Cheering As They Fall

Stupid investments are supposed to bankrupt their investors.

For longer than virtually all voters have been alive, the Republican party, and conservatives in general, have been viewed as the "party of the rich."  Republicans want lower taxes, which means that people with money get to keep more of their own money, and thus stay rich or become richer.  Democrats, on the other hand, have been viewed as the party of the poor, since they want to take money from the rich and give it to those who aren't rich via a plethora of government programs.

This has always been an overly simplistic view, the more so today as we see that the vast majority of the superrich - Hollywood entertainers, international moguls of all types, and New Yorkers in general - tend to be not merely Democrats, but extreme leftists.  But today's collapse of august Wall Street investment firms, the very stereotype of the immensely wealthy, gives conservatives a golden opportunity to demonstrate that they are not the party of the rich - that is, not the party that wants to guarantee that the rich stay that way.

No, we ought not to use the power of the government to take wealth away from those who have earned it.  But we also ought not to use the power of government to restore wealth to those who have lost it.

Today, there are a great many millionaires who last week were billionaires, or hundred-million-aires.  As you'd expect, the well-heeled who have been hammered by the collapse of Bear Stearns, Lehman Brothers, Merrill Lynch, and the rest are running around screaming for government protection.  The Democrats are responding that the falling stock market is a sign of a government failure, and we hear promises to "never let this happen again."

Wait a minute.  Aren't the Democrats supposed to want rich people to become less rich?  Shouldn't they be applauding the fall of the mighty?  What possible reason should there be for the government to step in and save people who were enormously rich, and are now merely fairly well-off?

The whole point of capitalism is that people ought to be allowed to take risks and to live with the rewards and penalties that result.  Nobody ever became a billionaire, or even a multimillionaire, simply by going to work every day from 9 to 5 and collecting a paycheck.  You can lead a comfortable middle-class life that way; you can have a happy retirement after 40 years of toil, but you'll never join the jet-set on a salary no matter how large.

The only way to become truly wealthy is to take a financial risk of some kind - by investing early in a startup company, by starting a company yourself, by making a highly leveraged speculative investment on the stock market, by buying real estate and renting it out, or by creating some sort of marketable intellectual property through your own talents.  If you're lucky, it is perfectly possible to become wealthy beyond the dreams of avarice in any of these ways, as Bill Gates, Warren Buffett, Colonel Sanders, Dave Thomas, Michael Jackson and countless others have proved over the course of American history.

Anyone can become rich in America, but it's equally possible - actually, far more likely - to get wiped out.  Many famously wealthy people had to file for bankruptcy several times over before they finally hit on the formula that got them their riches.  Other people, once wealthy, lost it all and never recovered.

This week's turmoil in investment banking will doubtless result in a great many people being knocked out of the ranks of the plutocrats and being forced to live an ordinary middle-class life.  That is exactly as it should be.

The underlying reason for the fall is bad investments, unwisely made.  The banks decided, directly and indirectly, to loan money to homebuyers who had no visible way of paying the money back.

No matter what the paperwork might say, that is not a loan.  It's a property speculation: the only way for the bank to get back its money (much less show a profit) would be for the property values to rise.  As we all know, they didn't; they've instead been plummeting.

It is right for people who cannot pay the mortgages that they themselves signed to be foreclosed on and thrown out of their homes.  It is right for banks to lose money, or even to be bankrupted themselves, because they unwisely made loans to people who could not pay for houses that are not worth the money spent on them.  It is right for the tycoons of Wall Street who speculate in the hundreds of billions where ordinary folks might speculate in the thousands, to lose equally vast fortunes - all based on the results of their own free decisions.

Wealth is not a ratchet, and in a free economy, it's not supposed to be.  The American dream says that every American has the opportunity to better themselves, and if they work hard and are lucky, to become rich.

But for this to be possible, it is an absolute requirement for the converse to be true: if you are lazy, unlucky or unwise, you can become poor even if you start out wealthy.  An investment with no risk is not a path to wealth; where it is, as with the executives of Fannie Mae and Freddie Mac who donated heavily to Democratic politicians in order to obtain and retain their cushy posts, it's a fraud; their newfound wealth is actually stolen from your pocket.

As conservatives, we ought to stand up and cheer as we see the banks of Wall Street fall.  They invested unwisely, and they are paying the entirely correct price, called for by Adam Smith and his legendary Invisible Hand.  Those banks which made more conservative investments will be - are being - rewarded for their wisdom; and the next generation of bankers will learn from the examples of today and be more careful in the future.

Fundamentally, it is as wrong for government to pick the winners as it is for it to pick the losers.  If we are to remain a capitalist nation, we must resist the temptation to interfere in the market and try to issue a pardon from the spanking of the Invisible Hand.

Democrats ought to be willing to join us as we cheer the fall of those who overreached themselves; the fact that thus far they aren't is quite revealing as to who, exactly, is "the party of the rich" these days.

What would be far harder for today's left to accept is the wealth of the wealthy as something justly earned and not subject to arbitrary government confiscation.  What's more, they have to accept the fact that the proper way to help the poor is to give them opportunity, not to try to fight poverty by giving away the results of others' labor.

But then, someone who believes that isn't on the left anymore, are they?

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
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