War Chest Weapon

Wealth is under siege by political and economic forces. The most vital economic weapon in our War Chest is Cumulative Advantage.  Simply put, it’s a mechanism operating across time (one lifetime and multiple generations) in which a favorable position becomes a resource that produces further gains and strengthens advantages.  There are many names for and voicings of this phenomenon.  Let’s take a look at a few:

 

The Matthew Effect was a term coined by sociologist Robert K. Merton in 1968. It is summarized by the adage “the rich get richer and the poor get poorer” and takes its name from a Bible passage.  The Gospel of Mathew: For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath. Matthew 25:29, King James Version.

 

Preferential Attachment is another name for the cumulative advantage process used in scientific – mathematical and biological analysis.   It sets forth equations demonstrating how wealth (or credit for academic papers) is distributed among individuals according to how much they already have.  So, those that are already wealthy receive more than those who are not.

 

Power Law is a statistical concept that describes the relationship between two quantities where one varies as a power of another. For example, the area of square varies as a power of 4 with regard to the length of its sides.  Double the length the side of a square and the area is multiplied by a factor of four regardless of the size of the square.  This relates to wealth because the distribution¹ of wealth is governed by a power law function whereby the few overwhelmingly dominate the many.  It’s quite natural and normal but social justice warriors hate it and want to redistribute the existing allocation of society’s resources by attacking the rich.  However, the wealthy few are protected by the power law distribution of wealth².

An example power-law graph, being used to demonstrate ranking of popularity. To the right is the long tail, and to the left are the few that dominate (also known as the 80–20 rule).

 

Our War Chest is defended by the undeniably powerful law of the vital few, also known as the Pareto Principle, named after an Italian economist in 1896, who noticed that 20% of the peapods in his garden contained 80% of the peas.  Hey, let’s explore the 80-20 rule next week.  These notions are potent weapons in the moral and intellectual defense of our wealth, which is under attack by those who despise the fact that wealth will always be concentrated in the hands of a few.

 

¹ Using the word distribution implies that wealth is purposefully allocated in favor of some and not others.  It’s not.  Wealth allocates itself – not through some Marxist mechanism of exploitation.

 

² This is Mother Nature not systemized oppression of the poor. There is a natural inverse relationship between the number of wealthy households and the size of their wealth.  Similarly, the frequency of earthquakes varies inversely with their intensity.  The number of cities with a certain population varies inversely with their population size.

What We Deserve

Meritocracy is a political philosophy holding that power and wealth should be vested in people based on their ability and talent. There’s been a flurry of books and articles attacking the morality of meritocracy.  Here are 2 articles that cite and refute those ‘anti-meritocrats’:

http://slatestarcodex.com/2017/07/24/targeting-meritocracy/

http://www.nationalreview.com/article/450101/american-meritocracy-needs-reform-not-replacement

It’s clear that 1) the U.S. economic system is a meritocracy (albeit an imperfect one); and 2) this is a morally just and highly efficient way to allocate power and resources.

The philosophical attacks on meritocracy stem from concerns about what people deserve.  Power and wealth generally flow to people who deserve them in a meritocracy.  You can object to the mechanism of how this is accomplished or what defines merit, but it’s hard to argue that those with greater merit (superior skill, ability, talent, work ethic, etc.) do not deserve more of society’s good things.  But some writers do.  Here’s an articulation of the idea by Freddie de Boer from a book review cited in Scott Alexander’s article:

I reject meritocracy because I reject the idea of human deserts. I don’t believe that an individual’s material conditions should be determined by what he or she “deserves,” no matter the criteria and regardless of the accuracy of the system contrived to measure it. I believe an equal best should be done for all people at all times.

More practically, I believe that anything resembling an accurate assessment of what someone deserves is impossible, inevitably drowned in a sea of confounding variables, entrenched advantage, genetic and physiological tendencies, parental influence, peer effects, random chance, and the conditions under which a person labors….. Reality is indifferent to meritocracy’s perceived need to “give people what they deserve.”

