The War Against the Rich, Part 3

The following is excerpted with permission of the publisher John Wiley & Sons, Inc. from Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics by Ziad K. Abdelnour with Wesley A. Whittaker. Copyright (c) 2012 by Ziad K. Abdelnour. It's on the border of what I consider acceptable politically (I try to avoid politics on FMF) but I decided to run with it since whether or not you think there actually is a war against the rich, this excerpt should be interesting to us all since we are striving to become wealthy. This is a follow-up to part 2.

The Millionaire down the Street

To begin with, you probably won’t find many rich people in the Who’s Who or Most Likely to Succeed lists compiled during their high school or college days. They probably didn’t get the highest SAT or ACT scores in high school, and they probably weren’t considered a member of the popular clique by their classmates. They are certainly not the best looking, and they probably didn’t get where they got through the force of their personalities, charisma, or celebrity. A great number of the richest among us never finished high school, and many who did manage to get into college never graduated. That’s because the rich in this country are chosen not by blood, credentials, education, or service to the establishment. The rich become rich based on their performance and their relentless desire to serve the customer. The entrepreneurial knowledge that is the crux of wealth creation has little to do with glamorous work or with the certified expertise of advanced degrees.

Great wealth rarely comes from speculating and creating nothing. The John Paulsons of the world are a very small and very lucky group. Most major wealth creation comes from doing what other people consider insufferably boring: navigating the tedious intricacies of software languages, designing more efficient garbage collection routes, or designing a system for stocking fresh products on the shelves in grocery stores is not glamorous. These people don’t immediately conjure images of mansions, limousines, and vacations in the hottest spots of the world in Gstaad, Monte Carlo, or Cabo San Lucas.

Improving the speed and efficiency of butchering livestock, customizing insurance policies, or tramping the wilderness in search of petroleum leases seem far removed from the glamorous life. Memorizing building codes, speeding up the delivery of a hot pizza, or hawking pet supplies all seem like mundane and tedious tasks, but these are all paths that individuals have taken up the mountain of accumulating wealth in America. In short, America’s best entrepreneurs usually perform work that others overlook or spurn. They do it better, faster, and at a better price than the competition. For that, they become the rich.

Because these men and women often overthrow rather than embrace established norms, the richest among us are usually considered rebels and outsiders. Often, they come from places like Omaha, Nebraska; Blackfoot, Idaho; or Mission Hills, Kansas—places usually mentioned in New York either with a condescending smirk or as the punch line of a comedy routine. From Henry Ford to Apple cofounder Steve Wozniak, much of America’s greatest wealth creators began in the “skunk works” of their trades, with their hands on the intricate machinery that would determine the fate of their companies. Bill Gates began by mastering the tedious intricacies of programming languages. Sam Walton began with a nickel-and-dime Ben Franklin variety store in Newport, Arkansas. Larry Page became the first kid in his elementary school to turn in an assignment from a word processor because his parents were both computer science professors at Michigan State University. Familiarity with the core material, the grit and grease, the petty tedium of their businesses liberates entrepreneurs from the grip of conventional methods and gives them the insight and confidence to turn their industries in new directions.

The truth is that great wealth is often created by the launching of great surprises, not by the launching of great enterprises. Unpredictability is a fundamental part of great wealth creation, and, as such, it defies every econometric model or centralized planner’s vision. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the fraternity of their peers. By their very definition, innovations cannot be planned.

From the outside looking in, one would assume that once wealth is acquired, life becomes one endless vacation full of idle play and relaxation. One would be quite wrong. The richest among us are faced with another equally daunting task once they have accumulated great wealth. Just as a pot of honey attracts flies as well as bears, it doesn’t take long for a seemingly endless stream of bureaucrats, politicians, raiders, robbers, relatives, short-sellers, long talkers, managers, missionaries, and manipulators to come calling. They all have this strange notion that they can spend your money better than you can and are somehow entitled to a portion of your money for granting you the privilege of their expertise. They are, for the most part, leeches, con artists, and moochers.

