In a New York Times letter to the editor back in 1992, a gentleman in New Jersey who lived in Russia for 35 years of his life wrote that “the way socialism works is this: By distributing the wealth, it does not make all the people rich. It makes the people poor.” Brief, yet effective and authentic, the letter recounts the poverty and anguish he witnessed in the country following World War II.
In his recent autobiography “I Love Capitalism!”, Stern’s very own Ken Langone (MBA ’60) speaks of enthusiasm, perseverance, confidence and healthy competition, as related to business and investing. Langone helped build Home Depot, a $227 billion company that employs over 400 thousand people, and has also generously donated his time and money to countless organizations, including the Archdiocese of New York and New York University’s business and medical programs: NYU Langone Health, NYU Langone Medical Center and the incredible capital campaign he and his wife helped launch to offer free tuition for all medical students regardless of need.
Yet, despite these starkly contrasting images, it is astounding that a segment of our electorate is actually promoting a system of economics and governance that is perpetually prone to failure and destruction (see: Venezuela). Call it what you want — communism, socialism, feudalism, or despotism — but the theory is that the everyday common person cedes his or her liberties to an “all-knowing and all-powerful” ruling body and wealth is redistributed (primarily via increased taxes) from the upper class and corporations to those considered most in need by the government. History has shown, however, that socialist governments tend to hoard that money and keep it from the people they claim to be helping. Healthcare, college, guaranteed government jobs and universal income “for all” would be funded by massive tax increases and coordinated by the same bureaucrats who for decades have mismanaged essential infrastructure and underfunded public pensions. Sounds compelling indeed…
Among these bureaucrats, there are few who have been especially vocal about socialist concepts in recent years, with each displaying a unique financial ignorance. Everybody has heard of them: We have a sitting Senator and 2020 Democratic presidential candidate who, together with his wife, earns a “top-1%” income and was investigated by the FBI for bank fraud. Since 1991, he has been the lead sponsor on only seven bills that were ultimately enacted, of which one was to name a state’s “Bicentennial Day” and two were to rename post offices. We have a freshman Congresswoman who touts her previous job as a bartender even though she earned her undergraduate degree from a private university with a $300K price tag. We also have a city mayor who recently said that money is “just in the wrong hands,” despite the fact that his city has benefited significantly from private institutions and philanthropy. Yet, the city’s residents continue to suffer from increasing issues with homelessness, subways, public schools and housing — typically the core responsibilities of local governments.
These politicians, among several others, are the people who want to enact stringent taxes and regulations that would burden our economy. They propose squeezing more money out of our highest earning citizens and job-creating corporations in order to fund universal policies, including the “Green New Deal” and “Medicare for All” that we have recently been hearing about. These two plans are estimated to cost a combined $125 trillion over a 10-year period, which is especially astonishing considering that U.S. annual federal spending currently totals $4.2 trillion while federal revenue totals $3.3 trillion. I will let you do the math and figure out who will ultimately be paying for those plans.
If you need a point of comparison from a pro-business perspective, recall the Tax Cuts and Jobs Act enacted by the Trump Administration in December 2017. Despite costing about $4 to 5 trillion over 10 years, the Act fundamentally prioritizes business over government, incentivizes companies to operate in a more favorable tax environment and gives individuals more money in their paychecks. If you do not believe taxes matter, I suggest you research why people move to low-tax states like Florida and Texas or why U.S. companies incorporate overseas. The answers should not surprise you.
This recent push for socialism is often thought to be a view held by younger citizens, who are often used as the modern day symbol of financial struggle and economic misfortune. In truth, people do have legitimate concerns about the ballooning costs of education and houses, and overcoming the burdensome debt associated with them. The idea of socialism, moreover, could also be enticing for people who would rather exploit government welfare and benefits rather than working full-time jobs, a dangerous concept that puts too much reliance on government and simultaneously gives companies more of a reason to create machines to replace human workers.
Capitalism is not perfect. Nothing is perfect. We cannot ignore that some people are obnoxiously wealthy, regardless of how they earned their status. However, there is no better system in the world to incentivize business and trade, foster competition and innovation, and give people greater control of their lives and financial well-being than by working and investing. It is exciting to earn that next paycheck or watch your dividends get reinvested in your investment portfolios. As students in one of the finest, most competitive business schools in the world, we should be grateful for the opportunities we have been presented with and the thriving economic system we contribute to.
Photo credit: Jonathan Simcoe on Unsplash