Saturday, April 8, 2017

Oxfam Attacks Prosperity, Part 1

There is something wrong and unsettling in a culture in which a large segment of its population demonizes its highest achievers and greatest benefactors as villains. Such is the case with the anti-economic inequality movement.

A “report” emerged that purports to calculate that the “World's eight richest people have same wealth as poorest 50%.” The Guardian reports:

The world’s eight richest billionaires control the same wealth between them as the poorest half of the globe’s population, according to a charity warning of an ever-increasing and dangerous concentration of wealth.

In a report published to coincide with the start of the week-long World Economic Forum in Davos, Switzerland, Oxfam said it was “beyond grotesque” that a handful of rich men headed by the Microsoft founder Bill Gates are worth $426bn (£350bn), equivalent to the wealth of 3.6 billion people.

Oxfam said the world’s poorest 50% owned the same in assets as the $426bn owned by a group headed by Gates, Amancio Ortega, the founder of the Spanish fashion chain Zara, and Warren Buffett, the renowned investor and chief executive of Berkshire Hathaway.

The others are Carlos Slim HelĂș: the Mexican telecoms tycoon and owner of conglomerate Grupo Carso; Jeff Bezos: the founder of Amazon; Mark Zuckerberg: the founder of Facebook; Larry Ellison, chief executive of US tech firm Oracle; and Michael Bloomberg; a former mayor of New York and founder and owner of the Bloomberg news and financial information service.

The problem with these kinds of surveys is that they fail to properly calculate wealth. That is, they fail to calculate the value of the created wealth put into the hands of consumers. This survey, like many others, fails to distinguish between money, which is a claim on wealth, and real wealth—the goods and services that money can buy. You can’t just consider wealth held in the form of shares of stock or bank accounts or dollar bills or even gold coins. You must consider the big picture. A little introspection quickly exposes the fallacies behind reports like this one. Here’s what I mean.

A few years ago, I paid about $1100 for my Dell Laptop. How much did my purchase contribute to the fortunes of Michael Dell? Incalculably miniscule. My Dell has a Windows operating system built in as part of the price. How much did my indirect purchase of Windows add to Bill Gates’s fortune? Incalculably miniscule. If I didn’t buy that laptop, the fortunes of Michael Dell and Bill Gates wouldn’t even flinch. This means that I got $1100 in value, while Dell and Gates got incalculably miniscule returns added to their fortunes. I was the big winner.

That’s not the end of the story. There are many other parts of my Dell made by other companies, such as computer chips. How much other fortunes did my $1100 Dell purchase contribute to? Incalculably small portions, respectively. But you add up all of the tens of millions upon tens of millions of consumers like me, you get the Dell and Gates fortunes. Consider the cumulative value held in the hands of the consumers of Dell computers next to the fortunes that were made creating that consumer value, the fortunes are inconsequential. How many of these consumers would trade their Dell computers in exchange for no capitalist fortunes?

And this doesn’t begin to consider the value of the compensation of the millions upon millions of jobs brought into existence through the companies that these magnificent creators start, build, invest in, and run, and which my purchase of my Dell and other products help pay for.

Of course, not everything can be priced in dollars. There is the incalculable spiritual value they add to people’s lives. I get a hell of a lot more enjoyment from my Dell laptop than I can get by leaving my $1100 in a savings account or mutual fund (otherwise, I wouldn’t have spent the money). Put another way, my Dell is worth a lot more to me than the $1100 cash I paid for it. Thank you Michael Dell, Bill Gates, and Andy Grove.

Properly analyzing how market fortunes are created puts the lie to the Oxfam report that “a super-rich elite are able to prosper at the expense of the rest of us at home and overseas.” Where is the expense to me? The fortunes benefit employees, investors, and consumers and hurt no one. It’s win-win-win-win all the way around. Does the fact that some people can’t afford the Dell laptop make them worse off? No. But killing the fortunes made creating these mass market consumer products will make a hell of a lot of non-poor people a lot more worse off.