Leading entrepreneurs in general consume only a tiny portion of their holdings. They are often owners and investors. As owners, they are initially damaged the most by mismanagement or exploitation or waste of their wealth. Only the person who created the wealth has a true appreciation of its value and what it represents. As long as Steve Jobs is in charge of Apple, it will probably grow in value; but put some random manager in charge of Apple, and within minutes, the company would be worth significantly less than its present value. This was proven most effectively when Steve Jobs was replaced by John Sculley; the Apple board could not get Jobs back fast enough. As companies such as Oracle, Lotus, and Google have discovered, a software or tech stock can lose most of its worth in minutes if fashions shift or investors question management decisions.

A Harvard Business School study recently showed that even when you put “professional management” at the helm of great wealth, value is likely to grow less rapidly than if you give owners the real control. A manager of Google might benefit from turning it into his own special preserve, making self-indulgent “investments” in company planes or favored foundations that are in fact his own disguised consumption. It is only Sergey Brin and Larry Page who would see their respective wealth drop catastrophically if they began to focus less on their customers than on their own consumption. The key to their great wealth is their resolution not to spend or abandon it, but to continue using it in the service of others. They are as much the servants to as the masters of Google.

This is the other secret of the richest among us and of capitalism itself. Under capitalism, wealth is less a stock of goods than a flow of ideas. Economist Joseph Schumpeter set the basic parameters when he declared capitalism “a form of change” that “never can be stationary.” The landscape of capitalism may seem solid and settled and ready for seizure, but capitalism is really a mindscape.2 Volatile and shifting ideas, and the human beings behind them are the source of our nation’s wealth, not heavy and entrenched establishments. There is no tax web or bureaucratic net that can catch the fleeting thoughts of the greatest entrepreneurs of our past or our future.

The Socialist Fallacy

Socialist regimes try to guarantee the availability of material things rather than the ownership of them. They use such terms as distribution of income to introduce the ridiculous notion that everyone should be paid “fairly” instead of rewarded for the amount of risk they are willing to take with their own capital and resources. Today’s college students are being indoctrinated with the notion that socialism can succeed this time if everyone just works together. This is in spite of the overwhelming historical evidence that socialism has never worked beyond a small, tightly controlled community of either like-minded or fully coerced participants. They are not being told that socialism had its roots in an authoritarian regime.3 That is the only way socialist policies can succeed on any scale.

British statesman Winston Churchill said:

Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.

Socialism tends to destroy wealth. Socialism does this by draining its vitality away. It does this by destroying the desirability of wealth as a wholesome value. Socialism kills the chance that any community can survive by browbeating the concept of vested ownership, on which community survival is always dependent in the end.

In the United States, the government has traditionally guaranteed only the right of people to own property, not the worth of it. The belief that wealth consists not in ideas, attitudes, moral codes, and mental disciplines but in definable and static things that can be seized and redistributed is a materialist superstition. It made the works of Marx and other prophets of violence and envy seem childish, even silly. It betrays every person who seeks to redistribute wealth by coercion. It balks every socialist revolutionary or union organizer who imagines that by seizing the so-called means of production he can capture the crucial capital of an economy. It baffles nearly all aggregators who believe they can safely enter new industries by buying rather than by learning them. Capitalist means of production are not land, labor, or even the capital itself. They are ideas and inspiration. Unless we are ready to enter Huxley’s Brave New World, talk of redistributing wealth is nothing more than fantastic nonsense. Do the fantasy; give the employees or government or union the factory or hotel or restaurant, and in five years everything will be a mess and most of the jobs will be lost, forever.

The wealth of America isn’t an inventory of goods; it’s an organic, living entity, a fragile, pulsing fabric of ideas, expectations, loyalties, moral commitments, visions, and people. To slice it up like an apple pie and redistribute it would destroy it just as surely as trying to share Stephen Hawking’s intellect by sharing slices of his brain would surely kill him. As Mitterrand’s French technocrats found early in the 1980s, the proud new socialist owners of complex systems of wealth soon learn they are administering an industrial corpse rather than a growing corporation. That is why the single most important economic issue of our time, one that directly impacts the poor and middle class alike, is how we treat the very rich among us.

If the majority of Americans smear, harass, overtax, and maliciously regulate this minority of wealth creators, our politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production collapse into so much corroded wire, eroding concrete, and scrap metal. They will be amazed at how quickly the wealth of America is either destroyed or flees to other countries.

