Smart People Make Better Choices

Smart People Make Better Choices

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I found something on Greg Mankiw‘s blog that seems to explain why so many Americans bought homes and signed mortgages they could not afford thereby causing the housing crisis:

In today’s NY Times, Robert Shiller reports:

Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.

Egalitarians will shudder at the suggestion, but the wealth gap in America is much more likely to be the result of disparities in innate intelligence, perseverance and good judgment than it is the result of a rigged system. But this conclusion feels like kicking someone when he is down and liberals, regardless of its truth, cannot abide it. Instead, they demagogue the issue by telling poor people that conservatives think they’re stupid and lazy.

Even if leftists did believe that wealth disparities were due to something other than the abuses of the rich, they could not afford to admit it. That’s because once they admitted it they would have to admit that they are powerless to do anything about it.¹ And liberals will never admit that there exists a social problem that they cannot fix merely through the sheer power and force of their superior intellecct.

Postscript: In anticipation of left wing charges of heartlessness and snobbery, let me say that not all poor people are unintelligent and irresponsible. Some poor people are poor through no fault of their own. These, however, I think are in the minority.


¹  If the causes of wealth inequality are due mostly to personal characteristics such as intelligence, ambition and judgment, the left cannot do anything about it other than nakedly confiscate the wealth of the rich and redistribute it to the non-rich. In other words, it must support the Marxist mission: “From each according to his ability, to each according to his needs.”

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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  1. As a reformed egalitarian, I have to grudgingly admit to agreeing with your comments. You’re right, not everyone is created equal & no matter what we liberals think, some people just can’t be helped.

  2. Samina,

    Just the thought of giving a wealthy, successful person credit for his intelligence, judgment and hardwork makes a liberal break out in hives.

  3. Peter,

    The left has very little problem with those who actually contribute to society. The Gates, Jobs, Cuban, and Ellison of our generation deserve great wealth. Even Trump falls in this group. The problem is that they do not help enough to keep this great country great.

    The left does castigate those who live off the greatness of their ancestors, the Kennedys, the Waltons, the Hunts… These people do much less to create than they are worth, and certainly less than their parents did.

    Many of the wealthy started on third base, while the rest start at home. Is there anything wrong with trying to ensure an equal starting point, or, at the least, having them start on second or first?

    Once upon a time, noblesse oblige was a requirement. What ever happened to that?

    Taxes should not be confiscatory. But when a country creates so much wealth, we have a duty to ensure that the entire populous benefits from it.

  4. allan,

    That’s where you and I disagree. The rich pay the bulk of taxes in this country and create the majority of jobs. They are already contributing more than their fair share. The left doesn’t attack the Kennedys because they happen to have the right political affiliations.

    I believe there should be no estate tax. If someone wants to “spend” his money by giving it to his children, that’s his business. The government has, or should have, no right to confiscate it.

    Finally, the current tax system is unfair. It unfairly and disproportionately taxes the rich and the successful. So at least can we stop suggesting that the rich aren’t paying their fair share?

  5. Peter,

    One of the founding principles of our country was that there was to be no nobility. By allowing dynasties, we are going against that principle.

    There was a reason for the rule against perpetuities. It still stands.

    You seem to be against allowing people to rise or fall based upon their own talents, by permitting the children of the rich to be sheltered from the world by their ancestors…

    In my vision of America, a child can get the benefits of wealth to a certain extent, but then needs to stand or fall on his or her own merit. In yours, once someone is born rich, that is how it is. You are favoring a medievel view of the world.

    So, yes, we disagree. I am for allowing, no requiring, people to advance based on merit alone. You are not (although you do not oppose people doing advancing on merit).

    To me, this is not about confiscating money. To me, this is about trying to have a country where people advance based on merit, not familial ties.

  6. Allan,

    This is about confiscating money.

    I think the money belongs to the family and, remarkably, you think the money belongs to the government.

    I have more confidence that the trust fund babies will use the money wisely than I do that the government will use it wisely.

    The only reason the government exacts an estate tax is because the person they are confiscating the money from isn’t around to complain about it. I find that vile.

