Inequality Is Because You Earned It

Since I make the assumption that many of you reading this are successful, and part of, or aspiring to be part of the 1%, I offer this as a dose of reality to offset the drumbeat of politicians and media types who have ratcheted up the rhetoric attacking all of us who are successful.

The latest hot topic in the media and politics is inequality. The new hero is Thomas Piketty and his book Capital. The politicos, and Picketty and many in the media would have everyone believe we all just found a suitcase full of money outside our door one morning, we invest it with nil risk and magically we who have amassed capital to whatever extent are going to take over the world. Having started life with nothing at all, and noting that virtually all of my friends and most of my business acquaintances also started with nothing to not much, I know these assumptions by these inequality obsessed people to miss the entire point. Of the so called 1%, which is the name for all of us who have earned a sufficient amount to have capital to invest, almost all have started a company and made it valuable, worked their butts off for a company or companies which were able to pay them for their efforts, or had an idea which they were able to turn into a success. Picketty and others seem to ignore that today those with capital earned it through their labor and brains, and by taking risks and making sactrifices. We work 60 hours a week, take major risks and sacrifice free time and other things to be able to amass a capital base to then invest. We saved a portion of what we earned so that we would have a capital base. We don't work 40 hours or less, and then go home with no responsibility. The average salaried worker does not spend free time researching and gathering new insights, or networking.

The inequality crowd seems to believe that we are not entitled to the fruits of our labor. Picketty and others who believe as he does that the capital to fund new companies and to support the share and bond offerings of established companies is going to come from the government which is going to take our earnings and savings and reinvest it more efficiently that we can. We saw how well the Energy Department invested in various green projects and lost billions. How do they think charities will get funding? How does Picketty think the countries of the world will all agree on a rate of tax, collect and then jointly decide how to redirect it. The whole basis of this is absurd. The Picketty theory that there needs to be a world wealth tax, and a redistribution of this revenue by the governments of the world into things politicians select, as opposed to us risk takers and capitalists doing the investing, is to ignore history and reality. Is the government going to build all those projects we undertake? Are they going to make real investment decisions by assessing and taking risks they way we do? Is the government going to choose the next research projects and fund them all?

The published critics are busy arguing that his British based statistics are not accurate, which they are not. They argue about theories, and nuances. They miss the whole point. Obama and his coterie miss the whole point because they never did what we do- take risks, make constant judgments of how to select investments, how to get through the nightmare of entitlements, how to get past the EPA and other regulatory burdens which stifle development. They are mainly politicians with an agenda to appeal to the mass, media types who have never run a company, never developed a project and never amassed capital through hard efforts.

You do not have any reason to feel guilty, that you somehow are “fortunate” to have earned a lot of money, and you owe the government only as much as it requires to properly provide a safe and free opportunity for its people. The reality is recent studies have shown that most of the 99% have raised their standard of living materially. Government already has more than enough redistribution of wealth, and safety nets. In 2009 you did not see men standing on corners selling apples like in the thirties. You are not fortunate. You earned it.

DeBlasio is quickly showing everyone how to blow through a budget and take the most successful city in the world and redirect it to the bad old days of Dinkens. He just got caught by the state run financial Control Board trying to hide the real cost of the ridiculous payoff to the teachers union through the sorts of accounting tricks that the Financial Board was set up to prevent. And he is just getting started attempting the sort of massive wealth redistribution that Picketty suggests. France dramatically raised taxes. They just admitted that revenue has dropped precipitously and business growth has stalled. So there is the proof of the Picketty theory. Raise taxes, redistribute, and the result is major deficits, no growth in the economy and a lower standard of living for the people who the tax increase is supposed to help.

You earned what you have. You deserve it for all the hard work, risk and sacrifice. You do not owe it to anyone. You have no reason to feel guilty about any of it. Without our capital we amassed there would be no economic growth. There would be no new real estate projects- except maybe public housing projects. Piketty has never had to work in the real world. He never started a project or a company. He never met a payroll. Same for Obama. They have no idea what it takes to get capital for reinvestment. Ignore all the noise and just keep doing what you are doing, and amass the capital to invest in new deals and the result will be a better quality of life for everyone.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM Digital Member, you’ll receive:

Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
Educational webcasts, white papers, and ebooks from industry thought leaders
Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor

NOT FOR REPRINT

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.