Epstein Throwing Stones in Glass House
From Zanecorpwiki
The lead up: "Inequality in a free market system may not be as bad as advertised."
Richard Epstein: "What's good about inequality? If in fact it turns out that inequality creates an incentive for people to produce and create wealth, it's a wonderful force for innovation. So let's just go and take someone like Bill Gates, or any entrepreneur, guy earns $50 Billion dollars. How much consumer wealth has he created by selling products? We can estimate the consumer value of these purchase because everyone that buys one of these products... values it more than he receives. The value of these products to consumers probably dwarfs the entrepreneurial gain by a factor of ten to twenty to one."
He goes on to say, "One of the fundamental mistakes about the 'egalitarians' is that they're so interested in minimizing differences that they don't understand the completely adverse effects that it has on the size of the pie."
First off, before getting into Epstein’s argument we should recognize that applying a straightforward rational process to economics is a foolish game to begin with. Like many economists, Epstein presents his theories as if there's data and tests which back him up. But what Epstein does--and any economist who claims to have figured it out--is nothing like a rational process. The data is not clear. The system being described is chaotic. In economics, knowledge is often self defeating.[notes 1]
Economists that promote clear cut analysis and solutions are by and large deluded. They believe they're talking economics, but they're really just talking ideology and politics. Such economists believe what they believe because they want to believe it.
That's the nature of economics. It's why there's no convergence in the field; it just gets more and more chaotic.
This isn't to say that there aren't true-isms to be discovered and discussed and pondered. Price signals are important. A "market economy" seems to work best.
Epstein's interview is filled with egalitarian and liberal straw men. I've met exactly one person in my entire life that actually wanted to minimize the economic differences between all individuals. So why is Epstein crafting directing his attacks at 0.01% of the population?
Epstein then goes on to defend financiers on the basis that if you limit their ability to make money, they will block the flow of capital and the system will break down... That's true. It's also true that it breaks down not because of any fundamental problem, but simply because the financiers will hold the capital hostage. So, I guess on this point, Epstein is being practical whereas I have a moral problem with paying off hostage taking. What Epstein describes in rent taking (in the technical sense), and to me that's a problem.
Goodness... I thought I was simplifying this, but now it's even more rambling.
Epstein makes lots of good points, but his presentation is naively maximalist, full of straw men, and often inconsistent. He's a smart guy, would be great to talk to, but the basis of his faith is largely imagined.
Notes
- ↑ For instance, people from time to time figure out indicators in markets, like "every time the dollar dips more than 5% in one day, gold goes up 5% within 24 hours, so when the dollar dips, buy gold." The problem is that the discoveries are self-defeating. Once investors start acting on the knowledge, the knowledge change the markets. Now, instead of gold going up 5%, it goes up 20% and then drops back down. Only the first traders in make money and the "average" investor is left unable to cope. By the time you or I can buy gold, it's shot up too much in price and so "when the dollar dips, buy gold" is no longer true.
