Millionaires in America

Recently, CNN’s Money.com posted an article bearing the title, "U.S.
Millionaires Population Expanded by 8 Percent in 2010." According to the
article, there are now approximately 8.4 million millionaires in the United
States, and last year’s increase was due primarily to rising stock prices,
following a 27-percent decline in the number of millionaires in 2008 due to the
stock market’s plunge that year.

What is one to make of this information?

There were only a few thousand millionaires in the United States in 1900. One
would expect there to be many more today with the enormous economic growth of
the last 110 years. On the one hand, there would be even more millionaires
today had progressive taxation not prevented millions of Americans from
accumulating more wealth. On the other hand, there would be considerably fewer
millionaires were it not for the effects of inflation.

Adjusting for the increase in the Consumer Price Index, it would take a net
worth of about $25 million today to be the economic equivalent of a millionaire
in 1900. Clearly, being a millionaire today does not support the lifestyle that
it did a century ago.

Leaving out the market value of one’s primary residence, the number of American
millionaires today would fall by more than half. Many millionaires are
land-rich or house-rich, but middle class in terms of liquid assets.

As the article reported, many Americans rise into and fall out of millionaire
status as the stock market fluctuates. Their millionaire status is rather
tenuous—"here today, gone tomorrow"—subject to the capricious gyrations of
financial markets. Easy come, easy go, that paper wealth.

The fact, though, that last year’s increase of millionaires is attributable to
stock-market gains is troublesome. Federal Reserve Chairman Ben Bernanke stated
that today’s higher stock prices show that his QE2 policy of inflating the
monetary base has been successful. This raises questions of legitimacy, for it
was never the Fed’s legislative mandate to pump up stock prices, as well as
questions of fairness—if Bernanke is using his power to enrich stock-market
investors. I am concerned that these facts will stir up resentment at
millionaires in general. There are already too many Americans who have a
negative, even hostile, attitude toward the rich.

As a free-market economist who believes in America as the Land of Opportunity,
I hope our country continues to prosper and produce even more millionaires.
Indeed, these two phenomena go hand in hand, rising together interdependently.
However, an absolutely crucial distinction must be drawn here.

From a true free-market, capitalist perspective, there is a legitimate way to
become a millionaire (the economic) and an illegitimate way (the political).
The economic way is the old-fashioned way: One earns his or her fortune as a
reward for sharing one’s talents and products with others, by excelling in
service to one’s fellow man in an open, free, competitive marketplace. The
"soak-the-rich" ideologues think these achievers deserve to be subjected to
punitive taxation for having dared to earn so much. Is it really a valid theory
of justice to punish success in benefiting others? Is rendering service to
one’s fellow man somehow objectionable or morally suspect? I think not.

The political approach is an entirely different matter. This is the
far-too-common practice that economists call "rent-seeking" behavior:
individuals and corporations using their political connections to rig the
market to enrich themselves—things like bailouts for Wall Street firms, giant
subsidies, federal regulations that require use of a particular product that a
politically-connected firm just happens to make, etc.

Rent-seekers don’t profit by serving their fellow man through voluntary
exchange, but by milking the taxpayer through manipulating the political
process. Rent-seekers prosper from political connections and privileges that
the rest of us don’t have. This is patently unfair, and most definitely is not
free-market capitalism, contrary to the false assertions of the anti-capitalist
left. Indeed, free-market economists going back to Adam Smith have warned us
about businessmen exploiting the political system to enrich themselves at
everyman’s expense.

Let us respect those who earn their millions in free, honest commerce; let us
end the socialistic practice of government determining economic winners by
channeling favors and funds to favored clients. The former is the fulfillment
of the American Dream; the latter is its repudiation.

— Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow
for economic and social policy with [2]The Center for Vision & Values at Grove
City College.

[3]www.VisionAndValues.org | [4]www.VisionAndValuesEvents.com