Article by Investment U
The founding principle of Investment U is that if you want to be a better investor, you need to better understand the time-tested principles of investing and how they apply to today’s markets.
That starts, however, with comprehending the nature of business in a capitalistic society.
That is something that eludes many Americans, however, including perhaps the nation’s chief executive.
President Obama opened a can of worms recently with his remark, “If you’ve got a business – you didn’t build that. Somebody else made that happen.” He prefaced his remarks with references to how public education and government-created infrastructure allow businesses to thrive.
There’s no argument here. We all know the term “self-made man” isn’t a literal one.
But you have to wonder whether the President – a man with no experience in the private sector – truly understands how wealth is created in our capitalistic society or how an overweening federal government diminishes it.
A Culture That Rewards Individual Initiative
For example, every society depends on public education and the roads and bridges that the government builds. But if these were the primary determinants of economic success, why have so many countries with world-class infrastructure not been hotbeds of innovation and wealth creation? Clearly, a culture that fosters and rewards individual initiative and risk-taking plays a major role.
Also, if business owners themselves are not primarily responsible for their successes, who is responsible for their failures? In a letter to The Wall Street Journal last week, Dick Raddatz of Mequon, Wisconsin wrote, “My last business lost $1.5 million of which $750,000 was personally guaranteed by me. Please give me a call, Mr. President, and I will tell you where to send the check for your fair share.”
Perhaps the biggest fallacy in Obama’s remarks was the contention that the government pays for the nation’s infrastructure. The reality, of course, is the federal government has no money except what it collects in taxes. And since the vast majority of taxes are paid by businesses and high-earning individuals, we can thank them for the infrastructure we all enjoy.
My goal here is not to bash President Obama or influence the way you vote – I’m sure you’ve got your own ideas on that – but rather to point out that personal economic success is primarily about individual striving not government policies.
A Win-Win Proposition
Capitalism is a beautiful thing. It promises that you can have anything you want if you just provide enough other people with what they want. It’s about voluntary exchange for mutual benefit. That is why whenever you make a purchase you hear two thank-you’s.
You say thanks because you want the merchandise more than the money. The retailer says thanks because he wants the money more than the merchandise. Capitalism is not a zero-sum game where one side wins and the other side loses. It’s a win-win.
Remember, big business can’t make you do anything you don’t want to do. If you don’t like a company, you don’t have to patronize them, work for them or sell to them.
Big government, on the other hand, is all about force, not choice. Every year Congress generates thousands of pages of new legislation, with virtually every page requiring business owners to do something they don’t want to do or prohibiting them from doing something they would like to do.
Educated people realize there is a role for government to play. But it is a minimal role. Mandates, regulations, tax complexity and compliance bog down businesses, stifle innovation and, not incidentally, diminish confidence about the future, leading businesses to hire, spend and invest less.
In short, we shouldn’t discount or demean entrepreneurship. We should celebrate it. Hard work and risk-taking – not roads and bridges – is what creates fortunes. Understanding and appreciating this is the first step down the right path.
Good Investing,
Alex
Article by Investment U
