In Defense of Capitalism

I am fortunate to have watched my father at a young age start TMC – the company where I am CEO and turn it into a company which has helped feed thousands over its 40-year history when you consider contractors, freelancers and their family members. I have always seen the United States as the “land of opportunity.” After all, a person could come here with a few dollars in his pocket, not know the language and become a successful publisher of magazines.

In many other countries this can’t happen because of an entrenched class system and a bloated government making rules and regulations which strangle business.

And my father’s story is far from unique – many people come to the US every year and make it big and in the process boost the economy in myriad ways.

We used to look to self-made and wealthy people as role models. We wanted to grow up and be just like them.

But in the last few years, I have heard more and more about how successful people made it “on the backs” of others or took advantage of others or did something wrong to make their money.

I even hear politicians say the wealthy who pay most of the taxes in the country don’t pay their “fair share.” What their fair share is has never been quantified. What is shocking is these same politicians had a majority, holding the presidency and both houses of Congress and could have passed a new tax bill requiring everyone to pay what they thought was their fair share.

But for some odd reason this was never done.

It is almost as demonizing the wealthy is smarter politically than actually passing a law which fixes what you keep complaining about.

Generally I try to stick to technology topics but when we reach a point in time where I feel the entire tech industry’s future is at stake due to the encroachment of politics, I am forced to sound an alarm.

You see, the many people in the tech world rely on the after-tax income of the wealthy to fund their start-ups and fuel their companies. The wealthy are responsible for virtually every tech startup of the past 20 years. Google, Facebook, Twitter and the list goes on – would have had a terrible time getting started without huge amounts of money from those “not-fair-share-paying” wealthy people.

Is it difficult to understand that the less money these people have the less there is to invest in companies?

So what does this mean in practice? Perhaps Facebook or Twitter would not have had the funding they needed and would have been forced to close down along with all the jobs that would have gone with them.

I often hear of fairness in taxation from people who pay no income tax. It seems unfathomable to me to complain about a system where you contribute least or not at all.

Think about it rationally. Some might think “fairness” means “everyone” pays in.

Moreover, if the typical person uses let’s say $20,000 worth of government services each year and some people pay millions more than this amount, how is that fair?

This isn’t to say that our system is perfect. People in the hedge fund industry typically pay a capital gains tax rate of 15% on income – while a single person this year would pay 35% on their income over $388,351.

This 20 point spread is significant.

Then there is the Buffet Rule – you may know I am a huge fan of Mr. Buffet and own Berkshire Hathaway stock. In addition, he was nice enough to send TMC a testimonial letter a while back and complimented us so nicely that it is really difficult for me to criticize him without feeling some degree of guilt.

But what I will say is the Buffet Rule – which he endorsed, is bad for the economy because it takes money out of the private sector. If you missed it, this “rule” would have ensured that revenue over $1M would be taxed at 30%.

The challenge here is the revenue raised is very small – not enough to even make a dent on a dent of our national debt but it would take the most productive money out of the US economy.

So even though this rule would reduce the spread, removing money from the private sector damages not only the private sector but the public sector which is funded by it. 

There is a growing animosity towards the wealthy and the politics of envy are being employed by certain politicians who care more about their reelection than being truthful and honest. If they get reelected as tear the country apart as they do, it seems they will be happy.

I have even heard people say that other people have “too much” money. And this is difficult for me to understand – who is qualified to determine how much of anything someone else has? Are we trying to seriously limit how much work a person can and should do – assuming a relationship between amount worked and money made?

Moreover the concept of wealth redistribution which has been taking place on a massive scale before our eyes these past few years is a flawed system and has never worked . Look to Cuba – it has some of the most productive farmland anywhere. Yet, for some reason the people are hungry. Make sense to you? Blame wealth redistribution and a government with its boot on the private sector.

In other words we can see real-life proof that when there is inadequate investment return, productivity and other investments aren’t made.

Anyone remember the “glory days” of the Soviet Union where wealth was redistributed and everything was “fair?” How did a country flush with natural resources make its citizens stand in long lines for the essentials of life? Blame their economic system of communism.

And there isn’t really much time for our nation to take a pause and work all this out. You see, in today’s global economy every worker is competing with virtually every other on a daily basis.

In my neighborhood there are prefabricated homes which were ordered on the internet and they look every bit as good if not better than those built by the local contractor. How long until a plurality of US homes come from China and other areas which are less expensive than the US?

There has been a single constant since the advent of global competition in the US and that is the least skilled workers have done worse and worse. This trend will continue and the best way to combat it is to ensure there are as many jobs as possible – especially entry-level ones which allow skills to be learned in exchange for work done.

In many parts of the country the government pays more benefits to the people out of work than they would earn if they were employed. The state and federal government are actually sabotaging the ability for their citizens to learn valuable skills and experience they need to move up the ladder.

Radio talk show host Mark Levin said it best – Capitalism is the best form of wealth redistribution. When you consider that wealthy do three things with their money.

  1. They put it in the bank: This allows the money to be loaned or redistributed to people looking to buy homes, start small businesses or purchase cars.
  2. The invest it: This creates jobs – not just in the US but globally.
  3. They spend it: We have a consumer-driven economy and we rely on the wealthy for most of the spending.

The Wall Street Journal has a great piece on the capitalism image problem and it is definitely worth a read. Here is my favorite excerpt:

We face a historic election in November but it is so obvious what is at stake. We have a crisis in the form of lack of employment in the private sector. One side believes that the government is the answer to creating jobs in the private sector. But the reality is everything the government does comes from resources which would more effectively be used by entrepreneurs and investors in the private sector.

With all due respect to City Hall and DMV workers everywhere – if a clerk behind the counter in either of these places told you they were going to quit their job tomorrow and start an investment fund, would you invest? Of course not… But daily we are faced with these same bureaucrats forcibly taking our money and investing it in one harebrained failing scheme after another, costing billions in the process.

And for those who aren’t paying into the system – you should be horrified to know your children will be forced to pay back the interest on the 40 cents of every dollar we borrow to spend!

This country is great in-part because of the small business owners who risked their homes to start or grow their businesses. The US is a beacon of freedom and light for the rest of the world and our system is being copied elsewhere.

But it is under attack from the highest levels. From the famous “You didn’t build that” speech from the president to similar comments from Elizabeth Warren, the US seems to be descending slowly into a system similar to Cuba or Soviet Russia – in other words a place where wealth doesn’t flow downward through hiring and spending but instead as radio talk show host Michael Savage predicted, we are getting trickle up poverty.

I fell in love with tech when I saw my first electronic calculator at around 10 years old at Harrods in London. I have been hooked ever since. Technology has changed the world for the better and the US has led the charge. But the more business is attacked both verbally and through confiscatory taxation policies, the worse off we all become.

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