That’s a rational argument but it misses the point and doesn’t stand up to the practical necessity of having the best people in the hardest, most important jobs, making the difficult most critical decisions. Numbskull egalitarians would destroy incentive, motivation and natural economic processes in order to somehow make the world fairer by forcing a social justice based regime.  Just because it can be difficult to assess merit or that such assessments can be abused (or that the system doesn’t appear equitable because the “rich get richer”) does not mean we should abandon meritocracy.  Your Estate Planning War Chest is built upon a foundation of merit.  And that’s a good thing.  Next week, we’ll examine the natural phenomenon of exactly why the rich stay rich and the poor stay poor across generations.

Privilege

There was an opinion article in this Sunday’s New York Times by a law professor: White Economic Privilege Is Alive and Well.

https://www.nytimes.com/2017/07/29/opinion/sunday/black-income-white-privilege.html

It’s an interesting example of radically differing ways of viewing the world. One of the comments nails the essence of the disagreements over this controversial issue; it highlights Leftist ideologues’ intentionally use of the word privilege.  Words matter.  Economics is the competitive allocation of resources.  Privilege has a highly negative, racially hostile connotation. It implies profound unfairness and oppression, which is not what’s going on in America.  A more appropriate economic word is advantage.  In economic competition, like sports or military conflict, some competitors enter the playing field with advantages; but you wouldn’t call them privileged.  Look, those football players are bigger and faster than the other team, they’re privileged.  Wow, that nation’s army is bigger and better trained, they’re privileged.

 

Those who have an economic War Chest had and continue to have economic advantages. Calling us privileged, racist or dream hoarders is offensive.  Here’s the full unedited comment on that article:

M Peirce

Boulder, CO 1 day ago

Words matter. Stop using “privilege.” It makes non-privileged whites and non-blacks angry. Rightly so. Start using other words, like “advantage,” which are cleaner and clearer, and more justified in import. People who have nice opportunities, who grew up in the upper middle class and are likely to stay there, are privileged. People outside of that sphere are not. Most whites are not privileged, and are not given privileges. Most whites have an array of comparative advantages over non-whites: They’re given the benefit of the doubt comparatively more often, don’t have to live down prejudicial preconceptions, are not red-lined, and more. Most, in other words, are accorded basic human rights and dignity that should be extended to everyone, but aren’t. But that’s not the same as being “privileged” and should not be labeled as such. Using “privilege” is hyperbole, like labelling demeaning remarks as “violence.” Using “privilege” as a label connotes that the thus-labeled person is well-off. Calling a person who is struggling to make ends meet “privileged”, accordingly, is asking for a fight, one likely to deepen racial animosities instead of repairing them. Moreover, it implies directing fewer resources toward those who are just struggling, and so, setting up a who’s worse-off fight within the ranks of the poor, pitting poor against poor for resources that every poor person needs. So cut the crap and use a different word.

Power and Responsiblity

“With great power comes great responsibility”.  That quote is attributable to a variety of sources (from Spider-Man to Voltaire) and it is an undeniable truism.  Power manifests itself in many forms:  Physical prowess, financial wealth, a leadership position in business/politics or a loaded firearm.  David French wrote a nice article Saturday about how conceal and carry laws have changed the ethos of America for the better.

http://www.nationalreview.com/article/449754/concealed-carry-permits-increasing-good-america

 

Those who are licensed to carry a weapon are fully aware of a gun’s power and danger. It is evident that permit holders are extremely law-abiding and repeatedly come to the aid of friends and neighbors in need of help.  They have proven themselves responsible, courageous and independent.  It’s the psychological aspects of independence, power and responsibility by which gun ownership parallels wealth ownership.  Carrying a gun instantly changes a person’s relationship with the State.  They are immediately less dependent on Government.  They are no longer a ‘protectee’ – they are a protector of themselves and others.

 

The power of wealth gives similar independence and it must be vigilantly respected. Those who control substantial wealth have a duty to utilize it responsibly – to protect and preserve it for good use (securing the well-being of one’s family, self-improvement, helping others), not wasted or used destructively (on lazy unnecessary consumption, drugs, gambling or other immoral expenditures).    Parents are fully aware that they should not give complete control of an inheritance to their children too early.  A Trust controlled by a responsible adult Trustee should manage wealth until the child is mature enough to control the wealth wisely.

