Wealth and Poverty Revisited
Gilder, George
Wealth and Poverty began its career as a modest tract, to be called "The Pursuit of Poverty," sharing a total advance of $8,000 with Visible Man, which sold some 800 copies in the first year and...
...The greatest U.S...
...In general the lowest tax rates are found in the "newly industrialized countries" of Asia that now lead the world both in economic growth and in growth of government revenues...
...As I show in Wealth and Poverty, work in the form of tax finagles or in the form of uncapitalized and thus inefficient manual labor may thrive in a high-tax economy...
...I predict that the single most baffling disappointment of Clinton's career will be his failure to win a majority of females in 1996 after reducing his administration to a comic auxiliary of the Women's Political Caucus in pursuit of their votes...
...Seething at such obvious inequities of capitalism, they castigated the prosperous for "greed" and "workaholism...
...At the end of the decade, U.S...
...In the red by hundreds of billions of dollars in 1980, these funds gained some $2 trillion in real worth during the rest of the decade...
...The 1980s also saw the longest peacetime expansion on record, with the highest rates of investment in capital equipment and the highest sustained rates of manufacturing productivity growth of any postwar recovery...
...As Mark Skousen has shown, the correct measure is close to one-third...
...I soon discovered that, amid all the uproar, the central theme of my work had not been grasped even by some of my closest intellectual allies in the conservative movement...
...At the same time, as Jude Wanniski points out, the creation of more than 20 million new jobs was crucial in wiping out a $4 trillion deficit in the Social Security system...
...In the morbid feedback loops of liberalism, the answer to such problems is always more government subsidies for homelessness and family breakdown, and thus more propaganda for the enemies of America...
...Like the Great Depression, which was caused by massive tax and tariff hikes, the homeless problem is a harvest of misguided government: economically favor-ing divorce and illegitimacy over marriage, deinstitutionalizing the mentally ill, rescinding vagrancy laws, stifling cheap housing with regulations, codes, and controls, and creating a short-order welfare system for millions of disgruntled Americans unable to fill out the forms for AFDC but nonetheless fully able to figure out how to qualify as homeless...
...producers now face tax rates as onerous as any in the industrialized world outside Scandinavia...
...Capitalism, as most of my critics insisted, is morally neutral...
...Goldman's paper showed that "the savings rate does not determine the level of investment...
...In other words, capitalism in Rand's view is moral because it is selfish...
...led in using personal computers, with well over half of the world's 100 million PCs located in the U.S...
...in practice the elasticity of capital with respect to opportunity is unlimited...
...The 1980s taught them the unwanted lesson that Marxist slogans, a sense of grievance, and a rhetoric of rights and "demands" are economically useless...
...Today, in both the Academy and Congress, some of the more besotted Keynesians still assert that the impact of broad tax-rate reductions may be adverse for the economy because the income effect (people have more money, so they need to work less) overcomes the substitution effect (work pays more relative to leisure, so they work more...
...At Basic Books in New York, editor Midge Decter had had to work hard to win a first printing of some 5,000 copies...
...We will be paying for our mistake for many years to come...
...This failure was so widespread that I was forced to conclude that it was mostly my fault...
...Capitalism is a mechanism for accommodating individual tastes and demands...
...Their plight was one not chiefly of money but of morale brought on by the erosion of the moral codes of civilized society...
...After the Reagan tax cuts went into effect, for example, some 60 percent of the previous incumbents fell out of the Forbes 400 Richest Americans list, displaced by insurgent new wealth...
...The explosion of demand for this supply-side tract surprised nearly everyone except myself, who like most authors had imagined best-seller performance for all his books, including Visible Man...
...The fact is that the measured personal savings rate has virtually nothing to do with the ability to invest...
...From People magazine to "60 Minutes," I found myself racing through the gantlets of sudden celebrity, dwarfed by huge screens above me blaring my face at massive audiences, blandished by intent presidents, vice presidents, and cabinet leaders with yellow pads at the ready, and beset by ardent journalists and photographers from Washington, Paris, Rome, and Seoul...
...In spite of a period of economic malaise, however, the U.S...
...he 1980s, in general, fully vindicated Wealth and T Poverty's social and economic arguments...
...This ascent of mind, predicted in Wealth and Poverty, is devaluing all the entrenchments of material resources and geography within the ken and command of politicians...