This book will hopefully prevent such a disastrous end to the Great American Experiment by not only revealing where and when we have gone off track, but also provide some real-world solutions for restoring the hope for a better tomorrow and reviving the willingness of people to believe that they have the ability to make their lives better.

There is a scripture that says, “My people perish for lack of vision.” The socialist influence that has turned our education system into an indoctrination process with its emphasis on political correctness over political science and economic justice over economics is slowly but relentlessly producing a nation of drones, unable to dream, incapable of embracing individuality, and abhorrent of acting upon such basic instincts as self-interest and individual sovereignty. I hope to provide an alternative argument that will persuade you to take the actions necessary to preserve American exceptionalism and liberty.

Can We Separate Economics and Politics?

Some people criticize the injection of politics into economic discussions, but economic historians tell us that economists used to understand and accept that economics is wholly interrelated with politics because politics and economics are mutually inclusive and reactive.

Progressive economists have artificially tried to somehow separate the two, like Descartes tried to separate the mind from the body. Adam Smith, the father of modern economics, talked a lot about politics in relation to economics. The reality is that mainstream, neoclassical economists preach that politics is an irrelevant and separate topic because they are either emotionally and intellectually vested in wholly discredited models or locked in the paradox that it is difficult to get a man to understand something when his livelihood depends on his not understanding it.

It is fairly obvious that we cannot discuss our economy or make investing decisions without addressing politics. In the real world, political decisions determine who gets bailed out and who doesn’t, who stays afloat and who goes under, who gets rewarded and who gets prosecuted. That is an acceptable process as long as it occurs in an environment of truth and justice, supported by the rule of law. Unfortunately, there currently seems to be an aversion to prosecuting anyone who commits a financial crime, especially if they are part of the small gang of greed-driven bankers who nearly took the system down. Even then, when there are prosecutions, punishments seem to be very arbitrary; some get hit hard, while some get just a slap on the wrist. Some even get a pat on the back, like Paulson after screaming, “The sky is falling!,” and then using the Troubled Asset Relief Program (TARP) to bail out the bad bets that his buddies had made in the market. The thugs of the Service Employees International Union (SEIU) brutally beat up a bystander who voiced opposition to their demands to the nonexistent right to collective bargaining. It is captured on camera and shown on the nightly news, but the ineffectual Justice Department looks the other way. The New Black Panthers get captured on video intimidating voters at a polling place in Philadelphia, perpetrating voter intimidation in open and notorious violation of the Voter Rights Act, while the feckless and racially biased attorney general decides it is inappropriate to prosecute. This has led, unfortunately, to an alarming rise in national cynicism and a growing lack of trust in the veracity and fidelity of the federal government.

To say we are on the verge of an economic meltdown is not a wholly inappropriate analogy. While the media cheerleaders would like everyone to believe that the current indicators are suggesting, as of this writing, that the American economy is recovering from the Great Recession of 2007–2008, the Average Joe on the street knows it isn’t true. The recession, which started in 2007, is ongoing. The underlying fundamental causes of the meltdown have not been addressed. Banks are still not lending. Companies are still not hiring. Congress has still not seriously addressed the growing debt. Neither has Congress checked its own out-of-control spending. The much lauded reforms installed by Frank-Dodd are nothing more than another expansion of federal government control over the engines of wealth creation.

What is going on here?

Comments

[Amanda]

Way too political.

And I'm suspect of the 'facts' presented without sources. I'd like to know how many "rich" don't even have a high school diploma or GED.

[jim]

http://www.forbes.com/2000/06/29/feat.html

"The vast majority of the 234 U.S. billionaires whose education level is tracked by Forbes magazine through 1999 finished college; 100 have some form of advanced degree, but 41--that's 18%--never got their college diplomas and two never even finished high school. "

J.R. Simplot and Alan Gerry are 2 billionaires in the US who did not finish high school.

That article is 12 years old but its probably not changed much since then. I doubt there are any newly minted US billionaires who didn't finish high school.

I'm not even sure what his point is about the education levels of rich people. *shrug*

"That is why the single most important economic issue of our time, one that directly impacts the poor and middle class alike, is how we treat the very rich among us."

Wow. I think that sentence there pretty much sums up how wrong this whole series is.

