Wealth comes from work. A person or a country can get wealthy by stealing wealth from someone else, but the original source of the stolen wealth is still work.  Whether it is laborious hand work or the challenging work of organizing other people so that they can accomplish things together, it takes effort to create wealth and it is a time consuming process.

It also takes effort to steal wealth from someone else, but if it goes well, stealing wealth is the quickest way to get wealth. One problem with stealing, among the many that attend this occupation, is that it is a zero sum game. Someone else is losing exactly what you are gaining so there is no net increase in wealth. Creating wealth through work, by contrast, can have a compounding effect so that the wealth created makes it increasingly easy to create more wealth.

Years ago my dad got me interested in the stock market. I even made a little money. Then the ‘08 financial crisis came along. The Fed lowered interest rates to save the very banks that had pushed the economy into a crisis. Over-indebted, poorly run companies stayed alive on low interest loans, People dependent on interest from savings got punished while speculators were rewarded with super cheap money to trade in the public  markets. The low interest rates raised the price of assets, like housing, but wages and economic growth didn’t follow. It didn’t make any sense to me. 

I thought I could understand investing, which, in theory, is the idea of owning a small piece of a business that creates wealth through work. But I realized that I had been lucky to buy low thinking I was investing and then sell high because I didn’t trust the gains I had made. I was speculating. But luck isn’t a strategy and I didn’t see how I could have any advantage in this game, especially since it was clearly being run for the benefit of large financial institutions. I got disillusioned about the stock market and got involved in my own small business, but I kept thinking about the difference between speculating and investing. 

The stock market, for me, fills the role that sports play for other people. Even if I’m not actively involved in it, I find the game interesting. I understand the basic rules and the important players and I’m curious about how the various conflicts will work out. A lot of the time it is boring, but occasionally, like now, it gets interesting. 

So I’ve been paying more attention to the game lately, and one thing has become apparent to me which I did not entirely appreciate before. Almost all financial reporting is done in terms of investing, literally.  I mean the terms that are used refer to concepts of investment, “creating value” “sustained growth” “innovative products” “competitive advantage”.  But the subtext is almost entirely about speculation. The questions reporters ask, the headlines on stories, especially the advertising, these almost invariably refer to predicting where the price of something will be in the next few weeks or months. Even though these questions are framed in the terms of investing, they are addressed to speculators betting on price movements and are almost irrelevant to investors who want to own a piece of a business that will build wealth over time. 

Realizing this contradiction caused me to expand my thinking to our society as a whole. I think it is fair to say that in general we regulate and restrict the activities of people trying to create wealth through work much more tightly than those trying to get wealth through speculation. 

If you speculate and flip a house and make money, good for you and you’ll owe some income taxes on the capital gain, but you haven’t increased the wealth of society at all; you’ve simply taken wealth the seller didn’t know they had and pocketed that wealth when you sold the house to the next buyer. All you really need for this transaction is capital, luck, and willingness to take a risk.

On the other hand, if you want to build a house in Vermont, which, given our current disastrous housing situation, is desperately needed and adds value to our society, then you have local zoning, perhaps state zoning, certainly state septic system regulations, building codes depending on the location, and even more regulations if you want to employ anyone to work with you. Plus you’ll need skills, time, capital, and willingness to take a risk. And, of course, if you make money when you eventually sell the house then you will owe income taxes on that profit. 

I don’t mean to bash regulations which were usually created with good intentions.

Nor do I want to bash speculation which is not the same as stealing. 

But speculation and stealing are both zero sum games. For our society to encourage getting wealth through speculation and restrict creating wealth through work is to have our priorities very backward. The result of structuring our society this way is that society as a whole doesn’t build any wealth but instead we are encouraged to take it from each other.