We Americans have an under appreciation for our economic system. In fact on most matters of economics we are woefully ignorant. The reason this is so is because economics is rarely taught in our school systems, especially an in depth explanation of Capitalism in the few schools that do offer one course in economics. Now those who were Communists in the Soviet Union before its fall, as those in China before it scraped theory for what really works, as those in Castro’s Cuba as well as a host of other petty dictatorships “of the people”, saw to it that their school children were indoctrinated into all the ideas of the merits of Communism. There it was like taking religion classes in a Parochial School, every year a part of the curriculum.

So what we have raised in the United States is a population of economic dunces. Americans see a problem and we instantly want to fix it by the power of government force rather than the freedom of individual decision. We act this way out of ignorance. We corrupt a good system because we want instantaneous results in an era where it is politically correct to be “pro active”.

So let’s dispel the biggest economic myth out there today. That is that the rich have gained affluence at the expense of the poor. If only those with an over abundance accepted less then there would be more available for those who had little. So being rich is actually being mean, greedy, selfish and depriving.

The perpetrators of this thinking see only a static wealth model. Take a quarter and draw its circular outline on a piece of paper. Now let’s say this circle represents the sum total of USA wealth and this sum total always stays the same, what differs is who has how much. So while some are growing some are losing. It is up to the government; say the Communists, Socialists and other Statists, to redistribute the wealth by coercion so that everybody receives a fair piece of the pie.

The faulty reason here is the static wealth model, that the economy, the sum total of all goods and services throughout the nation remains the same. This faulty reasoning can be seen in the debate over tax cuts. If you reduce taxes you will collect less money and hurt services say the static wealth believers. But most tax cuts have increased tax revenues. This is because they have spurred economic growth increasing taxable units and increasing national wealth. The result is that the government is taking in more money with lower rates. The total wealth of a nation can rise or fall depending on how much the system of that nation wishes to encourage wealth formation rather than wealth redistribution.

Take out a dime and trace its circular outline on a piece of paper. This could represent the total wealth of a nation that once possessed wealth the size of a quarter. Notice that that each slice of the pie no matter how fairly distributed is now less for everybody.

How could this happen? A nation could lose wealth because its system would punish wealth creation. Let’s say that John Q. Citizen of very limited means desires to send his child to college, a big expense for a family with little or no savings, just barely making ends meet. So Joe Q takes on a second job just for this purpose. Now he is working 80 hours per week instead of 40. But then the government comes along and says, AH HA! – You are now a rich man and in order to fairly redistribute income we soak the rich. So John Q’s taxes jump so high that he is now working for the government instead of his child’s college education. But don’t worry the government will offer low cost student loans. Always remember that soaking the rich impoverishes the poor.

Now take out a half dollar and trace its outline on a piece of paper. This also could represent the total wealth of a nation that was once the size of a quarter. Notice that each slice of the pie now means more for everybody. 1% of a half dollar circle is much greater than 1% of the dime circle.

How could this happen? Well not punishing success certainly helps. Those that take risks do so with an expectation of return on their investment. By over taxing those who succeed you discourage risk takers who when they do succeed provide millions of jobs and wealth creation that filters down to everybody. For every one that succeeds there are three who go belly up and lose. A nation of entrepreneurship is a thriving nation. Creating a climate conducive to wealth creation can yield benefits to all. The capital formation to start new businesses creating new jobs and the research, invention and development of new products creating more wealth is rarely going to come from those with limited means.

Why is it that some countries with a great abundance of raw materials never seem to be able to translate wealth makers into real wealth? They have all these natural resources yet the country remains dirt poor.

Quite frankly it has a lot to do with the economic system of the country. Briefly, low taxes – personal, capital gains, death and business taxes - free markets, minimal government regulation and intrusion into the economy and global free trade all have major effects on the success of a nation. And remember what President John F. Kennedy said, "A rising tide lifts all boats."

To bring you up to speed I recommend reading Economics In One Lesson by Henry Hazlitt and Applied Economics by Thomas Sowell.

These and other issues afford serious fodder for future exploration here at THE NORTH EAST CORNER.