 

Wealth is raw power and it should not be transferred from one person to another without assurance that it will be used responsibly. Government cannot and should not be put into the role of provider, particularly in today’s corrupt culture of irresponsible, able bodied working-age adults who refuse to provide for themselves.  [see my 10/18/16 post on the immorality of idleness]  Mona Charen writes “The American character has been corrupted by multiple generations of government dependency, and the loss of important virtues like self-control, delayed gratification, family stability, thrift and industriousness.”    The vast majority would be irresponsible with the power of wealth.  James M. Stone writes that moderately wealthy Americans understand that wealth redistribution would be “wasted on transfer payments to unworthy recipients, who will use their government largess to support less-than-commendable lifestyles.”

 

Wealth is like a loaded high caliber firearm; it should not be confiscated and handed over to irresponsible masses. Your Wealth War Chest is a strongbox of responsibly wielded power.

Fatal Conceit

Friedrich Hayek’s last major work was The Fatal Conceit: Errors of Socialism (1988).  It built onto the analysis of his essay The Intellectuals and Socialism (1949).  Ideas begin with brilliant theorists and original thinkers but they are spread by intellectuals, whom he called “second hand dealers in ideas”.  Intellectuals then decide which views and opinions are important enough to reach us.  This is how a society can become so obsessed with fatally bad ideas.  Intellectuals are the gatekeepers of ideas and they often open the floodgates for bad ideas (like collectivism) that cause death, misery and economic devastation.

 

Pro-market minds (advocates of spontaneous human order created by competitive markets) tend to become businessmen, engineers, doctors and lawyers. Anti-market minds (those who demand a deliberate arrangement of human interaction by central authority based on collective command over resources) tend to become intellectuals and scholars.  The anti-market mind, for Hayek, is highly intelligent but wrong.  Why?  Intelligent people tend to overvalue intelligence.  They think everything worth knowing can be uncovered with intellectual examination and find it hard to believe that there is any useful knowledge that is not deliberately unveiled. Intellectuals neglect the traditional, natural cultural evolution that produced the current order, including the highly moral institutions of private property, freedom and justice.

 

To understand our civilization, it’s important to recognize that the current political economy arose unintentionally as individuals conformed to specific moral practices, many of which intellectuals tend to dislike, whose significance they fail to understand, whose validity they cannot prove, but which are spread by means of an evolutionary selection. The relative wealth of a small minority of the population derives from groups of people who happen to follow these moral practices.  Hayek writes “The unwitting, reluctant, even painful adoption of these practices kept these groups together, increased their access to valuable information of all sorts, and enabled them to be ‘fruitful, and multiply, and replenish the earth, and subdue it’ (Genesis 1:28). Our War Chest was naturally born and is protected from incorrect, anti-market intellectuals by correct, pro-market moral order.

Intellectual Bunker

While reviewing literature patrolling the outer perimeter of our War Chest bunker, I came across some enemy thoughts exploding faintly in the distant horizon of the idea wars. University of Connecticut Law Professor James Kwak’s book: Economism – Bad Economics and the Rise of Inequality (2017).  He starts with the proposition that ideas matter… a lot, not because they are incontrovertibly right, but rather because they have the power to shape how people see the world and are used as weapons in how resources are allocated… and defended.  His thesis is that “economism” is an ideology used by the wealthy and powerful to exploit everyone else by overemphasizing simplified economic concepts in how the world is viewed.

 

I liked (but disagree with) his book because Kwak recognizes the lasting intellectual fire power of Ludwig Von Mises (1881-1973) and Friedrich Hayak (1899-1992). He believes the wealthy started with those ideas and then relentlessly and ruthlessly pushed targeted notions onto the public and politicians via conservative think tanks.  He then advocates wealth re-distribution justified with the tired old marginal utility concept (extra wealth is more valuable/useful to the poor than it is to the rich).  Government, it is argued, has the responsibility to make the world a better place.  Remember Aristotle’s flutes?  How should flutes be allocated? …to the wealthiest? No, flutes should be distributed to the best flute players.  But Hayek already ripped to pieces the idea of a collectivist, Government planned economy.  And that’s the only real alternative to capitalism – no matter how loudly the G20 Summit anti-capitalism protesters scream.

