Money Vs. Wealth

Doctor Zero has a brilliant explanation of the difference between money and wealth at Hot Air's Greenroom, and why Obama's actions have destroyed wealth while creating money.  Read the whole thing:

One way to measure the “transformational” power of the Obama presidency is to consider the speed with which Democrats transformed from the steel-taloned deficit hawks of the Bush years, into a party very comfortable with trillion-dollar deficits, and a fifteen-trillion-plus projected national debt. Anyone old enough to remember the early Clinton years has seen this happen before, of course. As the shadow of the Obama deficits looms over the economy, we can expect to begin seeing the sort of breezy journalism we got in the Nineties, wondering exactly why deficits are so bad. The fact that liberals are willing to ask the question illustrates one of the fatal flaws in socialist economic policy: the confusion between money and wealth.

Money is easy to create. Obama has already stolen a trillion dollars of it from the future. All that was required was printing up a few more stacks of bills, and adding a few more zeroes to various federal balance sheets. Last night, like every other day of his presidency, Obama spoke about how much money he plans to “invest” in various government programs. Liberals in general, and the news media in particular, use the amount of money thrown at any given problem as the sole important method of measuring how much we “care” about it.

Wealth is a far more elusive, and important, part of the economy than money. Wealth is what people do with their money… and even more to the point, it’s what people could do with their money. Free people in a free economy create wealth through their choices. You can run down to the grocery store and spend ten dollars buying steak to cook for dinner tonight, or you could go to a restaurant and spend two or three times that much, having the steak expertly prepared for you. Sixty bucks might seem like a lot to spend on dinner… but how much would it cost you to venture forth into the wilderness and hunt your own dinner down, or raise your own cattle and slaughter them? Suppose you make twenty dollars per hour at your job. That grocery-store steak is worth half an hour of your time, and the fine dinner at at five-star steak house cost three hours of your income. Compared to the time and effort it would take you to hunt or butcher your own meat, even assuming you knew how – and were lucky enough to have a successful hunt tonight – it’s a bargain. You create wealth by giving your money to the grocer or restaurant for your dinner, and now they have money to invest or spend according to their needs and desires. Meanwhile, you also created wealth for your employer, because you were able to spend hours working at your day job, instead of fooling around in the brush with a bow and arrow, trying to bring down a deer.

Modern technology greatly amplifies wealth creation. You couldn’t possibly build yourself a computer or automobile from raw materials, no matter how much time you invested. You can’t perform surgery on yourself. The twenty dollars in your pocket represents vast wealth, because you can choose to spend it in so many different ways, and your employers chose to give it to you (after taxes, of course) because the hour you spent earning it was worth more than having a twenty-dollar bill sitting in their vaults. You can use that twenty dollars to buy things that the last Egyptian pharaoh could not have purchased with all the gold in his kingdom, or all the kingdoms of the world combined. The computer you’re using to read these words is vastly more powerful and easy to use than it would have been a decade ago, because the pursuit of profits drove computer and software companies to compete and produce better products, and their competition created wealth. You’re probably using high-speed Internet and a comfortable flat-screen monitor to read this, using a computer that can do a dozen other things at the same time, and if you wanted to share this essay with a friend, you could email a link in seconds.

The wealth built into that twenty dollar bill dissipates if you’re not allowed to choose how you spend it. How wealthy are you if the grocer takes your twenty bucks and tells you that you have to eat fish instead of steak… and you’re allergic to fish? How wealthy would you be if your employer paid you in company scrip, which could be spent only at the company store, on a limited selection of products the company sees fit to offer – at whatever price they decide to charge? Even though that scrip has value – you can buy stuff with it – it represents much less wealth, because you have fewer choices in how to spend it.

Socialism annihilates wealth. Government control of the economy destroys the value of the dollars circulating through its bloodstream. Every one of the trillion dollars Obama dumped on the American economy reduced the value of every dollar that was already here, because government stimulus bills create no wealth – they just force the economy to spend money in ways it didn’t want to. Not a single hour of productive labor is created when a big pile of deficit dollars is sucked out of the free market and expelled from Washington. Socialism creates the illusion of prosperity by forcing money to be spent in politically favored areas, then shining the media spotlight on where the money was spent… and hoping nobody notices all the choices that weren’t made, all the possibilities that were foreclosed, fading away in the darkness outside that spotlight. And deficit spending is ultimately the worst excess of socialism, because it destroys the wealth of the future, taking away their choices and options… draining the lifeblood from the America that could have been, in the arrogant knowledge that an aborted future does not have a voice to defend its interests, and the voters of today will never stumble across the corpses of murdered opportunities.

That is why deficit spending on Obama’s scale is so awful: because it takes a trillion dollars from the future without asking its permission, burns away a vast amount of the wealth that money represented, replaces it with a debt that can only grow worse with every passing year, and tries to convince the American people the whole transaction was a bargain.

Another way I've heard it said is that your measure of wealth equals the amount of time you could get by if the money stopped coming in.  Let's put this into a simple context – which would you rather be:
– a person earning $1,000,000 a year with yearly living expenses of $1,100,000 a year
– a person earning $40,000 a year with yearly living expenses of $30,000 a year

The first person has far more money, but negative wealth.  On the other hand, the second person has little money coming in, but over time will become incredibly wealthy.  See the difference?

So, what Obama and the Democrats have done is cash in America's future wealth for their play money today.  And, common sense — as well as every economic model ever conceived — will tell you that the first person's lifestyle is unsustainable over the long haul, and will inevitably crash.  It's not a question of if, but when.  Applying that same common sense to government spending over the decades, we can easily understand that America will crash.  It's not a question of if, but when.  Given Obama's ridiculous spending binge over the past few months, the crash will be far harder than it would have otherwise, and it will likely be our children and grandchildren who will bear the greatest brunt of it because the wealth they would have generated has already been stolen.

That's why this rampant spending is so incredibly dangerous to the long-term prospects of the American economy.

But it's too late to stop it now.  Elections have consequences, and Obama was elected.  Now we get to deal with having him running the show.  It won't be pretty, and 'I told you so' will be vastly inadequate.  Let's just hope we learn fast and get some responsible grown-ups in Congress as soon as possible to cut it off before the whole country goes belly-up.

There's my two cents.


I'm a gun-owning, Bible-thumping, bitter clinger conservative in the heartland. You can disagree with me if you want (you do, after all, have a right to be wrong)...just don't be rude or stupid and we'll get along just fine! :)

Posted in Economy

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