[phriot]

One of the author's comments that really stuck out to me was that "today’s college students are being indoctrinated with the notion that socialism can succeed this time if everyone just works together." I really have know idea where he's getting this from. Is it that college students were featured prominently in the Occupy movement? I've had a non-traditional college career that has taken me a bit longer than it should have, but after attending three undergraduate institutions, I can't recall a single instance of being explicitly or implicitly told that increasing socialism is the way to go. If anything, my own political views have moved relatively much more to the right (though still ending in the center) during my time in school. Even though this is a single point of data, I feel that if some nebulous liberal-socialist force was trying to indoctrinate me, that its effort wouldn't have ended in complete backlash.

I liked the premise of this series, but I find it hard to focus on the good parts when slapped in the face with such rhetoric.

[Mark]

I will concede this article exaggerates.... It is generally not true that most wealthy people didn't finish high school. Most have college degrees, and many have graduate degrees.

However, they do make some good points. I do believe most colleges indoctrinate people into socialism. It's usually a subtle but steady drip feed of information that leads people to believe the only way to fix certain problems in society is through more government. It's definitely pretty blatant in the social sciences & liberal arts (I was a Sociology major in college). It's probably less blatant in business/engineering.

But most college professors are pretty far to the left politically, so even if the bias isn't intentional, it's definitely there. More conservative folks just don't seem to attracted to the academic world.

[Old Limey]

I think the article is very good but find myself disagreeing with the political aspects of it.

I was born into a very working class family in England, no one in our family's history had ever attended a university, let alone obtain a degree. England was ruled by the aristocracy and the working class were not encouraged to better themselves. The prevailing attitude was that only 10% of the population need education beyond high school.

This all started changing after the soldiers came home victorious at the end of WWII. They voted out Winston Churchill, the conservative (i.e. republican) party leader in 1945 and elected a socialist leader that was the son of a coal miner. The socialist party then started on a program that led to the creation of the National Healthcare System, and started building universities in all of the major towns and cities in an effort to better educate the working class.

This came too late for me, there was no university near enough for me to attend even though I had an excellent academic record. Fortunately there were apprenticeship programs available. I became an aircraft apprentice and 5 years later when it was over in 1956 I had a Higher National Certificate in Engineering that was accepted in the industry for technical positions. Also fortunately for me there was a great shortage of engineers in the USA because of the Cold War. My wife and I emigrated first to Canada, then to the USA where my qualifications were accepted and I was able to have a long and successful career as an aerospace engineer as well as going on to get my MS degree at the company's expense.

We were always big savers and lived frugally, and then after I retired I became very good at investing and went on to become a multi millionaire by 1999 when I was 65. At that age you don't suddenly go from being frugal to being a big spender.

Bottom line - my wife and I are Democrats and are all for a universal healthcare system and affordable university education opportunities for young people from working class backgrounds.

[08graduate]

"As long as Steve Jobs is in charge of Apple, it will probably grow in value; but put some random manager in charge of Apple, and within minutes, the company would be worth significantly less than its present value."

When Tim Cook took over as CEO of Apple on August 24, 2011, AAPL closed at $376.18. Today, AAPL closed at $589.58.

[tvd]

What exactly could a reader seeking to become wealthy take away and use from this claptrap?

[jim]

I certainly got no supposed socialist indoctrination in my college. But I was in engineering.. maybe they kept all the red marxists professors over in the humanities building. Maybe somehow going to a public school funded 90% by tax dollars and having my tuition paid mostly for by state financial aid dollars somehow lead me to think that government isn't all evil?

In any case I think its really hyperbole to pretend that raising the top marginal tax rates by 2-3% is now considered socialism.

[Stephanie]

I live in a country that has more millionaires per capita than anywhere else in the world, and it's a socialist democracy. http://www.businessweek.com/investor/content/jun2011/pi2011062_946842.htm

Who says it has to be one or the other?

[I Am 1 Percent]

One of the best articles I've read in a while...and if you disagree with the article, then you've already been indoctrinated.

I worked hard to get to where I'm at because what my wife and I do produce value. We took risk and are rewarded for taking those risks...no one is "entitled" to what we have. The economy is not a fixed pie...if you want more money, bake more pie.