Every earned dollar is the result of some producer creating value for others by engaging in rewarding work of his choosing, and finalized through mutually beneficial trade. That’s how the employees of Dell, Microsoft, and Intel earn their money; through their contributions to the productive mission laid out by their visionary leaders. That’s how I earned my money in the plumbing and building controls industries. Likewise, every dollar of these creators’ fortunes is gotten by the same basic method; trade, the win-win voluntary exchange of value for value. The only reason these eight fortunes, and all of the lesser market fortunes, exist is because the creators have added so much more value to so many more people’s lives—way more money than they can possibly need for personal consumption. These fortunes represent savings. All savings, in fact, represent someone’s production in excess of what’s needed to live on. And future production depends on this vital investment capital. So, while consumers enjoy their Dells, Michael Dell’s fortune is hard at work paving the way for the next round of consumer value.

I only gave one example—my Dell laptop. The same applies to the great Warren Buffett, Amancio Ortega, Jeff Bezos, Mark Zuckerberg, Larry Ellison, Michael Bloomberg, and all of the other market entrepreneurs that advance human life. (I don’t know much about Carlos Slim HelĂș, who may be a crony—i.e., a political entrepreneur. Some people get rich through political connections and government favor. But they are not the issue here.) Every mass market product that fills the shelves of stores is undoubtedly adding to some creative leaders’ fortunes, including those unfairly demonized “overpaid” CEOs. It is the role of the business corporation to turn the theoretical knowledge of the scientists and the ideas of the inventors to turn the theoretical knowledge of science into the everyday products that give practical value to everyday lives. The wealthy creators cited above—the brilliant visionaries who provide the direction of the great corporations—are the cream of the crop. And they are everywhere. Our retirement savings are invested through Fidelity Investments—thank you Edward C. Johnson and daughter Abigail. Millions, including my grandchildren, enjoy Harry Potter books and movies—thank you J. K. Rowling. The list of “1%” creators that we should be grateful to goes on and on.

As my personal story indicates, the combined fortunes of the richest people—leaving aside those that get rich from plunder or cronyism—are miniscule compared to the value that the building of those market fortunes added to the lives of billions of consumers like me. That $426 billion is the tip of a vast pyramid of wealth, most of which is enjoyed by average folks like me. Everyone who works productively contributes to that pyramid. In a sense, everyone who works productively creates his own pyramid. But it is the greatest entrepreneurs who make the biggest pyramids—the super pyramids that make all of the other pyramids possible. And it is the great system of capitalism that establishes the social conditions by which the great creators can flourish—creators that, more often than not come from the ranks of average folks.

Those who calculate wealth only in terms of net dollar worth are missing the big picture, and thus mistaken. But some, like the thinkers at Oxfam, are not ignorant. They know better. They have a sinister agenda. They are envy-exploiting shysters peddling mental garbage. It is not the “ever-increasing . . . concentration of wealth” in the hands of the great creators that is dangerous. It is the elites who peddle this mental garbage that are dangerous.

Tomorrow, part 2.

Related Reading:

Becoming Steve Jobs: The Evolution of a Reckless Upstart into a Visionary Leader—Brent Schlender  

1 comment:

Mike Kevitt said...

About 30 yrs. ago I told a couple Oxfam guys that Oxfam's efforts in Africa were probably ok, aside from their badgering rich people and the U.S. to do more, but that what's really needed was fundamental political reform everywhere. They looked at me like I was a curmudgeon. That's just the way they are.

Today, I think of the 'political' reform I was speaking of as fundamental in that it would be reforming the regulation of human relations from crime and criminal plan to law and government, from which would then come politics.

There's no politics in crime, nor in the criminal part of any mixture of crime and government. And, law and government is formal respect and enforcement of individual rights, and it is nothing else. Any other regulation of human relations backed by force, formal or informal, is crime and criminal plan.