...Personal savings is just a spurious residual of the already spurious Keynesian measure of consumer demand...
...During the 1980s recovery, industrial output rose nearly 40 percent, personal income 20 percent, and all segments of American society benefited from the creation of 22 million new jobs at rising real wages...
...On one point, however, Wealth and Poverty made a serious error...
...economy commands tremendous strengths...
...Disdainful of science, enterprise, and other practical learning, they moved into law, teaching, and politics...
...At any given time, the market can draw upon a nearly inexhaustible fund of uncollateralized assets to transform into capital...
...Clinton cannot even tell a glum demonstrator or litigator from a potential marine, or a tax from an investment, but he sure can tell a man from a woman...
...The computer age is an age of mind—elusive, and hard to control...
...it exalts the he 1980s thus gave T new impetus to the arguments of...
...Although not economic in nature, this persistent problem of family breakdown cast a pall of failure on all the economic triumphs of the 1980s...
...Most critics focused on the policy implications of the book...
...In several chapters, I cited the so-called personal savings rate—a Keynesian residual computed by subtracting consumption spending from national income—as a suitable measure of the amount ofpersonal savings available for productive investment...
...The U.S...
...The real lesson of the "savings" critique of supply-side economics and of Wealth and Poverty is that in order to depict the real forces of growth, we must eschew the entire demand-side model of the economy and all the conceptual baggage it contains...
...An ever-increasing share of world wealth assumed the mobile form of information technologies which, unlike the massive industrial systems of the past, are difficult to measure, capture, or tax...
...America's cities discovered that patriarchy is not some optional outdated feature of human life but an indispensable bulwark of civilization itself...
...The entire left suffered a similar discomfiture...
...An equal danger remains the one spelled out in the poverty theme of Wealth and Poverty...
...increased its share of global manufacturing output, global exports, and global production...
...achieved an immense buildup of some $37 trillion of such collateral, spearheaded by new assets and new technologies that resulted in a tripling of stock market values and fueled the high rates of growth during that period...
...Although the left may never believe it, demand-side economics is dead...
...From William F. Buckley, who debated me on "Firing Line," to Ayn Rand who devoted part of her last speech to denouncing me, to Irving Kristol and Michael Novak, some of my most trusted mentors firmly spurned my idea of a profound affinity between the altruistic themes of the Judeo-Christian tradition and the practical imperatives of supply-side capitalism...
...Average personal savings rates are irrelevant to this process...
...Wealth and Poverty predicted the death of socialism...
...Wealth and Poverty began its career as a modest tract, to be called "The Pursuit of Poverty," sharing a total advance of $8,000 with Visible Man, which sold some 800 copies in the first year and achieved poverty for me...
...The moral character of those tastes and demands is irrelevant to the system...
...economy could double in real terms by early in the next century...
...After the tax rate reductions urged by Wealth and Poverty took effect in 1983 and 1984, total revenues at all levels of government rose some 9 percent a year in real terms, far faster than during the high-tax 1970s...
...Many intellectuals prefer a so-called "society of poets," where most people live in fear and famine (Communist Cuba or Nicaragua), to a society where capitalists surpass intellectuals in income and status...
...The largest increases in real wealth in the 1980s accrued to mostly middle-class holders of corporate and public-employee pension plans...
...Thus, I opened myself to the charge that the low personal savings rates during the Reagan administration revealed a key flaw in the supply-side case...
...Without paternal discipline and role models, teenage boys run amok in nearly all societies...
...nlike previous decades of growth, moreover, the U American expansion of the 1980s came in the face of declining growth in Europe and Japan...
...But the key theme holding it all together was the moral sources of capitalism, and it was this idea that was generally missed or misconstrued...
...in the 1980s led the world economy...
...This thesis was powerfully expounded by Jude Wanniski's associate, David Goldman of Polyconomics, in a recent essay called "The New Jersey School of Supply-Side Economics" (a comedown from the school that once grandly explained "The Way the World Works," but let it pass...
...The 1980s were the decade when socialism died and left nothing but a bristling carcass of weapons pointed toward the West...
...Investment depends not on the avoidance of consumption but on the growth of assets or entrepreneurial ideas that can serve as collateral for loans or issues of equity...
