“There’s nothing more portable than a millionaire and his money.”

capitalflight123(2)A recent post on capital flight dealt with its leaving the country to destinations where it is treated better. The capital referred to included both physical and human capital.

Capital does not have to flee the country for harm to occur. It merely has to flee the areas where it is under attack. With regard to human capital, that might mean working less or stopping work altogether. Higher taxes on effort is a penalty. Anything you penalize you get less of. 

If it is physical or monetary capital to the extent possible it will be re-deployed to areas not under attack. That could mean removing it from risk ventures, placing it in tax-favored assets such as municipal bonds or any number of other areas. Because this capital was originally invested where it could do the most good, any re-deployment produces a less optimal use of a country's resources. That harms not only the owner of the capital but all of society.

Society in terms of consumers voting with their dollars determine what it wants. Entrepreneurs merely adapt to these wants and provide the goods. When government intervenes against capital, it is actually attacking the wants and wishes of society. Society is always made poorer by any intervention. 

This discussion is likely foreign to those who have never run a business, especially the untalented bureaucrats who now run much of our lives. For entrepreneurs, it is easily understood because it reflects the manner in which they approach every decision. Despite interventions, entrepreneurs will survive. They will find gaps in the best designed plans or legislation. 535 legislators are no match for millions of creative people. The law of unintended consequences exists only as a result of the hubris of government.

Entrepreneurs adjust their behavior and fill niches the law never saw or forgot. They thrive in these interstices. This foresight and adaptability is their defining characteristic. Unfortunately, most of us are not entrepreneurs. Government interventions for us mean closed doors to opportunities that would have been available. 

The truly talented and successful are the ones who create jobs for the rest of us. Punishing them is worse than shooting yourself in the foot; it is more like shooting yourself in the head (but of course with a non-assault weapon). 

Debra J. Saunders highlights one example of how the talented and successful react in her piece entitled He's Mad as Hell and Not Going to Invest Anymore. For those who have difficulty comprehending the abstract logic of why capital flees, experiential accounts like Ms. Saunders are educational and likely eye-opening. 

Here are a few excerpts from her article:

Lizt explained that he liked Obama's tax plan because it would prompt him to shutter his business, move his money into low-risk investments and give less to charity — while he would devote his time to traveling the globe with his fiancee, Rachel Martin.

Following up after the tax increase, Ms. Saunders learns that Mr. Litz was working his plan: 

[He] told me that he and Rachel had just returned from a two-month trip around the world. He told me he had closed down his business that invested in small-capital concerns that created jobs, even medical breakthroughs.

"We did very creative work," Lizt said. "Now we're just going to do very boring conservative land investment."

"Maybe I'll never have income again," Lizt told me. "That's the way I want it. 'No Income Norman.'"

leisureincomeThe tragedy of this situation, and millions more like it, is that it harms society. It may feel good to "punish" the rich, but why do they deserve to be punished? Are the rich not contributing more to society than any other group? Even if it were determined that they deserved punishment, is it even possible to inflict it effectively? Is it worth attempting to punish the rich when your actions inflict greater harm on the rest of society? These are questions demagogues never address and should be required to answer. 

Whether just or not, inflicting punishment on the rich is difficult. They have great flexibility in adjusting their behavior. They generally are smarter than those wishing to punish them. They are also clever enough to conform to the new rules and regulations if they so choose. If they don't see rewards commensurate with their efforts, they will cut back on their efforts. In some cases they will just say the hell with it and walk away as Mr. Lizt did. 

One difference between America and third-world countries is that we used to encourage people to become rich. In doing so, they dragged the rest of us along with them. The nation, as a result of their drive and many others aspiring for such success, became both great and wealthy. Goods, services, jobs and breakthroughs never imagined by earlier generations were created. In societies where the rich are discouraged and punished, growth and wealth-creation barely exists.  

The rich create wealth for themselves and wealth for the rest of us. Their success improves all of our lives. Bill Gates, as an example, probably did more for America (and the world) than all government programs combined. 

Punishing the rich makes no sense. The rich merely adjust their behavior and serve us less or not at all. The punishment is ultimately inflicted on us. 

The title is a quote from Senator Bob Huff that was used in Ms. Saunders article.

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1 Comment

  1. "Punishing the rich" doesn't have to make sense when it is just a part of an intentional stategy of destruction. Ignore the Constitution, make tax slaves of the citizens and ensure equal misery by redistributing the wealth are all essential parts of Barry Sotero's real agenda.

    The '12 election may well have been fraudulent, but the fact remains that an enemy of Liberty and Justice garnered tens of millions of votes. The Republican opposition, thouroughly corrupt and under the thumb of the party establishment couldn't even field a candidate who could motivate desperate conservatives to get to the polls.

    The "tippiong point" is behind us. Faith in the ballot box has been eroded. No one listens when we get on the soap box. The jury box is made ineffective by judges who are nothing but political hacks. That leaves only the cartridge box to right the wrongs and restore the Republic. If Barry continues, that day will soon be upon us.

    Sic Semper Tyrannis

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