by John Tamny
Does saving money make you worse off? By definition, you’re better off the more you save. Prudence rewards the individual. And by extension, what’s good for the individual is good for the economy.
To see why this is true, we have to apply what’s good for the individual to the superrich. I’m not going to pull any punches: If you want economic growth and the abundant work that comes with it, you need the rich, and you need them to save.
According to Forbes, LeBron James, Cam Newton, Kevin Durant, Phil Mickelson, Jordan Spieth, and Kobe Bryant are among the ten highest paid athletes in the world, with annual incomes ranging from $77 million to $50 million.4 The highest paid celebrity is Taylor Swift, with $170 million in annual earnings; Howard Stern takes in $85 million, and Adele earns $80 million.5 As for the richest people in the world, Amazon’s founder, Jeff Bezos, sits at the top of the heap with a net worth of $112 billion, followed by Microsoft’s co-founder, Bill Gates ($90 billion), and Warren Buffett ($84 billion).6
Whether it’s James, Swift, or Gates, the simple truth is that none of them can spend all that he or she has. And that’s the point. Precisely because they can’t spend all that they’ve earned and saved, we all benefit. The savings that are good for all of us are also good for the rich. And their savings are great for us.
If these rich people put every dollar they had in the bank, the bank wouldn’t put it in the vault and let it sit. It would lend it to people who need a loan for a car, for school, or to turn their business dreams into reality. If these rich people want to be more aggressive and grow their wealth faster, they might put it in the stock market. If so, their wealth would be redistributed to companies interested in expanding. As they expand, they’ll need to hire workers, and the savings of the superrich will reach all of us in the form of higher pay, along with investment in production enhancements that will render us even more productive. When the rich save, our ability to earn more in a growing range of jobs expands too.
What if they get really aggressive? We’re talking about staggeringly rich people who can lose money on investments without feeling the pain. In that case, they might place their wealth in a venture capital fund that would invest in a future Microsoft, Facebook, or Google. Alternatively, they could risk their wealth in private equity or distressed investments. That money might be redistributed to a business that is months from insolvency and desperate for a cash infusion, as Apple was in 1997.
When the rich get to hold on to their wealth, that wealth chases new ideas that will benefit the rest of us. That’s how the free market works. For instance, consider Joel Trammell, a serial technology entrepreneur in Austin, Texas. His most recent start-up, NetQoS, sold for more than $200 million when he decided to move on to his next commercial pursuit. Trammell’s passion is starting and building companies. In his book The CEO Tightrope (2014), he admitted to a weakness:
I’ll be honest: my track record for providing capital is not great. Raising money is hard. Over my career of leading multiple companies, I have talked to more than a hundred institutional investors and have reached a deal exactly once.7
Trammell’s admission speaks volumes about the importance of leaving wealth where it’s produced, as opposed to taking it in taxes. He ultimately employed professional financiers to find capital to build his businesses, which employed hundreds, but it’s a safe bet that his capital-raising track record would have been better had workers of all stripes been able to keep more of what they earned. Taxation reduces the amount of capital available for businesses to form and expand. The more wealth that is kept in the hands of its creators, the more likely that wealth is to benefit the rest of us by being invested.
Governments discourage savings not only with taxation but also with bad monetary policy. Stable money is crucial to the wellbeing of the individual and thus for the economy as a whole. When savers, rich and poor, put their dollars, euros, or yen to work, they hope to get a return on them. But if monetary authorities are devaluing the currency, people are less likely to save and invest it.
Consumption is the easy part. We all have infinite wants, and we don’t need economists and politicians to encourage us to consume. Consumption is fun. But savings and investment are what drive economic progress.
When governments devalue the currency, they make us more likely to consume, shrinking the available supply of capital for investment. If devaluation of the dollar had been the norm 150 years ago, the emergence of the tractor would have been slowed immeasurably. Maybe it never would have reached us at all. We know this because there are no tractors in destitute countries bereft of investment. Technological advances are the result of those with money choosing investment over consumption, but if currency devaluation is the rule then investment is a less compelling option.
Imagine how lazy many of us would be if agricultural work were our only way to earn a living, as it was for most people 150 years ago. Investment is the source of progress, but if taxes are high or the currency is being devalued, there’s less investment. The resulting slowdown in progress makes it more likely that people will have to spend their days working for a living as opposed to living to work.
At this point, some people get worried. Sure, we’re all glad someone invented the tractor, freeing us from a life of backbreaking agricultural toil. But isn’t the investment in technology today a threat to people’s livelihoods? Tractors are one thing, robots are another!
Lest we forget, tractors, cars, computers, washing machines, and ATMs are all robots of a kind. They’re all labor-saving devices that have destroyed jobs. But instead of putting Americans in breadlines, they’ve expanded the range of work available. Today the Japanese construction company Daiwa House and the electronics company Panasonic are developing an advanced washer and dryer—the Laundroid—that will not only clean your clothes but fold them too.8 Such a device would make some work redundant, but then all wealth-enhancing progress makes certain jobs obsolete. Thank goodness. Is anyone willing to give up the telephone or email to encourage jobs at Western Union and the Post Office?
