3 Cheers for Confiscation

April 29, 2014
Alexander Green

If you are wealthy-or even aspire to be-listen up. There is a growing movement in the US that believes some people's economic success comes at someone else's expense.

This article is published with permission from InvestmentU.com.

If you are wealthy—or even aspire to be—listen up.

There is a growing movement in the US that sees you and your way of thinking as the enemy. They see the economy as a zero-sum game where your economic success only comes at someone else's expense. And they want to use the hammer of state to change that.

Exhibit A: A new book by French economist Thomas Piketty, Capital in the Twenty-First Century, is a runaway hit. It is not just perched at number one on the Amazon.com list of best-sellers. It is completely sold out, even though it is in its fourth printing.

This is not a thriller you'd take to the beach. It is a dense, academic book tracing the distribution of income and wealth for various countries back to the 1800s. The author recognizes that, in a free-market system, different people of different abilities—through a combination of education, determination and, yes, some luck—will achieve highly unequal outcomes.

His proposed solution? I can assure you it has nothing to do with reforming public education, revitalizing the economy or simplifying the tax code.

Soak the rich

Despite the fact that every transaction in a capitalist system is a voluntary one, he believes the haves are stealing from the have-nots. And he doesn't mean metaphorically.

He calls the wages of high-income earners "largely arbitrary." He says no CEO could ever justify his or her pay based on performance. And he declares that most fortunes are due to nothing more than inheritance (more commonly known as "the lucky sperm club"), flaws in corporate governance, luck, or "outright theft."

His solution is tax rates of 80% on anyone making $500,000 or more, rates of 50% to 60% on incomes as low as $200,000, an annual wealth tax of 10% on large fortunes and a one-time assessment as high as 20% on much lower levels of existing wealth.

I did mention he was French, didn't I?

Piketty believes capital is the enemy. And he breezily assures the reader that confiscatory tax rates won't hamper innovation, entrepreneurship or the risk-taking essential to economic growth. Moreover, he doesn't propose soaking the rich to improve economic opportunity, rebuild our infrastructure or even enhance social justice. He straightforwardly declares that he wants to put an end to high levels of accumulated wealth, which he calls an affront to democracy.

I had it backward

From this vantage point, I was awfully naïve as a young man.

Back then, whenever I saw someone who had achieved great economic success, I instinctively thought, "There goes someone who must have studied hard, worked diligently and taken some big risks." I didn't just admire them. I wanted to be like them. Their success was a source of inspiration and motivation. And I assumed that if I were ever going to be successful, I'd have to form and abide by the same habits.

According to Piketty and his ilk, I had it all backward. These people were my oppressors. The reason I had less was because they had more. I should have been envious. I should have been resentful. I should have been angry.

Most of all, I should have voted for the government to take their wealth at the point of a gun and redistribute it … to people like me who didn't have much.

Poverty is a problem. Social mobility is a problem. (We need to make it as easy as possible for people from all economic backgrounds to rise and succeed.) But the fact that Bill Gates and Warren Buffett have a lot more than me? That's not a problem.

And it's as true today as it was when I didn't have 2 nickels to rub together. Apparently, I'd make a very poor Frenchman.

Alexander Green is the chief investment strategist at InvestmentU.com. See more articles by Alexander here.

Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.

The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice.