Wealth Creation: A Reminder

If anyone has been reading me from the beginning (I started in September of 2002), you know that one of my advocacies is: You can’t “re-distribute” wealth.  You can only re-distribute money.  Wealth is created through the combination of skill and effort.  By re-distributing money, you actually destroy wealth.  And if you took all the money and jobs in the US and gathered them up, and distributed them opposite, so that the previous poor had most of the money and good jobs, it wouldn’t take long before the previously poor were back on the bottom and the previously rich were back on top.  Because the US society is still extremely conducive to economic mobility.  People sometimes forget that means down as well as up.  But if you consistently make good decisions, you will move up the economic ladder.

Here’s how someone else puts it:

In our free-enterprise system, employees are valued largely in terms of what they can do. This is why teenagers fresh out of high school often go to vocational training institutes to become auto mechanics or electricians. They understand a basic principle that seems to elude social commentators, politicians and union organizers. If you want better pay, you need to learn skills that are in demand.

The blunt tools of legislation or union power can force a corporation to pay higher wages, but if employees don’t create an equal amount of additional value, there’s no net gain. All other factors remaining equal, the store will have to charge higher prices for its merchandise, and its competitive position will suffer.

This is Economics 101, but no one wants to believe it, because it tells us that a legislative or unionized quick-fix is not going to work in the long term. If you want people to be wealthier, they have to create additional wealth.

To my mind, the real scandal is not that a large corporation doesn’t pay people more. The scandal is that so many people have so little economic value. Despite (or because of) a free public school system, millions of teenagers enter the work force without marketable skills. So why would anyone expect them to be well paid?

This comes from an article praising Wal-Mart.  As well it should.

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