We should embrace technological advances, not only because they make life easier but also because they lead to more interesting work. That’s been the norm in the developed world. As prosperity grows, work opportunities of all kinds expand. But where technology is shunned, work options are limited.
By the way, the developed world’s move in the direction of automation does not mean we’re producing less “stuff.” We’re producing more with less. This is as much to our advantage as it was to produce more food with fewer people on the farm.
You often hear that Americans don’t manufacture anymore, but U.S. factories produce as much as China’s do, more than double what the Japanese produce, and many times what’s produced in Germany and South Korea.9 The automation of the factory has freed Americans to pursue higher value work at higher pay. New York and Los Angeles once ranked first and fourth among American cities in manufacturing.10 They’re extraordinarily rich cities today precisely because they’re no longer at the top of that list. They’ve moved on.
American workers are far too valuable for factories. Some of this work has moved to China, where it pays the daily equivalent of a Starbucks latte,11 but factories are leaving China too because the Chinese don’t want to work in them any more than Americans did. Factory work is a political issue not because Americans yearn for the past but because they yearn for economic growth. A return of factory work to the United States would indicate falling wages and a decline in growth.
To understand the importance of robots to our economic future, recall Joel Trammell’s search for capital. When he was seeking dollars he was actually seeking what dollars could be exchanged for: office space, computers, desks, chairs, labor, etc. The robotization of the U.S. economy will provide abundant resources at low prices because robots can work all day, every day. That kind of productivity will open up abundant capital for the entrepreneurs and businesses of tomorrow. Cheap capital will make it easier to form new comp
anies providing good jobs. And with backbreaking work consigned to the history books, the jobs of tomorrow will have a lot more to do with what interests us, as opposed to what merely feeds us.
Just as the tractor, car, computer, and Internet have fostered amazing wealth creation, the robot will too. There will be even more investment in the companies of the future, not to mention demand for athletes, chefs, musicians, and other entertainers in what will be a highly advanced society.
People used to work six days per week, and now five is the norm. What if Rob Rhinehart is correct about a four-day workweek in our future? If he is, then the amount of disposable income chasing leisure activities will skyrocket, and with it opportunities for actors, musicians, restaurateurs, and sommeliers.
Toward the end of Economics in One Lesson, Henry Hazlitt wrote about “the frequent assumption that there is a fixed limit to the amount of new capital that can be absorbed, or even that the limit of capital expansion has already been reached.”12 With justified contempt, Hazlitt remarked, “It is incredible that such a view could prevail even among the ignorant.”13 He elaborated:
There will not be a “surplus” of capital until the most backward country is as well-equipped technologically as the most advanced, until the most inefficient factory in America is brought abreast of the factory with the latest and finest equipment, and until the most modern tools of production have reached a point where human ingenuity is at a dead end, and can improve them no further.14
America’s problem is not too much capital or too much technology. What’s holding us back is not enough robots and, by extension, not enough capital. If there were more, factories might be completely automated, but Americans wouldn’t care, nor would anyone else, because the economic resources that we call capital are always and everywhere the source of progress that expand the range of jobs on offer.
In poor countries, where even primitive robots like the car, computer, and washing machine are scarce, people have to work all the time with little choice of jobs. It’s in rich countries that people have a choice about how they’ll earn a living, not to mention how often they’ll work. Americans don’t hate Sundays and they don’t hate work. The problem is a lack of investment in the innovation necessary to expand the variety of work, a problem caused by the government’s confiscation of people’s wealth.
If politicians and economists would abide by Hazlitt’s maxim about the importance of the individual, cutting taxes, freeing up trade, and stabilizing the value of money, investment would soar. Even better, it would build on itself. The more investment there is, the more wealth creation—a virtuous cycle that leads to even more investment in companies capable of creating the exciting jobs of the future.
No one’s lazy, but far too many are in the wrong job. If the political class and the American people would stop penalizing wealth, if they could see that the robot is the tractor of today, capital formation would soar alongside amazing work that we won’t dread resuming each Monday. That’s the future if we’ll allow it.
The good news is that a future without laziness has already arrived to some degree in the United States. In the final chapter, you’ll see why that’s true.