    And speaking of merit, when beautiful people give up their unearned good looks, tall people give up their unearned height and smart people give up their unearned intelligence, then you can demand that others give up their unearned wealth. Why is one unearned advantage singled out for correction and the others not?

  7. Allan,

    By the way, I always hear people say that spoiling your children by giving them everything does them no favors. They learn to be entitled and are unable to handle adversity. If this is true, the children who don’t inherit wealth from their parents are more advantaged. School of hard knocks, you know?

  8. Peter,

    I don’t believe that the money belongs to the government. I just don’t believe that it does any good for our country to have a de facto royalty.

    So, if the uber-wealthy choose to give their well-deserved gains to charity, instead of being subject to an inheritance tax, good for them.

    Wealth earned does belong, in part, to society. For the society enabled to person to become wealthy. Note, I wrote “society” not “government”.

    I believe that the wealthy have a moral and ethical obligation to make society in general better. Noblesse oblige, if you will.

    If we really wanted to confiscate wealth, we would have a wealth tax. We don’t.

  9. Allan,

    The wealthy do make society better, as follows:

    1 They support themselves and their loved ones and do not demand that others do so;
    2 They circulate more money in the economy thereby increasing the GNP and helping create employment;
    3 They and the businesses they operate or invest in create employment;
    3 They fund the lion’s share of government (the top 10 percent pay nearly 40% of all income taxes); and
    4.They give more to charitable causes than do the poor and the middle class.

    These are just a few of the ways the rich make societies better.

    It’s a canard and a propaganda tactic to suggest that the rich are somehow not paying their fair share and somehow not contributing to society. Don’t fall for it.

  10. Peter,

    You and I will have to disagree on this.

    1) most of the middle class qualify for number 1.
    2) the lower class, the middle class and the lower part of the upper class circulate as much as the rich. Without those, the rich would have no money.
    3) while the top 10% fund most of the federal government (outside social security and medicare), that is not so true for state and local governments.
    4) I am unsure about your assertion in this area.

    My point is that the rich are rich because the lower and middle class fund their success (1$ from 1,000,000 people is better than $5,000 from 5 people). The rich can be rich, but to do so by beggaring the vast majority of the population is counterproductive. The way for the US to become more prosperous (and to have more rich people) is to enable the lower and middle classes to spend more. That is, every dollar the rich pay into taxes may mean two dollars (or at least more than one dollar) in their pockets from those who buy their products.

    I am NOT arguing that the rich do not pay their fair share. I AM arguing that the more that they pay for “society,” the better off everyone (especially those who create jobs and products) is.

  11. allan,

    I don’t subscribe to the Bentham/Mill greater good theory of government because it would require that we take 90% of the wealth of the rich and redistributed it to the non-rich. It’s a question of liberty, not of the greater good.

    (Of course, I might argue that liberty is the greater good, but then I’d be a utilitarian, too)

  12. Peter,

    I would agree that property rights are important to liberty. But there are other things that go into liberty. Are we to sacrifice those other things for the price of property rights?

    Liberty means the freedom to travel from place to place. Liberty means the ability to worship as you please. Liberty means the freedom to achieve the most you can achieve. Liberty means many other things. Liberty is the ability to raise your children as you please (without being bankrupt because those children might have diseases).

    If the price of all the other things that go into liberty is foresaken so that we can give the ultimate priority to property rights, are we better off?

    Liberty has a price. You voice support for only one portion of the things that comprise liverty. At the expense of the others. That, my friend, is the opinion of a charlatan who worships money, not a champion of liberty.

  13. Allan,

    There is no liberty without private property rights. We have tried to centrally plan away disease, poverty and heartache before and all it got us was more disease, more poverty and more heartache. Just ask the victims of Stalinism, Maoism, Castroism, Pol Potism and Chavezism. Central planning sounds good on paper and gives its proponents the warm and fuzzies, but it has never worked, anywhere, ever!

    By the way, I worship money, therefore, I am not a charlatan. A charlatan worships money, but won’t admit he worships money.