On Monday, the New York Times ran an AP article titled Stark Inequality. This article made the following statement, “It is obscene for so much wealth to be held in the hands of so few… Inequality is trapping hundreds of millions in poverty; it is fracturing our societies and undermining democracy.”
I have news for the New Your Times. Rich people don’t “hold” their money. They don’t spend much of it. They invest it. Here is why that is important to all of us. The very life-blood of any economy is the money invested into it.
What Happens When Money Is Invested?
When money is invested, companies are built, jobs are created, and products are provided to awaiting markets. Take away investments and the economy could not grow. Jobs would be lost. No new ideas would come to market. If you think 2008 was a bad year, it would be “the good ol’ days” compared to what our world would be like if the flow of investment money stopped.
Every semester, I get a new class of a few hundred college freshmen that I am going to teach about the basics of business. I explain to them that the business world has four moving parts: marketing, management, finance, and accounting. If any one of these four breaks down, the business world would come screeching to a halt.
Marketing gets the revenue, management creates the products, and accounting keeps score. Then there is the world of finance. Marketing can’t create revenue unless it has something valuable to sell. Management cannot give marketing anything to sell without money to operate. Until marketing sells what management creates, accountants don’t have anything to count. But until management creates something marketing has nothing to sell and accountants don’t have anything to count.
That’s where finance comes in. It is the field that focusses on investments. Investments are the catalyst. Investments prime the pump. Investment money is the spark that starts the fire burning. Great business ideas are still-born without investment capital.
If you have a job in the private sector, the only reason you have that job is because someone invested the money needed to get your business started and make it grow. If you work in the public sector, the only reason you have your job is because the private sector can pay taxes. The only reason why the private sector can pay taxes is because someone invested their money to get things started. Without investments, we would all be dead broke.
Who invests? It isn’t the poor. They spend all they make. It isn’t the government. They spend more than they make. A little comes from the middle class. Most of the investments come from the wealthy.
Think of it this way. Let’s say I wanted to do an experiment. I wanted to see if I could get $1,000 invested into our economy. I didn’t want to invest it myself. I wanted to see it invested by someone else. All I could do with the money is give it to someone else and watch what they did with it.
What would happen if I gave it to a poor person? My guess is that, within a month, it would be gone and none of it would be invested. Let’s say I gave it to the government. We know that money would be gone. Let’s say I gave it to someone in the middle class. Maybe $100 would be invested and probably $900+ would be spent.
But let’s say I gave it to one of these “obscenely wealthy” people that the New York Times spoke about. Would they go, “Wow, now I have the money to buy that TV I have always wanted”? No, it would not affect their spending habits at all. They are already spending all the money they are going to spend and it is just a small fraction of the money they have. They are going to invest the full $1,000.
What Would You Do with the Money?
I heard multi-billionaire Rich Devos speak one time. He said that he is occasionally approached by someone who asks him why he doesn’t feel guilty being so wealthy. He has so much while others have so little.
Here is what he tells them. You come up with the plan to end poverty and I will come up with the money. If I gave you the money, how would you use it to end poverty? The person who thinks Devos should feel guilty for being wealthy never has an answer to that question. Devos does.
The best thing an “obscenely wealthy” person can do with his money is exactly what they are doing with their money. It is exactly what Devos is doing with his money. They should put the vast majority of their money to work building businesses that will provide jobs and marketable products.
If Devos were to sell all of his assets and give the money to the poor, what would happen? The poor would quickly consume his money and remain poor. The fifteen thousand people Devos’ business empire employs would be on the street. All the companies and individuals that have business relationships with Devos’ companies would be hurt. And customers like me who love the products Devos’ companies make would not be able to get them.
The Niche of the “Obscenely Wealthy”
Don’t listen to what the economically illiterate say. You don’t solve poverty by taking money away from the rich. You make it worse. Like it or not, the “obscenely wealthy” fill a very important niche in the world economic ecosystem. If they aren’t there, the ecosystem dies.
I would love to be one of the “obscenely wealthy.” I wouldn’t feel obscene at all if I had all the money I could possibly spend on myself and still had tons of money left over to invest. I think I might get more joy in knowing that I am helping the economy thrive than in buying all the stuff.
But I don’t fill that niche. Why? I guess because I am not as smart as all these “obscenely wealthy” billionaires. They think at a much higher level than I do when it comes to making economic decisions. As I tell my classes, I don’t think like a billionaire. If I thought like a billionaire, I would be a billionaire.
So I am down here filling a different niche in the economic ecosystem and I am fine with that. I am filling my niche and the “obscenely wealthy” are filling their niche. I don’t resent them for the niche they fill even though I would like to have all that money myself. Quite the opposite. I am actually quite grateful for them. I understand their importance to our economic ecosystem and so I want them to be there. They thrive and we all benefit.
Given that investments are so important to our economy, whose hands do you want all those billions upon billions of dollars to be in? I want it to be in the hands of the “obscenely wealthy.” They have proven that they know what to do with it to produce the products people want. And despite what it looks like from our hand-to-mouth existence down here, they don’t take it and spend it all on themselves. They invest it and that’s what makes life better for the rest of us.
Category: Success Tuesday, January 17, 2017