Lincoln * Institute

Ralph R. Reiland

Ralph R. Reiland

The B. Kenneth Simon Professor of Free Enterprise at Robert Morris University

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Reflections

Jobs and 'The Rich'

by Ralph R. Reiland
 

SEAISLE, N.J. ---How many pretzels does it take to build a castle in the sand?

Howmany cans of jalapeno dip does it take to build a $30 million mansion on theocean so huge that it makes the neighboring $10 million beach houses looksomewhat run-of-the-mill, even puny?

Well,the lawsuits are over and the 14,000-square-foot beachfront mansion built by Utz potato chip and pretzel magnate Michael Rice and his wife Jane is up andrunning on top of the dunes in Avalon, the tony beach town to the south of usin South Jersey.

Theanti-mansion demonstrators are gone --some way gone, having moved out of town in disgust after failing to stop the building of a mansion on top of Avalon'sHigh Dunes, a unique two-mile stretch of undeveloped maritime forests and sandygrasslands along the ocean, one of the few such pristine areas remaining alongthe East Coast.

LastJune, I interviewed one the organizers of the lawsuits and protests against Rice.

"No one needs a house that big," she said. "He already has a vacationhouse here

that's big enough."

She was right about Rice's former home in Avalon being "big." A snazzy beachfront manorwith a library, elevator, spa, seven baths, and seven bedrooms, it was on themarket last year for $12 million.

The newhouse reportedly has 10 master bedrooms, 13 bathrooms, a pool, and a

maid'squarters. And a better view — from the top of the dunes, you can see both

theocean and the bay.

On the "needs"part of her comment, however, the anti-mansion community organizer

sounded too much like Obama when he said we shouldn't be reducing federal deficits by cutting programs while simultaneously allowing others to keep money that they've earned but "don't need."

Whowill be the judge of who needs what? Which agency or bureaucrat will decide

ifanyone needs a $1 million Ferrari Enzo or a $10 million yacht? Who will decide that the workers building the new mansions, yachts and Ferraris should be outof work?

As France's new Socialist president, Francois Hollande famously said, "I don't like the rich." His idea of "fairness" is to raise the top tax rate in Franceto a confiscatory 75 percent on incomes over 1 million euros ($1.27 million),and that's on top of France's real estate taxes, a value added tax onconsumption that tops out at 19.6 percent, a gasoline tax of $4.50 a gallon,and other assorted levies.

Also onthe agenda of the French redistributionists are new and higher taxes on

wealth,second homes, and inheritances.

On February 27th, two months prior to his election victory, Hollande declared,"What I don't accept is indecent wealth, compensation that has no relation totalent, intelligence or effort."

It'snot clear which members of France's newly empowered Socialist Party or

committeeof levelers will be authorized to determine what is an "indecent" amount of compensation for the innumerable types and levels of "talent, intelligence or effort."

Two weeks after Hollande's election, Bloomberg News reported on the initial

and predictable response of "the rich" in France: "'It's open hunting season

on wealthy people in France,' said Francois Micheloud, a partner at

Lausanne,Switzerland-based Micheloud Cie., which helps foreigners relocate to

theAlpine nation. 'The number of French asking for assistance has tripled in the last 18 months.'"

A headline in Der Spiegel tells the same story: "Wealthy French Take Their Assets To London."

In 1990, employing the same rhetoric we're now hearing in France and from the White House about getting "the rich" to pay their "fair share," Congress passeda 10 percent "luxury tax" on high-end jewelry, aircraft and yachts.

"Withineight months after the change in the law took effect, Viking Yachts,

thelargest U.S. yacht manufacturer, laid off 1,140 of its 1,400 employees,"reports George Mason University economics professor Walter E. Williams.

By the time the law was rescinded in 1993, Viking Yachts was down to 68 employees.

Not far from where we are in Sea Isle, Egg Harbor Yacht, one of the oldest boat yards in South Jersey, filed for bankruptcy and laid off its 250 workers in 1991, a year after the yacht tax was enacted.

"When it was all over, 25,000 workers had lost their jobs building yachts, and 75,000 more jobs were lost in companies that supplied yacht parts andmaterials," states Williams. "The Joint Economic Committee concluded that thevalue of jobs lost in just the first six months of the luxury tax was $159.6million."

And the impact of the luxury tax hike on deficit reduction? Instead of adding

theprojected $31 million to federal coffers in 1991, the net effect of the luxury tax was $7.6 million more in federal red ink in fiscal 1991.

Theimpact of the luxury tax on "fairness" and equality? Workers lost their jobs and

"the rich" still had their preexisting yachts. The redistributionists aimedat the wealthy and hit the middle class.

That'snot unlike the scenario at the Utz house. If the protesters had been

successfulin stopping the construction, the Rices would still have their preexisting $12million beach house and the carpenters, roofers, landscapers, etc., would havepaid the price with higher levels of joblessness.

Ratherthan judging what the Rice family "needs" and carping about the home's

numberof master bedrooms, the picketers should have been counting the number

ofcontractors' trucks lined up in front of the house during the three years

ofconstruction.

Inaddition to those on-site jobs, add the number of jobs in manufacturing, marketing and shipping for all the sinks, beds, tables, cabinets, chairs,roofing, stone, appliances, doors, windows, landscaping, etc., and new home wasa one-man stimulus package.

The protesters may sneer at "the rich" and "unfair" advantages but Utz Foods began as a family business in 1921 whenWilliam and Salie Utz began making potato chips in their home in Hanover, Pa., producing 50 pounds of potato chips per hour in their kitchen.

Now in its third generation as a family business andstill in Hanover, not China, Utz currently employs 2,200 people and is thelargest independent privately held snack brand in the United States, producinga million pounds of potato chips and 900,000 pounds of pretzels per week.

That's not unlike the Heinz story in my hometown ofPittsburgh. Now a Fortune 500

company, Heinz got its start when 8-year-oldHenry John Heinz began selling

vegetables to neighbors from his family'sgarden. At the age of 12, Heinz was growing horseradish root on several acresand selling his homemade horseradish door-to-door in a wagon.

It is precisely that spirit of entrepreneurship, newideas, risk taking, investing, productivity and ambition that we have tocommend and incentivize, not demonize, if we want a society with more growth,more employment, less joblessness, and less poverty.

As Milton Friedman put it, succinctly and accurately, "Sothat the record is

absolutely crystal clear, that there is no alternative wayso far discovered of

improving the lot of the ordinary people that can hold acandle to the productive

activities that are unleashed by a free enterprise system.

"

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RalphR. Reiland is an associate professor of economics and the B. Kenneth

Simonprofessor of free enterprise at Robert Morris University in Pittsburgh.

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Ralph R. Reiland

Phone: 412-527-2199

E-mail: rrreiland@aol.com.

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