 

In fact, Kwak is the pot calling the kettle black when he argues that conservative ideology and the “anti-tax chorus” is hegemony. The methods of Socialism are completely based on deceiving the public with propaganda.  In case you forgot, communism/socialism will not and cannot work because it’s:

1. Idealistic and utopian
2. Treacherous – selling an intellectual bill of goods
3. Effected by the Social Engineer, the worst type of person to run things
4. Contrary to the Rule of Law
5. Destruction of freedom and prosperity
6. Forces people to rely on the favor of the mighty
7. Distorts the definition of liberty (replaces true freedom with the freedom of the barracks)
8. Bad guys always end up on top
9. Destroys truth by relying on propaganda
10. Does not work – millions have suffered and died trying – enough is enough

 

Fortunately, we are safe behind our reinforced bunker of assets and awareness. Throw another intellectual sandbag in front of your Estate Planning War Chest.

Bombs Bursting in Air

I love fireworks on the 4^th of July.  It’s of course symbolic of our Nation’s violent founding in the Revolutionary War.  We celebrate Independence Day and understand that violence was necessary to secure our rights to life, liberty and property.  But some writers think violence is still necessary (violence against property owners) because of existing oppressive power structures and wealth inequality.

 

The marketplace of ideas is a battlefield. French economist Thomas Piketty’s book Capital in the 21^st Century (2013) was hailed as a hugely significant work by wealth redistributionists.  The title is a wink to Karl Marx’s book Das Kapital (1867) advocating communism.  Piketty proposes global “confiscatory tax rates” (his words) in his attempt to legitimize violence against the wealthy.  The book received accolades from the Left because they have been so desperate for new material since the ideas of Karl Marx were blown to bits.

 

Piketty’s ideas were subject to vehement criticism some of which are summarized in the book Anti-Piketty (2017).   It’s a collection of 24 ballistic missile essays from various authors launched into Piketty’s supposed economics book (it’s clearly political – a treatise on morality or normative economics – ‘I thus declare that this is how things should be!’).  The Anti-Piketty essays are so piercing that they’re humorous with titles like “Piketty Gets It Wrong”, “Piketty’s Numbers Don’t Add Up” – so much to criticize because of the gigantic leaps of logic and gaps in data according to the critics.

 

Collectivist ideas have long been debunked and are now being dressed up in disguise. Even Karl Marx remarked that “history always repeats itself:  the first time as tragedy, the second time as farce.”  We strolled through the completely devastated intellectual and moral landscape of Collectivism here starting on 11/30/16 as we examined the chapters of F. A. Hayek’s Road to Serfdom (1944).  Piketty’s work is subject to the exact same criticism (beware the social engineer from my 12/20/16 post).  Loosely quoting from Chapter 5 “The Sociology of Piketty’s Anti-Rich Stance” in the book Anti-Piketty (pg. 46):

Intellectuals who are affluent but not super rich are eager to set the threshold for confiscatory tax rates just beyond their own income levels. But this sort of class war is only part of the equation…. it’s more about power.  A full endorsement of classic leftist radicalism would set a torch to Piketty’s own tower of privilege.  The State, guided by experts, informed by data, must be empowered to decide how the Rawlsian difference principle is applied to society.  Piketty’s assurance that inequality “inevitably” leads to violence amounts to an implied threat:  “Let us distribute resources as we think best, or the masses will bring fire”. 

 

It’s the same tired old ethics of envy and resentment towards the wealthy. Ludwig von Mises (1881-1973) wrote that intellectuals “loathe capitalism because it has assigned to this other man the position that they themselves would like to have”.  Hayek believed social engineers are “second-hand dealers in ideas”.  No need to worry about political attacks on wealth, there are plenty of intellectual warriors battling to protect our interests in the war of ideas.  Enjoy the fireworks and the economic rocket’s red glare.  Your life, liberty and property are safe.  Happy 4^th of July from the War Chest!