The idol of randomness wants to steal your wealth

If you’re reading this post, I assume you have built some wealth and are wondering how to keep it and possibly make it grow. You should know that many people claim you have no right to that wealth because you didn’t earn it. You got it by luck, like a lottery winner.

Alexander Green, Chief Investment Strategist at the Oxford Club, wrote a great post recently on the topic, “Is Business and investment success due to skill...or luck?” The post issued from a debate he had with a New York Times columnist, Robert Frank, author of the book Success and Luck: Good Fortune and the Myth of Meritocracy.

Frank wrote in his book that “If you have been so economically successful that your income and net worth put you in the top 1% or 2% in the country, the deciding factor was not talent, education, hard work, risk-taking, persistence, resilience or all of the above...It was luck, plain and simple.” Frank is clever to assault only the top 2% of wealthy. They have no friends and attacking them will excite envy in the rest. 

Green discovered a pattern in the way people respond to luck:

Self-described liberals and progressives tend to agree with Frank's thesis. Self-described conservatives and libertarians do not... Democrats generally feel that economic outcomes in life are primarily determined by your identity and your circumstances: whether you were born male or female, black or white, rich or poor, gay or straight, etc. Republicans tend to feel that, whatever hand you were dealt in life, your economic outcome is determined by your willingness to educate yourself, work hard and take responsibility for your life.

We hear these thoughts echoed when Democrats argue for sharply higher taxes on "the fortunate" or, in President Obama's phrase, "society's lottery winners." Republicans, on the other hand, often talk about "personal responsibility" or how government social programs should be "a trampoline not a hammock.

Then his train of thought derails. Among other silliness he wrote:

Today, approximately 85% of the world's population lives in developing nations...Whatever your economic success or political views, let's give Mr. Frank his due. You were born against astronomical odds. You had just a one-in-seven chance of being born in the West where democratic government, the rule of law, property rights, first-world infrastructure and education, and the lack of any class or caste system paved your way for success. That means the odds of you being born in the West were six-to-one against.

The last sentence is criminal abuse of probability that I can’t go into. If you’re interested, see Mises’ Human Action pages 107-112 on the differences between case and class probability. I can say that probability only applies to random events and births are not random. Babies require a man and a woman to have sex. Often they intend to have children. Unless someone knows a different way to have babies, you are here because your parents were here when you were born. Of course, some parents immigrate with their children and some people immigrate as adults. But the point is that none of it is random. Probability does not apply. If births were random events, babies would be regularly dropping into the laps of virgins and couples who were scrupulous with birth control. Fortunately, Green manages to pull his train back onto the tracks at the end:

Billions of people have been born in the West - and many of them were white and male and from middle class or better backgrounds - and the overwhelming majority of them did not experience anything like the tremendous financial success of Warren Buffett or Bill Gates or Jeff Bezos or Larry Ellison or other famous one-percenters.

Most of the worshipers at the idol of randomness try to prove their point through the abuse of statistics similar to that of Green. For additional evidence, they will generate a random series and show you how much it looks like reality. For example, something similar to the results of a generic March Madness (basketball for non-sports fans) tournament could be created through a random generator picking the winners at each round.

So how can we know if our business success and investing acumen are just randomly generated events or the result of skill and hard work? Here’s one way to look at it: if success in business is random, then we should be able to tax away all of the gains and have no impact on the growth of the economy or on standards of living, right? After all, if it’s purely random then the people don’t matter at all. The next wealth creators will just suddenly pop up out of nowhere like lightening from a clear blue sky.

But as we know from the history of all socialist economies, taxing away the wealth of those who generated it does make a difference: it destroys wealth creation, economic growth and standards of living. People starve. Visit Cuba of North Korea. Clearly the people matter and what they do matters.

Many historians have insisted that the remarkable growth of wealth and freedom in the West was purely a random event and could have happened anywhere at any time. But they are at a loss to explain why it has happened in so few other places after several millenia and why it happened so late in human history if it could have happened anywhere anytime.

The spread of randomness televangelists is an indicator that envy is on the rise in the West. Helmut Schoeck, in his great book, Envy: A Theory of Social Behavior, wrote that in the past people didn’t envy those who got new wealth through luck because everyone had an equal chance at such good luck. Today, luck is no excuse for having wealth and no protection from envy.

Investors need to understand that recessions are not random events either in spite of what mainstream economics teaches. Mainstream economists take refuge in randomness because the best business-cycle theory, the Austrian one, forces them to confront their inner socialist and they hate that. The stock market has bull and bear markets primarily because of business cycle and they are not random events, either.

Don’t allow the envy of others to keep you from enjoying your hard earned wealth and passing it onto your children or favorite charity. Yes, I’ll admit that luck plays a tiny role. But for the most part, you earned it!

And don’t allow socialists to tax away your hard earned wealth because of their insatiable envy, or loose it because you let mainstream economists fool you into thinking recessions are random events.