It is impossible or next to impossible to build wealth
• Milton Friedman and the Chicago School are outdated relics of the past and need to be updated to recognize changes in our macroeconomy
• We should be concerned about how technology disrupts existing workers
• We should educate the younger generation that they should have lower expectations

I understand where these thoughts are coming from but I don’t think they are correct.

Is wealth concentrated in too few hands?  The 1% certainly got richer over the last 15 years than the 99%.  Why, and is it a problem?  For the entirety of human history, there have always been fabulously wealthy people.  Sometimes it was enforced by caste systems.  Other times by monarchy.  Other times by dictatorship.

In each of those situations, the opportunity for people was missing.  How can you get out of grinding poverty when you are enslaved in one way or another?  In the case of many since the founding of the US, they simply left.  It’s clear that it is significantly harder to build wealth in European countries or countries that follow European customs, laws, and policies than it is in America.  European colonization might have civilized a lot of the world, but it sure left in place some bad policies.

Asia has been dictatorship after dictatorship.  Only Japan after WW2 offered some opportunity for class movement.  Even today, countries outside of the US are dominated by huge conglomerates.  I discount anything going on in China due to communism.  If the government can’t wet its beak and control the company, you won’t be successful.

My biggest worry in the US is that the opportunity to build wealth is dropping.  It’s not dropping due to anything except terrible public policy.  Covid lockdown policy ensured that we saw the largest transfer of wealth from small business to big business we have ever seen.  But, it’s not just a dumb policy like lockdown.

It really goes back to a few things.  The first is education.  The US government-run education system totally sucks.  It’s more concerned with force-feeding social justice and socialism than it is teaching math.  If I had kids in government-run schools, I would pull them out and figure out an alternative.  Fortunately, technology is making that easier.  Parents are waking up to the fact that government-run schools and the teacher’s unions that run them aren’t there for the children.

The second is family life in the US.  Kids do better when they come from two-parent families.  The data is clear.  We are seeing more and more people have kids without getting married.  Many single-parent families.  I saw an article where a tax professor said it was racist to have a better tax treatment of married people than unmarried people.  There is a glaring reason.  Society does better with intact nuclear families.  Tax policy is a small marginal nod to that undisputed fact.  If there is anywhere the science is settled it’s there.

The other factor is risk-taking.  Kids today are totally uneducated about taking risk.  They want everything to be safe.  Others want all the accolades and all the titles with the money that comes with it instead of doing the hard work it takes to earn it and get there.  One interesting thing I thought about is how many immigrants to the US start venture-backed companies.  It’s quite a few. I wonder if psychologically, those people had already internalized the risk of leaving their country for a new one and the risk of starting a company combined with the fear of failure that comes with it is less.

When you start with nothing you have less fear.  In my own life, when I started trading I wasn’t scared of losing it all.  I had nothing to lose.  I was scared if I lost it all I wouldn’t get the opportunity to try again.  What happens to you when you fail?  How do you start over?

I will admit that past the age of 40, it’s really hard to change.  I think data shows after the age of 45, a lot of the cake is baked.

When it comes to technology and change, I hear people talk about it a lot. My question to them is this; Have you ever been automated out of a job?  Do you know what it is like?

Most of the time when I read or listen, it’s highly educated people positing theories and desiring more centralized decision making.  They usually aren’t threatened by technology.  Sure, universal basic income is a great idea but I don’t need it and it will cost me little to implement it.  Most of these arguments are normative.  Because they “feel” bad for someone, so we need to do something about it.  There is very little positive economic analysis when it comes to these arguments.

I also don’t believe in limits.  Certainly, there are constraints.  You have to put yourself into a situation to be successful and you have to prepare yourself to be successful.  You also have to be willing to define your own success and not let society determine it for you.  One thing that was great about Trump was you never heard “I can’t” when it came to taking on challenges that had to be taken on.

Successful people are like that. I have known lots of them.  It’s really interesting to listen to them talk about their success.  None of them were 100% lucky.  It wasn’t given to them.  They assumed risks others were not willing to assume and they saw things others didn’t see.

It is a fool’s errand to educate young people that they have limits.

I have.  Trading ended for me.  I went from making hundreds of thousands a year, sometimes millions, to losing big money and not being able to make a living.  I had an MBA from Chicago Booth with a lifetime of success, and NO ONE would hire me.  I was past the age of 45.  I had no network to transition either.

However, ignore my experience.  What if you were a doctor and worked hard all your life?  Suppose you were an anesthesiologist.  Now, suppose a machine can replace you. What about them?  We always tend to focus on factory workers and lower-wage less educated less skilled labor.  With the advent of quantum computing, it’s not hard to imagine the consultants being put out of work too.  Who needs an army of lawyers to research cases and form a thesis when a quantum computer might be able to do it in minutes?

When it comes to Friedman and capitalism, most of the arguments I hear against it are straw men. They are not well thought out or they are totally false choices.  Friedman never said to treat employees poorly.  He never said to cut corners, destroy the environment or anything like that.  The simple fact is if a company isn’t creating value for customers, it will go out of business.  If a company doesn’t earn a profit, it isn’t a business it is a hobby.

Capitalism, the less fettered the better, is the one thing that can remedy the wealth inequality we have in the US and across the world.  It raises standards of living faster than any other system.

It’s not capitalism that is standing in our way.  It’s the government policies that stop it from working.

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