In my last posting, “Making The Distinction Between Poor and Broke,” I explained the difference between being broke and being poor. I described how one condition is a temporary external condition while the other is a state of mind. In that same article, I also alluded to the fact that the idea of wealth distribution is a bad idea. I’ve received a few curious and a few disgruntled emails from people asking why I think wealth distribution won’t work. By wealth distribution, we’re talking about tax increases on the wealthy. A lot of the poor mistakenly believe that by taxing, the government would redistribute the money to them in the form of some sort of direct payouts (although it doesn’t work that way). Higher taxation on the wealthy, by the way, is a common method used by governments in order to recover from a depression. It is used primarily when governments need money to stimulate the economy but don’t want to borrow from either their central bank or other nations. That being said, some believe that the government should flat out take money from the rich and give it to the poor. With that being said, we’re gonna talk about why wealth distribution in the form mentioned in the previous sentence is pretty idiotic and would never work. So let’s begin…
First and most importantly, even if we did take all of the world’s wealth and distribute it evenly amongst every citizen on earth, the money would go right back to where it is now. Why? That is because the vast majority of the world’s population is financially illiterate. They know nothing about generating and managing wealth. This is simply because some people operate on a poverty conscious level. I expressed those same sentiments in my previous article as to why wealth distribution won’t work, but now I’m gonna illustrate my point even further.
Question: Have you ever seen what happens to a person when they come into a sudden windfall of money? They usually get the money, they splurge and then a short time later, they’re asking themselves where did it all go. The most obvious example of this would be lottery winners, but since people hitting the lottery for millions isn’t a regular occurrence, I’m gonna use something that occurs more frequently and that everyone can relate to. We’re gonna talk about tax season. We see this every year. Let’s say that the average person gets a return of between $2,000-$5,000 on their income tax return (where I live, $5,000 is 2 months salary for the average person). What usually happens when a person gets these tax returns that is almost double their monthly salary? Do they put any of that money aside in order to get ahead financially? Do they look to put their money into some sort of vehicle in which it will grow and create more money? Of course not. Instead, they go out and buy rims, stereos, big screen TVs, clothes and a bunch of other frivolous items. Then they end up right back where they began… living paycheck to paycheck.
If the average person receives a tax return that is double their monthly salary and goes out to buy frivolous things with it, that pretty much explains how the money would go right back to where it is now if we evenly distributed the wealth. It’d go back even faster with larger sums of money being distributed.
Secondly, when it comes to making money, people are mentally programmed to handle certain levels of money. You can’t comfortably handle thousands if you haven’t learned to manage hundreds. Your average working citizens has less than $1,000 in the bank. The median income of Americans is said to be $50,000. With a personal savings rate of 3.3%, that only gives the average American a yearly savings of $1,650. Of course, not everyone is saving that much or that little… that’s only a median. We can talk about inflation being the reason why the personal savings rate is low, which would be valid because some people have to borrow to pay for life’s necessities. But if anyone were smart financially, they’d figure out a way to hedge against inflation. But at the same time, in recent months, statistics have shown the personal savings rate drop while spending has increased. So inflation isn’t entirely to blame for people’s inability to manage money. The point is — a lot of citizens can’t even comfortably manage a few hundred dollars (which is why they live paycheck to paycheck), but they seem to believe that wealth distribution would solve their problems. If you mismanage the amount of money you currently have, you’d only do worse with a larger amount.
Another reason why wealth distribution won’t work is because there’s a knowledge gap. This ties directly into what I described as financial illiteracy earlier. As I also said in the previous article — if more people began to educate themselves financially, the gap between rich and poor would naturally decrease. How so? Because more people would become financially responsible. Also, more people would become producers instead of consumers. Production naturally generates wealth. Its just how nature works. But by forcing one group (the producers) to take care of another (the consumers) would only have a temporary effect. Why? Because one group is still more knowledgeable than the other. One group would still produce and one group would still consume. They don’t know any better because they still lack financial knowledge, so they’re going to end up doing the same things with their new found wealth that created the wealth disparity in the first place. Because the other group still have the same knowledge they used to acquire their original fortunes, they’d come up with a way to earn their fortune right back and then some. As you can see, the income disparity is only a symptom of the bigger problem… the bigger problem being a lack of financial education amongst members of our society.
Here’s another thing I want to include while we’re on the subject of the knowledge gap. In the previous discussion, I described one group (the poor) as being poverty-conscious. This is the group who’s own mind is a weapon against them because they unconsciously create impoverished conditions for themselves. Here’s why how you know if you’re dealing with a poverty-conscious (poor) person. The poor person asks for things like wealth distribution instead of the knowledge it takes to acquire their own wealth. That’s a key thing! Most of you are likely familiar with the Chinese proverb: “Give a man a fish, he eats for a day. Teach a man to fish, he eats for a lifetime.” In other words, a poor person expects another person to go fishing for them everyday. Almost everyone is familiar with that proverb but very, very few actually realize that its true.
The poor person fails to understand, as we’ve discussed, that if you haven’t learned to manage the money you already have, receiving more money won’t solve a damn thing. More money would simply get you into more trouble because by having the bad financial habits you already have, those habits would only multiply if more money came into the equation. You expect me to believe that if you had more money, you’d suddenly become financially responsible? Get the fuck out of here! Need an example!? Look at pro athletes! A lot of these guys come from modest backgrounds and then suddenly signs a contract which pays them millions of dollars a year. But a lot of them live paycheck to paycheck as well and usually retire broke despite some having made hundreds of millions of dollars throughout their careers. How can that be? That’s because they didn’t bother to educate themselves financially!!! Even though they have the money, their minds still operate on a poverty-conscious level.
Why do you think self-made millionaires usually last a lot longer than those who inherited their wealth? That’s because the self-made had a acquire the skills to maintain their fortune along the way, while the person who inherited their wealth didn’t take that same path (don’t get it twisted though, a lot of wealth families train their kids very early on in life to manage the wealth they stand to inherit).
I know a lot of you think wealth distribution is the right thing to do just because you heard it on TV from prominent politicians. But the truth is: Politicians push the idea of wealth distribution in order to keep a job. Promising you such a thing would gain your vote. But in realty, they’re weakening you. They’re helping to rob you of initiative. They’re helping to rob you of the ability to do for yourself.
Conclusion: Instead of looking to narrow the wealth gap by forcefully taking from one group, the real solution is providing better financial education. But for our economy to work under the Keynesian system, consumerism must run rampant. Savings is seen as a bad thing under the Keynesian system. However, when the Keynesian method was first introduced, shortly after The Great Depression, the idea that hoarding money stifles economic growth was valid and true. But now, people don’t save enough and look where that’s got us. Instead of looking for someone to give you money, look to acquire the knowledge it takes to create your own. Lets be honest, most people aren’t going to put in the necessary work to become educated financially because that means turning off the trash TV and eliminating/cutting back on other degenerate activities. However, becoming educated financially is the only permanent solution there could be to closing the income gap. Looking for wealth distribution is nothing more than trying to take the easy way out instead of doing the work it takes to educate yourself. But its gonna come back to bite in the end because, as already discussed, the poor is gonna give the money right back.