Friday, December 28, 2012

The Crucial Difference Between Wealth Creation and Wealth Distribution

From the Wall Street Journal:

In his Dec. 20 op-ed “America’s Dangerous Powerball Economy,” Arthur Brooks quite correctly points out that earned income, indeed earned success generally, affects our happiness very differently than unearned income or success.

I would like to extend his point further with something I’ve told my college students for years.

In general, the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game…

David C. Rose

Department of Economics
University of Missouri-St. Louis
St. Louis, Mo.

I note that much the same explanation accounts for the way families often squabble furiously over an inheritance while happily accepting the differing earning patterns of family members.

I further note that it is since the 1930s and the introduction of the welfare state that societies such as those found in the west have become increasingly concerned with the distribution of the pie to the point where that distribution now threatens the very production which makes it possible.


Sunday, December 9, 2012

Self interest rules–it’s what they do not what they say–even for Saint Warren

Economists stress the absolute importance of “revealed preferences” – what people actually do as opposed to what they say. Here is a classic example of why this simple principle is crucial:

Retailer Costco announced plans to pay out a special $3 billion dividend this year. As Reuters reports, "Several companies have declared one-time cash payouts in recent days ahead of a likely increase in the dividend tax rate due to the so-called fiscal cliff."

Other companies doing similar things include Sheldon Adelson's Las Vegas Sands, Dillard's, Brown-Forman, and Wynn Resorts Ltd. Apple started paying a dividend, and Walmart "moved its planned dividend to late December from early January to help shareholders avoid any increase in the tax rate," the Reuters article says.

The Costco move is particularly rich because the Costco board of directors includes Warren Buffett partner Charles Munger, who has said he is "100%" behind Mr. Buffett's "rule" that would impose higher taxes on the rich. It also includes WIlliam H. Gates Sr., the father of the Microsoft chairman. Gates Sr. has been a vocal advocate of tax increases in Washington State. The board also includes James Sinegal, a Costco founder, who spoke at the 2012 Democratic National Convention in support of President Obama. Also on the Costco board, as the lead independent director, is Hamilton E. James, who was part of that group who recently met with Secretary Geithner and President Obama at the White House.

And Mr. Buffett wants us to believe that tax rates don't affect business decisions? Why are all these businesses all of a sudden paying out dividends now?

Pro market not pro business is the name of the progress game thank you.

Extracts from Reuters and Future Capitalism.


Monday, December 3, 2012

A Great List

A monthly post looking at what books Abnormal Returns readers purchased at Amazon in the prior month has become very popular with our readers. It serves as a great list for readers looking for investment-related books for everyone on their holiday list. The top two books on the list were the subject of one our Amazon Money and Markets blog posts. Nearly 36% of purchases were of a single copy so I have omitted them. Below are the books (combined print and Kindle) that our readers purchased for November 2012:

The Bestsellers

  1. Mastery by Robert Greene

The Rest

  1. Hedge Fund Market Wizards by Jack Schwager
  2. Automate This by Christopher Steiner
  3. Instant: The Story of Polaroid by Christopher Bonanos
  4. Thinking Fast and Slow by Daniel Kahneman

Sunday, December 2, 2012

Difficult to disagree with

Posted in MR:

The retreat from child rearing is, at some level, a symptom of late-modern exhaustion — a decadence that first arose in the West but now haunts rich societies around the globe. It’s a spirit that privileges the present over the future, chooses stagnation over innovation, prefers what already exists over what might be. It embraces the comforts and pleasures of modernity, while shrugging off the basic sacrifices that built our civilization in the first place.

Here is the link.