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The Nature of Wealth

In a November Opinion piece for CNN, John D. Sutter argued that America should be more like Switzerland by having a “maximum wage ratio.” The 12:1 initiative, which was introduced in the November Swiss election, was aimed to limit the amount a top executive in a business could make. Under this law, executives couldn’t make any more than twelve times the salary of their lowest paid employees.

“Here in America, the land of unequal opportunity, the CEOs of top-500 companies make in a single day about what it takes an average ‘rank-and-file’ worker a year to earn, according to the AFL-CIO, the federation of unions. Switzerland has an average CEO-to-worker compensation ratio of 148 to 1, the group says,” writes Sutter.

Sutter seems to be confusing equality of opportunity and equality of outcome. In the land of equal opportunity, some people are going to make it big and some aren’t—and that’s not necessarily a bad thing.

The reality of the situation is that a law that limits wealth would begin to squelch entrepreneurs’ will to succeed. According the AEI’s president Arthur Brooks, the force that drives the wealthy to continue to work isn’t gaining more wealth—it’s succeeding at what they’re doing.

[pq]Forcing equal outcomes ends up stifling equal opportunity for everyone.[/pq]

Additionally, Brooks states, “Who enjoys the benefits created from the slaving of Bill Gates, Warren Buffett, and all of America’s other success-addicted, ultra-rich entrepreneurs? We all do: As long as fortunes are earned—as opposed to stolen, squeezed from governments, or otherwise extorted from citizens—this is good for all of us.”

Interestingly enough, even the Swiss understood this was a bad idea, because the 12:1 initiative failed, in some places by as much as 77%.

Sutter completely misunderstands the nature of wealth. Wealth is a not a limited pie that must be divvied up. It is constantly growing, which means that as the rich get richer, so does everyone else. In his book “Money, Greed, and God,”Jay Richards points out that “Wealth isn’t just there; it’s not a physical object. No one can simply divide it up at will; and above all, the total amount of wealth can grow over time.”

Ultimately, limiting the amount of wealth that one group can acquire limits the wealth that everyone else could potentially acquire. It stifles wealth generation. As Richards writes, “worrying about gaps between different groups of people is not the same as worrying about absolute poverty. In fact, most such gaps are distractions. Complaints about gaps almost always reflect basic confusion about the nature of wealth.”

The actual solution is to create a country where anyone, no matter what their background, can succeed. The solution to poverty is to allow people to flourish, not stifle how much a person can earn.

Howard Schultz, CEO of Starbucks, grew up in subsidized housing. As of September 2013, his net worth is $2 billion. Steve Jobs, the Apple co-founder, was actually given up for adoption by his birth parents, who were college students. He and Steve Wozniak founded Apple in his garage in 1976.

Both Schultz and Jobs came from meager upbringings to become major players in America’s economy, changing history in one way or another. Their companies continue to employ thousands of people, providing opportunities around the world. So, if you think about it, forcing equal outcomes ends up stifling equal opportunity for everyone.