...American intellectuals prefer socialist regimes where intellectuals seem to rule, rather than an America where power and status accrue chiefly to the providers of useful goods and services...
...economic growth rates, long lagging behind the rest of the world, surged ahead of Europe, Africa, and Latin America, and nearly caught up with Japan's for the first time since the early 1950s...
...While the existing rich thrived in the inflationary, high-tax environment of the late 1970s and early 1980s, the move to lower tax and inflation rates after 1982 reversed this concentration of financial power...
...This was the era when leftist dreams all collapsed in travesty...
...As I explore more deeply in Recapturing the Spirit of Enterprise (ICS Press, 1992), the tax-rate reductions in the 1980s not only enhanced productivity...
...balance sheets mostly improved, with debt as a share of assets dropping drastically for both businesses and households, as equity, net-savings, and real-estate values rose far more rapidly than indebtedness...
...People in general would have less income, and by the income effect would have to work more...
...If men do not rule as husbands and providers for their families, they rule the streets in gangs and terrorize the society with their violence...
...Both sought and desired by the left as a form of liberation, family breakdown accounted for most of the crime, drug, racial, and other "poverty" problems widely blamed on Reagan policy...
...Rather than being pulled ahead by faster development abroad as in previous decades of growth, the U.S...
...In particular, the U.S...
...Since Wealth and Poverty repeatedly repudiated such demand-side jargon as the personal savings rate, it was ironic that this slip into the Keynesian idiom occasioned what seemed the most telling critique of the supply-side arguments...
...On the surface, the book makes many claims and prophecies for the efficacy and justice of tax cuts and deregulation...
...it accommodates moral behavior and imparts freedoms that are important to moral choices...
...during the Great Depression could have been world-beating investors...
...On release, however, interest was chiefly confined to Washington...
...Women may vote differently from men, but they are no more eager to see themselves or their husbandspay ever more taxes in an ever-shrinking private economy...
...But she declared that capitalism is moral not because it fosters the humble service of others, as I contended, but precisely because it rejects humility and service—what Rand considered the craven altruism of Christianity and socialism...
...Although nations with nationalized health care show nominally higher tax burdens, the U.S.—with its government regulated, insured, and subsidized health-care system and its acute problems of AIDS and inner-city violence—spends some 50 percent more per capita on health care...
...During the 1980s, the U.S...
...Ayn Rand, whom I regard to be one of the titans of the history of capitalism and freedom, did uphold the higher morality of the system...
...revenues rose steadily at every government level following implementation of the 1980s tax cuts...
...It was the era when U.S...
...Even much of the debt, such as junk bonds, was in fact a form of high-risk equity disguised for tax purposes as interest-paying securities...
...Black employment rose 30.3 percent and Hispanic employment nearly 50 percent...
...To rectify the situation, I published an explanatory essay in 1982 in The American Spectator, which in 1979-80 had issued two key chapters of Wealth and Poverty before its publication...
...The immense growth of real private savings during the 1980s is indicated by a rise from $160 million to over $1 trillion in the excess of corporate equity over corporate debt...
...y the 1990s, contrary to the claims of the current B administration, the U.S...
...During the 1980s, the U.S...
...Capitalism is no more or less moral than an automobile...
...This development, which impelled most of the world's economic growth during the decade, was also disastrous for the left...
...While one individual might work less because a tax cut brings him more income, most individuals cannot work less...
...The left has always pinned its hopes on politics...
...As Wealth and Poverty maintained, all purchasing power and savings are the result of past, present, or projected production and of entrepreneurial risk-taking on unique technologies and business ideas...
...they stop you from getting rich and challenging existing wealth...
...By that measure, the Soviet Union during its final years or the U.S...
...The huge surge of inequality constantly bewailed in the media actually happened in the late 1970s, when, by the measure of the Congressional Budget Office and the Federal Reserve Board, some 62 percent of income gains went to the wealthiest one percent of the population...
...For example, Alice Rivlin, the estimable chief economist at Clinton's Office of Management and Budget, has long maintained that high tax rates spur workers to new frenzies of effort while low tax rates lure them into leisure...
...Exclusive of healthcare levies, U.S...
...Beginning with the erudite campaign director William Casey, the cerebral budgeteer David Stockman, and the visionary adviser Jack Kemp, several top Reagan aides helped edit the book before publication...