CHAPTER ELEVEN
Come Inside and Turn on the Xbox, You Have Work to Do
“There’s no such thing as being a professional poker player. That’s like being a drug dealer.”1
—Phil Hellmuth, World Champion poker player ($21 million in prize money), recalling his father’s reaction to his career choice
“I hate to say it this way, but I never had a job. I mean, I play golf. My parents were very good to me and let me just play golf.”2
—Bubba Watson
In August 2015, twelve thousand screaming fans packed Madison Square Garden. They weren’t there for a basketball game or a summer hockey match pitting the world’s best against each other. No, they were there to witness a video game matchup between Counter Logic Gaming and TeamSoloMid in a best-of-five series for the North American League of Legends championship. ESPN’s SportsCenter was among the media covering the contest.3
Sports Illustrated profiled one of the contestants, twenty-two-year-old Peter “Doublelift” Peng: “Thin, bespectacled and wickedly smart, he’s in some ways the stereotype of the gamer, having picked up the hobby as a young teen in San Juan Capistrano, Calif., looking to fill lonely afternoons.” Peng turned pro in the nascent profession of video games at the age of seventeen, to the dismay of his parents. They had expected him to parlay his 4.3 high school GPA into a career in medicine, but Peng had different thoughts. His parents kicked him out of the house in response.4
Video gaming is this country’s fastest growing leisure activity. Ninety-three million Americans are active in sports, and while that’s not a number to sniff at, 194 million are active video game players. The explosion of interest has been so strong, reports Sports Illustrated, that “the kid you picked on in high school can now make upward of $1 million a year—in salary, prize money and sponsorship and advertising revenue—as a professional gamer.”5 Robert Morris University in Illinois fields a varsity League of Legends team, and the University of Washington is considering scholarships for gamers.6 Foreign video gamers are issued P-1 athlete visas, and players can attain partial scholarships.7
Video gaming as a sport or profession, still in its infancy, seems poised for enormous growth. More people (27 million worldwide) watched the 2014 League of Legends world championship matchup between South Korea’s Samsung Galaxy White team and China’s Star Horn Royal Club than watched the title-clinching game of the 2014 World Series (23.5 million), the NBA finals (17.9 million), or the Stanley Cup finals (6 million). In 2014, Amazon purchased Twitch.tv—a streaming site for video matchups with more traffic than WWE.com, MLB.com, and ESPN.com combined—for $970 million. The 2013 League of Legends championship at the Staples Center in Los Angeles sold out ten thousand seats in less than an hour, while the subsequent world championship at Seoul World Cup stadium drew forty thousand attendees.8
Dennis “Thresh” Fong, the first professional video gamer, according to the Guinness Book of World Records, won a Ferrari 328 at a 1997 Quake tournament, a modest prize by today’s standards. In 2015 the five-man Evil Geniuses team won $6.6 million in the Data 2 international championship. With his $1.3 million share, team member Sumail “Suma1L” Hassan became the first teen “e-sports millionaire.”
Data 2 tournaments have handed out nearly $50 million in prize money to 1,248 gamers playing in 467 tournaments since 2011. With the purses growing and sponsorships from name-brand companies like Geico, Red Bull, and HTC, budgets for the major North American teams are in the three-to-five-million-dollar range.9
At this point, you’ve probably already guessed that the surging interest of fans and corporate sponsors in video gaming is having a “trickle down” effect. “Video game coach” is now a career for some. The Wall Street Journal reported in 2015, “Some e-sports coaches make between $30,000 and $50,000 a year.” John Thorn, Major League Baseball’s official historian, acknowledged that compensation for video game coaches is in line with that of minor league baseball coaches.10 Imagine where compensation will head if the phenomenon grows.
If someone had talked about becoming a professional video gamer in 1972, when the Magnavox Odyssey was invented, he wouldn’t have received even the polite expressions of faux interest that Danny Meyer received when he talked to friends and relatives about opening a restaurant in the 1980s. He’d have been laughed out of the room. But since the 1970s, much of the world has moved in the direction of the very economic freedom that always and everywhere rewards us with booming economic growth—growth that has stimulated the rise of fun professions that no serious person would have imagined forty years ago.
These new forms of work spring from venture buyers, venture sponsors, and venture investors with the means to try a little bit of everything. If all of us—rich and poor—faced substantially lower taxation, if government spending were substanti
ally lower, new kinds of work would proliferate even more dramatically than they’re already doing.
We have already seen how all kinds of careers are opening up in football, basketball, and baseball. Something similar is happening in golf. The New Zealander Steve Williams is the most successful caddy in the history of the sport. Having “carried the bag” for world-class players like Greg Norman, Raymond Floyd, Adam Scott, and Tiger Woods, Williams has 150 tournament wins to his name.11 And in case you thought a caddy did nothing more than tote his boss’s clubs around the course, bear in mind that his collaboration is so critical that players hand over 10 percent of their winnings to their caddies.
Ahead of each tournament, a caddy walks the course searching for danger spots in the rough, calculates yardage with great precision so he can advise his player about which club to use from each spot on the track, and in general searches for any edge that might benefit his player when the tournament begins. As Williams puts it in his autobiography, Out of the Rough, “A caddy’s job is so much more than what you see on TV.” A good caddy understands “a course’s design and the type of shots [a] player is capable of playing in order to get around it in the most efficient fashion.” A successful caddy “will also understand his player: how he performs in certain situations, how to get the best out of him, how to lift him up when he’s down. A caddy is like a jockey on a horse, or a navigator in a rally car. In the same way a good jockey can be the difference in a close race.”12
Jim “Bones” Mackay, Phil Mickelson’s former caddy, paid homage to Williams’s genius in an interview about the 2008 U.S. Open:
We played the first two rounds with Tiger [Woods] at the ’08 U.S. Open at Torrey Pines, which he famously went on to win. . . . I know for a fact just watching him and Steve Williams work together that day that Steve Williams saved him two to four shots, just in the two rounds we played with him.13