[tvd]

Ah. Clicking through the amazon link gives me the answer to my question -- if I follow his first three suggestions, I'll need to (1) vote Republican; (2) convert my money to Swiss francs; and (3) move it to Hong Kong or Panama.

I'm sure that advice is super-helpful to the average FMF reader.

[Mark]

@OldLimey: "Bottom line - my wife and I are Democrats and are all for a universal healthcare system and affordable university education opportunities for young people from working class backgrounds."

I consider myself mostly Republican, but I too am all for a universal healthcare system and affordable education opportunities. (I say "mostly" because every time an election rolls around, they do something so incredibly stupid that I abstain.)

My thinking on healthcare and education is quite pragmatic: On healthcare - Until our society is ready to have emergency rooms turn people away and let them die on the sidewalk, we will all pay for everyone's healthcare. So if we are going to pay anyway, let's at least be efficient and catch them while they are still cheap to fix, and not incur the expense of emergency room visits.

On education - the most valuable resource we have is the combined brainpower of the entire population. If we squander that by not developing it, we all lose out. One of those working class kids is probably going to be my physician when I am older, so let's train him well. Instead of wringing our hands about all the advanced and technical degrees going to foreigners, why not make it easier for Americans to get them?

[Old Limey]

@Mark
My wife and I have travelled to 3rd world countries and seen what happens to people that become very ill and have no access to healthcare. The USA has risen from nothing to being the most affluent and most powerful country in the world since the 6th. September 1620 when the Mayflower made its historic voyage from Plymouth, England. We also like to think of ourselves as being a civilized and humanitarian country that doesn't allow indigent people to die on the sidewalk.

[Mark]

@OldLimey: In case I wasn't clear - I don't see how any civilized society would ever let people die on the sidewalk, and I was most definitely NOT advocating that position!

I am all for universal healthcare in spite of my general preference that people earn rewards rather than receive them automatically.

[Jclimber]

On the line that Apple couldn't hire back Jobs fast enough - it took 12 years before Jobs was CEO again. No dispute though that Apple was much better off after Jobs came back.

[texashaze]

I try to avoid politics on this blog but I think it’s fair to discuss fiscal policy as it relates to the focus of FMF. IMHO, both political parties have failed us miserably the last 13 years when it come fiscal responsibility, especially the last 3 years.

The most responsible I've seen in my lifetime was when Clinton was POTUS and the Republicans controlled both houses. Since I think both parties are corrupt I believe government works best when power is shared --- the parties keep each other in check. When one party is in total control things go haywire as corruption, hubris, ideology (which only benefits a few and not the majority) and self-interests take priority.

On the subject of universal health care, while it could be a good thing, the financial models used to support it are very flawed and have been proven many times as an unsustainable entitlement. Our country will fail just like Greece if there isn’t some sort of restraint on spending. This program will have to be adjusted to ensure that does not occur.

Here is a fair question, we all agree on the model for personal finances, what is appropriate for government? Save more than we spend, spend more than we save (current) or zero out each year?

[Old Limey]

@texashaze
You are absolutely right about the unfunded liabilities of much legislation already on the books, including the two wars launched soon after 9/11 that have cost between $3.2 and $4 trillion and the deaths of 7,721 coalition forces in an attempt to punish a mere 19 highjackers. At least Seal Team 6 got rid of Osama Ben Laden in less than a day without any losses.

The only thing that is keeping us afloat is that our dollar is the reserve currency of the world right now. Unfortunately there are major flaws in the way our government is organized and chosen. Can you imagine how our giant corporations would fare if their CEO had a 4 year term, their board of directors a 6 year term, and their remaining company officers 2 year terms, all elected by the stockholders, and with no age limits and no requirements whatsoever on their education, experience, or especially their ability to work as a team. We're relying on a hard to change constitution set up during the America of 235 years ago when our total population was less than 4 million and there's nothing we can do about it.

[Drew]

The education system in the UK is a world class breeding ground for socialism, from the subtle but powerful ideas reinforced to children at primary school such as "fair share", to university level courses in environmental studies plugging wealth redistribution policies masquerading under the umbrella of "sustainable development." I think at every level of education here the left have got their anti-rich claws well and truly dug in.