...Incapable of performing any useful task for a business, they thronged into the environmental movement...
...Media estimates of maldistributed wealth that focus on stock and real estate gains by the rich but fail to measure this some $6 trillion of gains in real middle-class net worth are like a topographical survey of the American continent that leaves out the Rocky Mountains...
...The converging technologies of computers and telecommunications are radically reducing the power of politicians...
...T he whirl now moved on to Diana, Madonna, Michael Kinsley, and other more durable luminaries who could smile at a camera or undress before it (yet another promotion strategy entirely overlooked by Basic Books as they awaited the verdict of Roger Starr at the Times...
...The Basic man explained: "They won't review the book...
...The total government deficit had declined nearly 50 percent as a share of GNP until new taxes were levied and sweeping regulations imposed by the federal government and thirty-five states during the late 1980s and early 1990s...
...and computer cost-effectiveness rose tenthousand-fold...
...By the critical indices of marital stability, which is what mostly matters, the eighties brought tragedy to millions of American families and their children...
...In the 1990s, the U.S...
...That is why Arthur Laffer's famous curve is right...
...Even government debt, as a share of GNP or in relation to real national assets, remained under control by historic and international standards...
...Being unique, these investments entail uninsurable risk and must be complemented by a flow of capital gains and other sources of new investment...
...As Mikhail Gorbachev himself has observed, the computer revolution was critical to the crisis of Communism: "We were among the last to understand that in an age of information science the most valuable asset is knowledge, springing from human imagination and creativity...
...The morale of liberalism suddenly began to recover...
...in 1990...
...Between 1980 and 1989, however, that number dropped to 38 percent for the top percentile...
...unit sales rose by a factor of hundreds...
...Typical were the rabble of mindworkers who gathered in Rio at the Environmental Summit of 1992 and leapt to their feet to give a standing ovation to Fidel Castro...
...The mock-heroic youth of the 1960s emerged from schools sure that their nation was evil and owed them a living for their moral superiority, and capable of making no contribution to society except passing on their crippling creeds to future generations...
...But in general, consumers still cannot buy or save anything without producing first...
...W by then are so many people properly worried about the future of our economy...
...There they could harass businesses from a moral pinnacle without submitting to the humbling discipline of serving customers...
...The chairman of Clinton's Council of Economic Advisers, Laura Tyson, is so benighted that across all the desolate wastes of socialism she can see "no evidence" that high taxes retard growth...
...The same pattern of radically increasing equality that occurred in incomes can be also found in the distribution of wealth...
...Thus the income effect on one worker (or investor) cancels itself out with many workers (and investors...
...Under the Clinton administration—with its strange notion of taxing and tariffing the nation into prosperity—this liberal recovery is likely to be short-lived...
...Nonetheless, under the slack domestic leadership of President George Bush, who joined Congress in simultaneously increasing taxes, spending, and regulation, the direction of policy was reversed from a decade before...
...As has been demonstrated repeatedly throughout history, lower tax rates bring more revenues and high tax rates eventually destroy an economy...
...Contrary to all the claims of the left, female-headed families are usually a disaster, incapable of disciplining boys or of escaping poverty...
...With a false dichotomy between so-called final purchases (mostly performed by individuals as consumers) and intermediate spending (mostly performed by individuals in their roles in businesses), the usual demand-side models suggest that consumer spending comprises close to 70 percent of the economy...
...As Martin Feldstein recently wrote in the Wall Street Journal, "Statistical evidence has convinced the overwhelming majority of the economic profession that individuals respond very substantially to the incentives created by tax rules...
...The low-tax arguments of Wealth and Poverty are more relevant than ever today, as more and more of our industrial rivals discover the magic of supply-side economics...
...Poverty alone, however, is not the key problem...
...Indeed, the central theme was missed by nearly all reviewers...
...Basic's publicity chief refused to send copies to Stockman to distribute to the cabinet at its introductory press conference...
...As a celebrity, however, I had many limitations, including a genuine disdain for television journalists: all the feminist women with their frizzy hair, designer jogging suits, and impeccable Kultursmog, and the endlessly conformist young men, with their bland, obligatory little touches of rebellion, such as dirty running shoes with their coats and ties, and all determined to become rich by promoting socialism (without even knowing it...
