Interesting article on the American Enterprise Institute web
site recently - showing that human capital inputs far exceed the physical capital input in creating our economy:
I agree with many of the article’s premises. In fact, when you think through the course of
human history, so much of wealth and power were concentrated in the ownership
of land – physical capital – from the time of Christ through Karl Marx. The past 100 years is really the first time
this hasn’t been the case – where wealth could be generated from intangible
assets – like education and knowledge.
And even today, this isn’t the case in many countries outside the US –
for them, the ownership of land still dominates everything.
This rise of ownership of intangible asset of education has
been extraordinary important in the increase in the standards of living in the
US over the past century. When you look
back at the early 1900s, nearly all people attending college were from upper
class, wealthy families, who could not only “pass-down” wealth in its physical
form, but also the ability to generate wealth in its intangible form through
increased education. Entire classes of
the US population back then, some absolutely of genius intellectual level and
far exceeding the academic abilities of probably most in the “upper class,”
were excluded from competing against them.
Part of tax policy is the US has been to encourage or
discourage economic behavior (as opposed to mere raising revenues for the
government to spend). This “encouragement” process began in earnest
after World War 2 and remains strong today (despite the appeals of Tea Party
and Libertarians).
One of the encouragements has been to create tax credits and
deductions for pursuing higher education.
Looking towards the future, and the economic benefits of
continuing to have a populace where the dependence of capital ownership is less and less
important, I can see where these types of tax encouragements will continue, if
not expanded.
Another question, though, is whether the continuing tax
encouragement of capital ownership and investment (i.e., through dividend
income and capital gain tax preference rates) should remain in place.
