Why the Rich Get Richer 3

Economic success is all about incentives.

Practically every American wants to get rich; the vast majority of us, sad to say, won't.  Even stuck in the Obama depression as we are, though, an astonishing 20% of Americans believe they'll become millionaires within the next ten years - and that's well down from where it was in happier times.

Alas, it's not realistic.  While every economic slice of society has gotten wealthier over the past few decades taken as a whole, the richest have done vastly better than everyone else.  In the first article in this series, we explored why that is: simply put, it almost always takes a great deal of money to make a great deal of money, so even most middle-class folks can barely get in the game.

What's more, it takes time to make money - time during which you must live and eat.  So, to plausibly start a business, you have to have not only the large amount of money the business needs, but also enough money to live on until the business is making money, which can be quite a while.  Most people just don't have the green to make the scene and never will.

In the previous article, we explored one leftish suggestion for attacking the problem: universal national health care.  It's a fact that employer-provided health insurance keeps many people laboring in cubicles when they might be striking out on their own, or at least it's a logical supposition that various studies appear to back up.  Not having to worry about health care costs should, in theory, help people to take the risk of entrepreneurship.

If that's true, though, why then has entrepreneurship historically been so much more intensive in the United States?  After all, as the Left loves to remind us, every other major developed country has universal health care; shouldn't they, then, get all the entrepreneurs?  For all that we have reason to fear that the United States is losing its attraction for the ambitious, up 'til now we've been the world's largest startup magnet.

Necessity and Invention

This disconnect stems from a fundamental misunderstanding of human nature - the same misunderstanding, in fact, that is at the root of a good deal of liberalism and socialism.  It is the question of incentives.

There will always be a certain number of people who are so impossibly lazy that they will not work no matter what; if they starve and die, then so be it.  You can decrease this number by letting them die, or increase it as modern welfare states do by paying them not merely to live but to breed, but you can never get rid of it entirely.

There will also always be some people who are so fiercely motivated that they'll work hard and well no matter what.  Alexey Stakhanov earned fame in Soviet Russia for mining 14 times his quota of coal in a single shift.  He received honors and awards but no pay increase; the government happily kept the value of his work.  Nevertheless, he went on to set even more records of toil.

For most of us, though, we're in the middle: We'll work hard and smart if we think we can benefit; if not, we'll do as little as is consistent with whatever level of comfort is acceptable.

The question for every society is this: how should things be arranged so as to induce people to work hard and well, thus benefiting society?  The Soviet Union tried to do this by force and moral suasion, the unfortunate result being the Communist saw "We pretend to work, and the government pretends to pay us."

Western capitalist nations have traditionally tried to induce hard work by letting people keep most of the rewards of their labor as well as suffer from their lack.  History demonstrates that this works rather better.

The trouble comes when you realize some people can not work, and others never will have all the advantages.  We've explored how it takes money to make money.  Donald Trump no doubt works very hard and has earned much of his success, but having a father who was already a millionaire made the task easier.  He never had to worry about being homeless or going without health insurance.

So on the one hand, we see the sound logical argument that needing employer-provided health insurance keeps would-be entrepreneurs chained to their desks instead of starting new businesses which might employ people.  On the other hand, we see the solid fact that there's a lot more entrepreneurship going on in America, even now, than in countries with socialized health care.

We can't be sure, but could it be that the impetus is precisely backward?  If you live in a social-welfare country, it's perfectly possible to enjoy a marginally comfortable life without ever working at all.  In England, whole generations of families are born, grow up, reproduce, and die never having experienced a day of paid labor.

In America, that's also doable but it's a good deal less comfortable.  Contrary to Lefty rants, even American indigents do get healthcare because hospitals are forbidden by law to turn them away when their condition may be life-threatening, but nobody would argue they receive the same level of care as do the insured.  In England and Canada, at least in theory, they're supposed to.

In America, you can get all the health care you want, or anything else, that you're able to pay for.  So when it comes right down to it, the most reliable way to provide for health care is to get rich.  No matter what happens in the law or the economy, Bill Gates will never lack for doctors.

Yes, health insurance needs can create "job lock."  It can also form part of the motivation for hard work and risk-taking that lead to success and wealth - you don't need health insurance if you're fully capable of just writing the doctor a check.  Comparing America with national health care countries plainly reveals which is the stronger effect.

Now, we just need to get our hands on that first half-million or so...

Petrarch is a contributing editor for Scragged.  Read other Scragged.com articles by Petrarch or other articles on Business.
Reader Comments

I don't believe that so many Americans believe they'll become millionaires simply because they're naive. It's because a lot of Americans have hobbies, side projects and side ventures that they work on outside of work, trying to grow their own small business into something real. It is extremely common to run into someone anywhere you go who has an idea that they seriously believe will turn into a viable business. In fact, it's hard to find an adult man, over the age of 30, who doesn't have something going on on the side. And I love that because it demonstrates that American Exceptionalism is still alive and strong. Americans really believe that they can do anything they set their mind to.

January 6, 2012 7:49 AM

Good article, but Stakhanov was a fraud. He was a prop of the Communist Party to jump-start worker morale. His records never happened organically.

January 6, 2012 7:52 AM

Petrarch, You did a well written and thought out article on the health care insurance that is being rammed down our throats. It's articles like these that the people need to read but alas few will.

January 6, 2012 11:28 AM
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