...It was the decade when tax rates were cut in fifty-five nations, following our success, and revenues dropped in nearly all nations that raised their rates...
...Extending the definition of "work" to all productive economic activity, it can be seen that in general the lower the tax rates, the more real "work" is done, and the healthier the economy...
...Computer industry revenues more than quadrupled...
...Contrary to widespread political claims to the contrary, U.S...
...they also fostered equality...
...But in itself capitalism is no more or less moral than any other economic order...
...The world-leading technologies financed by venture capital and junk bonds during the 1980s laid the foundation for strong economic expansion through the rest of the century...
...Within a few months, they understandably stopped calling on me, and I found to my surprise that I rather missed them...
...If most individuals worked less, national income would decline...
...Contrary to thousands of reports to the contrary, U.S...
...In the absence of a siege of protectionism, based on the obtuse notion that a trade balance is desirable in an age of global capital markets, the U.S...
...It was the era when capitalism at last demonstrated conclusively its superiority as an economic system...
...In an increasingly competitive global economy, a government can no more raise its revenues simply by raising its taxes than a company can raise its income simply by raising its prices...
...Most of all, family dissolution was crucial in the single greatest propaganda triumph of the left since the Great Depression: the homeless who haunt all the proud towers of eighties prosperity...
...In this debate, Paul Craig Roberts first made the crucial point and I expanded on it...
...Nonetheless, when first published in late 1980, Wealth and Poverty leapt toward the top of best-seller lists in much of the civilized world...
...I moved on to smile at microchips...
...In the real world outside the administration, responsible analysts now accept the supply-side case...
...It was seen as the Bible of the incoming administration of Ronald Reagan and, indeed, Reagan himself had read early drafts of the final chapters and written enthusiastically to the author...
...High taxes, after all, do not stop you from being rich...
...needed further rounds of tax-rate reductions, deregulations, and simplifications in order to lower its deficit...
...still commands three times as much computer power per capita as the Japanese or Europeans...
...companies still held some two-thirds of the world market, and in critical software and leading-edge microchips their market share was above 70 percent and growing...
...She previously seemed well in over her head as the fourth-ranking economist at her own Berkeley Roundtable on International Economics...
...They crowded onto the pulpits of the media and the academy in such numbers that a reporter or a professor often made less money than a garbage man...
...triumph was the computer revolution, entirely a product of relentless discipline and entrepreneurial genius in capitalist nations...
...Supply-siders reject the very notion that consumer demand is a significant force in economic growth...
...the moral issue is where and how you drive it...
...Meanwhile, an explosion of small-business creation and expansion allowed more income mobility than in any previous era, with a Treasury study showing that during the 1980s earners in the bottom fifth were more likely to reach the top fifth than to stay at the bottom...
...Like a company, a government must constantly lower its prices and improve its services to expand its markets (its tax base...
...Although the left continues to demur, history has confirmed all these claims, and conservatives have generally accepted them...
...But effective work—expanding productivity and growth—requires lower marginal tax rates: lower rates on additional earnings and capital gains...
...Clinton's crude treatment of women as an interest group to be bought off like the Trial Lawyers by putting a series of leftist and pro-lesbian females on display reveals his real contempt for women...
...Census figures showed that the poorest Americans spent some two times more money than they reported as income...
...at all levels of government was back near world leadership in taxes...
...After 1983, when the Reagan tax cuts unleashed America's entrepreneurs, the top percentile's share of income gains plummeted all the way to 20 percent...
...taxes on capital are near the world's highest...
...We'll wait for the New York Times...
...But now, through the magic of quotas, this lame leftist has raced ahead of fellow BRIE stalwarts John Zysman, Stephen Cohen, and Michael Bonus, all far more widely and impressively published than Tyson and all having qualified themselves equally well for the administration by getting every tax, trade, and technology issue wrong for fifteen years...
...As the most gullible of Americans, many intellectuals blamed the homeless on the capitalist successes of the 1980s...
...The substitution effect necessarily prevails, and people work more (and supply other factors of production more abundantly) when they are taxed less onerously on their additional efforts and inputs...
...It is not just the threat of still more taxes, spending, and regulation...
Vol. 26 • July 1993 • No. 7
