Why is America So Rich


Today my son asked me why America is so rich compared to other nations.  Of course there are some nations that are more wealthy.  For example, my friend from college whose parents worked for Chevron in Saudi Arabia for a time told me that there they have street vendors selling gold to passersby and that anything less than 18 carat was considered costume jewelry.  Saudi Arabia’s wealth, however, comes mainly from the fact that they have been sitting on a lake of oil and there are countries like the US and England that were willing and able to come in and pay them to pump it out.  I also doubt that the average citizen in Saudi Arabia is as wealthy as the average US citizen, or that the very poor in that country or others like it are as wealthy as the poor in the US.

In many countries, the poor are left scavenging just to have food and shelter.  There are no toilets in many places, leaving people to relieve themselves along the roads and railway tracks, leading to large amounts of disease (the leading cause of death in many countries is diarrhea, which leads to dehydration, due to feces-bourne pathogens).  In the US people have ready access to food and shelter.  Many “poor” families have such luxuries as cell phones, televisions, cable, and computers.  I also believe that many people in the US are poor because they 1)stay in an area where there are no jobs rather than move to where the jobs are, 2)they don’t do the basic things needed to keep a job and advance, like showing up reliably, doing their best for their employers, and try to better themselves through education and experience, or 3) they live on Government assistance and see it better to remain there rather than take a job because the benefits seem better than what they would get through working hard.  I believe there is ample opportunity, even during this “Great Recession” that is dragging on forever.

In many countries, however, there is little opportunity for most people.  Many of these countries are ruled by kings and dictators.  The dictators do well, but there is little incentive to work hard and produce alot because the king will just come and take it from you or his tax collectors will steal it from you.  The dictators are fairly wealthy because they are able to take a little from each in the population, but most people have just enough to survive, if that.  This is as it was in England when America was founded, which is why the Founding Fathers choose to not have a king and put safe guards in place to prevent a tyranical government.

Other countries are Socialist.  Once again, while there is no official monarch or dictator, there is usually a ruling party who lives well off the back of others.  Once again, there is little incentive to make more than you need because it will be taken from you.  In fact, there is incentive to make less than you need or make nothing at all because you’ll end up with about the same amount of food and things as you would if you produced them yourself.  This works so long as most people are still working and producing wealth, but eventually those who do give up or move elsewhere, meaning that there is less wealth to go around for everyone else.

Many dictators also use Socialism or Communism as a way to control people.  In North Korea, that country’s dictators have used Communism to control the population for decades.  If you are a favorite of the leader, you get what you want (or at least have the opportunity to produce what you need and not have it taken).  If you are not, you are denied even food and you and your family are allowed to starve.  Of course this system has had such a dampening effect on both domestic production and investment from the outside world that even the favorites are starting to starve there.  Indeed, the average North Korean is two inches shorter than the average South Korean due to poor nutrition.

In America, the Capitalist system provides an incentive to work and to produce.  If you produce more than what you need and provide what you have with other people, you can improve you life.  An employee can work extra hours for his boss and if he is being productive and taking care of the needs of others, such that his boss gets more business, he will get a share of the wealth created through extra pay or promotions.  If a person doesn’t work, he doesn’t get paid and therefore his life is less rewarding.  This incentive to work has the effect that many people produce more than what they need, which means that there is more wealth for everyone, even the poor.  Things cost less because there are more things produced.

Rather than just growing a garden plot for the family and seeing to the upkeep of one’s home as it was for the serfs in England in the Middle Ages, people are using expensive machines — only possible because people know that they can build such machines without them being confiscated by a dictator — to create far more than they could by hand.  The system is so productive that there is even enough money to provide food, shelter, medicine, and clothing to those who cannot provide for themselves with barely any effect seen on the system.

Things are changing, however, as more and more people who could provide for themselves are starting to live on the work of others.  Adult children who could be earning their own way are moving home and spending their twenties and even their thirties in a perpetual adolescent state rather than getting the job skills and living skills needed to increase their income and status in the future.  People are going on unemployment for long periods of time rather than taking lower paying jobs and working their way back up, and then going on disability when unemployment payments run out.  Lastly, more and more is being taken from those who do produce and expensive regulations that waste resources are being created, reducing the incentive to create new business or expand current ones.

If this continues, the US will decrease in wealth and may have a difficult time even providing for its own defense.  The poor will become poorer and the middle class will become poor.  There will still remain wealthy people, but there will be fewer of them and it will be nearly impossible to get to their ranks.

To change things, the population will need to start demanding that everyone who can provide for themselves do so.  Government programs that provide a check each  month need to be replaced with ones who help people find work or sublet some of the tasks done by government employees now to part-time employees who are between jobs.  They must elect officials who will cut unneeded regulations and the scope of the government back to basic functions so that there will be fewer people doing things that don’t produce anything useful and less waste in doing the things that need to be done.

The time is short.  The US is looking more and more like a Socialist country with an elitist class redistributing the goods produced by others.  Indeed, like Stalin in the USSR, the President is having expensive parties and taking expensive vacations despite the heavy cost to the taxpayers even as unemployment rates are high.  The time is now for people to wake up and realize that they are the ones who can dig themselves out and restore America to the prosperity it once had.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

2 comments

  1. Hi Smallivy,
    I live in Western Australia, which has under gone a resources boom of late and our prosperity has risen dramatically because of this.
    I am by no means an expert on US finances or the welfare systems that your country has in place.
    Looking from the outside, it seems the US has been living beyond it’s means for some time which has given the illusion of wealth, but like all credit, it must be paid back at some point.
    Hence the current financial crisis in the US.
    Have a look at this article from CNBC.

    http://www.cnbc.com/id/42246531

    All governments world wide can only generate money in a few ways:

    Raise taxes- No governments like to do this as it is detrimental to their chance of re-election
    and usually only hits the middle class.

    Issue Bonds- This is a short term fix and only defers the pain for a later date when the bonds
    must be repaid. Plus interest.

    Print Money- This is what is happening at the moment by a lot of governments around the
    world and is devaluing currencies everywhere (except Australia).

    Of these, raising taxes is the real cure. The other solution is of course to spend less.
    What ever happens in the future I think the average person in the US is in for a bit of pain over the coming years.

    Regards.

    • Thanks for reading and especially for the comment. You’re absolutely right that the US Government has been spending beyond its means regularly since the 1960’s or so and this went on hyperdrive since 2008. There is actually a large amount of personal wealth, however, that is a product of the economic freedom and the hard work and saving/investing that has occurred. New policies and new attitudes are starting to erode those economic freedoms, which will only make the overspending government less sustainable.

      Oddly enough, I hear both Conservatives and Liberals saying they will move to Australia, the Liberals during the 2004 election if Bush won, and the Conservatives during the 2012 election is Obama won. I’m not sure how your country can be both a Liberal and a Conservative paradise. Must be the effect of the Crocodile Dundee movies.

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