WE WANT TO MAKE MONEY.
We want to advance in our jobs and get higher salaries. We want ourinvestments
to do well. Aren't we all looking to get in on the next
And when we do succeed, we rightfully feel pride in our accomplishments. We know we didn't get ahead by luck or by exploiting other people we succeeded because we earned it.
And yet look at how we perceive those who are really successful, people like CEOs of major companies. More often than not, we resent them. When we hear the latest report on CEO salaries, do we focus on the rare skill it takes to run a top company? Nope. Instead, we complain that their compensation is "excessive." We hear story after story about "income inequality," about how the "gap between rich and poor" is widening. Many ask how we can live in a society in which some people can purchase multimillion-dollar yachts while others have trouble just paying rent.
Observe that when people complain about the well-being of the so-called "poor," the vast majority of whom, by the way, have better food, clothing, health care and amenities than a king did 300 years ago, it is always the fault of the rich, successful people.
For example, we don't tell small family farmers they need to respond to improvements in farming technology just like buggy-whip makers needed to respond to the advent of the automobile. Instead, we blame rich, evil, big agribusinesses for undercutting their prices, driving small farmers out of their bucolic lifestyle.
Are manufacturing workers losing their jobs because foreign companies are more efficient? We don't tell them that they need to learn new skills. We blame wealthy "outsourcers" who choose to hire foreign laborers willing to work for a lot less.
Do families have trouble making ends meet? Did they lose all their savings after investing it in a single risky company? We don't tell them they are responsible for choosing where to put their money. Instead, we blame rich corporate America for not providing a big enough "social safety net."
Indeed, the alleged problem of "income inequality" is always the fault of the rich. This is why we hear the expression that businessmen should "give back" to society as if they stole something from the rest of us. It's why we hear talk about the poor not getting their "fair share."
From my perspective, the problem in America isn't with those who are succeeding, but with those who are struggling. It's not that they're inherently bad people not at all but that they have swallowed a highly immoral and destructive entitlement mentality which, if not checked, will bring our country's economy to its knees.
The essence of the entitlement mentality is the belief that individuals deserve the things necessary to live such as money, food, housing and employment simply because they need them.
Consider the most obvious example: welfare. If you have children you can't afford, the government says you are entitled to have your needs met, and so it takes other people's hard-earned money and gives it to you. You are entitled to the money not because you did anything to deserve it, but simply because you need it.
The fact that a rich financier earned that money obviously doesn't entitle him to it, but the fact that a single mother needs it does entitle her to it. To get food on your table, a well-paying job or kidney dialysis, you don't need to go out and do anything. You just need to need it, and by that fact "society" owes it to you.
Welfare is an obvious example of the entitlement mentality, but it might surprise you that it is also quite common among farmers, even those who work long hours and engage in very demanding physical labor. Many individual farmers simply can't compete with big agribusinesses, which have more advanced machinery and efficient methods. They also can't compete with foreign farmers who are willing to work for less money.
One response would be to switch jobs. This is what Americans have been doing for generations. We used to be more than 90% farmers; now farmers make up less than 2%. But many farmers today find this option unacceptable. They tell the government that they need to be farmers, that they are entitled to be farmers. So the government gives them massive subsidies, which are just welfare handouts for farmers. Like the old joke says: How does a farmer double his income? He puts up a second mailbox.
In addition to the notion of job entitlement, there are innumerable other examples of the entitlement mentality, the most notable being the "right to X" mentality which says you have a right to objects or services you lack all of which must be produced by someone else. Take health care: In today's America, the belief is increasingly that you have a right to be cured of whatever diseases you get no matter how expensive the technology, no matter how irresponsible you've been about your own health, or no matter how much time it takes doctors to treat you, all paid for at society's expense.
Now let's look at a field in which the entitlement mentality would never fly: investing.
So let's say I make a series of bad trades. I put all my hedge fund's assets in the IPO of Vonage and lose a ton of my clients' money. For understandable reasons, many of my clients (and prospective customers) might decide to hire someone else to manage their money.
Like the farmers or welfare recipients, can you imagine if I appealed to Washington to pass the "Bad Investors Employment Act of 2007," which would force individuals to put some of their money with failed investors like me?
Of course, I don't. In the investment field, instead of using need as a means of getting values from other people, we offer values as a means of getting values from other people. If the trader wants something, he recognizes that it is his responsibility to earn it by producing enough wealth to trade for it.
Say you have a Cingular cellphone but get a better offer from Verizon. Do you hem and haw about the well-being of Cingular before switching? Not a chance! Even if that means Cingular might go out of business, you switch to Verizon, and you certainly don't demand your congressman pass a "Subsidize Cingular" bill. You recognize that you are not Cingular's slave just because they need you. You will deal with them only as long as it's mutually beneficial. If they can't cut it in the cellphone business, too bad. If Cingular fails to compete, then they deserve to fail.
This mentality of "rugged individualism" was once the norm in this country. Individualism means that it is the individual, not the group,that is important and valuable. Groups, after all, are only collections of individuals. Because individuals matter, each individual has to regard others, not as serfs to be sacrificed for his benefit or "society's" benefit, but as people with a right to lead their individual lives as they choose. To get something from them, he has to trade with them.
In American economic life, rugged individualism led to wonderful things. Individuals responsible for their own lives were continuously devising ways to make themselves more productive. That's precisely what's made us great (read: wealthy).
Today, we've slowly morphed into a collectivist government that forces you to serve others, doing your "duty" to sacrifice for the group. From this shift we've gotten welfare, Social Security, Medicare, Medicaid, all the institutions that embody the entitlement mentality.
Charity is a perfectly legitimate thing, but the notion our government should sacrifice the productive rich to serve the endless needs of the poor is ludicrous. It rewards failure, laziness, inactivity, stagnation and irresponsibility. And it has no moral concern for the productive people who want to pursue their personal happiness by earning it.
As a professional investor, I work in a world where this truth is recognized. And as the 2008 political season gets underway, it is my sincere hope that our society at large starts to recognize it as well.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.>