Eduardo Porter calls me on the phone

Here is what I had to say:

Tyler Cowen, a professor of economics at George Mason University, argues that the very definitions of labor and capital are arbitrary. Instead, he looks around the world to find the relatively scarce factors of production and finds two: natural resources, which are dwindling, and good ideas, which can reach larger markets than ever before.

If you possess one of those, then you will reap most of the rewards of growth. If you don’t, you will not.

There you go, you can tell I studied with Ludwig Lachmann.  The article is interesting throughout.  Here is a slightly earlier post, “Joseph Nocera calls me on the phone.”


Right...tell that to Steven Cohen or the other hedge fund billionaires who have made massive empires of wealth on capital alone.

But, of course, Cowen's function is to provide a patina of intelligentsia for a right wing propaganda movement to win the hearts and minds of the egomaniacal middle class. Problem is they're losing.

I'm just trying to figure out if steve cohen's proficiency at stealing should be classified as a "good idea" or a "natural resource"

Stevie Cohen's fortune isn't just based on normal capital investment. The man's one of the best stock traders to ever live. His fortune is most definitely based on good ideas. In this case in the form of ideas about which companies are going to outperform.

And if you think Cohen's skill is entirely due to insider trading, let me dissuade you from that notion. SAC had stellar returns before they even traded on fundamentals at all. (Link below). SAC transitioned to deep fundamental well after it had one of the best track records in history. The reason it did so was not to generate higher returns, but to increase capacity from its tape reading style. In short Cohen would still be a billionaire many times over without insider trading of any form.

Again this problem with "normal" capital investment. Cohen had great ideas and capital, which yielded billions. The point is that he needed the capital.

Great ideas aren't enough to make a lot of money--you also need some capital, connections, or something else. If Cohen hadn't had the connections and capital to start investing, his good ideas would have yielded nothing.

I'll stick to rent-seeking.

And regulatory capture.

I am a simple man. Mere net tax consumption will suffice.

Seems reasonable, but I'd add: Knowing a guy who knows a guy ...

Everybody loves to think that the successful are thus so because of their connections. Frankly it's a comforting notion but a toxic one. Buying into it justifies laziness and apathy. On balance the evidence seems to indicate that connections are far less important than they've ever been in the past. This is a golden era, when a talented kid can create a multi-billion empire alone in his basement. Never has society been as meritocratic as it is today.

It's like how there was this giant outpouring of talent in Russia among Yeltsin's pals, and then there was another giant outpouring of talent in Russia among Putin's pals.

There's about six times more billionaires from developed Western countries than there are from former Soviet states. In fact there's more billionaires from just the fashion industry alone (142) than there is in all of Russia (110). So the Putin crony is highly atypical of the modern global elite. Like I said there's far more meritocracy at the upper reaches of wealth than there's ever been in human history.

This kind of attitude is the refuge of losers. "It's just not fair, there's no point working hard because Roman Abramovich made all his money from Putin, therefore I'll never be successful. Anyone who does well is just a phony with connections, it's all rigged against people like me. I'm just going to play Call of Duty all day."

Thanks Doug. The refuge of losers apparently equates to the domain of high IQ people who recognize the obvious fact that nepotism and ethnic gamesmanship is rampant in U.S. and Western elites.

It's a very self-serving assumption on your part. I hope you personally benefit from it.

In case anyone's wondering what "nepotism and ethnic gamesmanship" means its White Nationalist code word for "if my career's gone nowhere it's all the Jews' fault." Because when I think of a group of talentless and lazy hacks who only are successful because of historically being on easy street, Jews are of course the first thing that comes to mind.

Peddling this White Nationalist crap on Passover nonetheless, for shame.

It is entirely probable that the reason the post-war order produced more meritocratic wealth than the world is used are due to public minded values that are usually absent from people interested in decrying laziness as a primary scourge to humanity. It is also true that wealth became more meritocratic in the sense that it accrued to those that exhibit talent rather than pedigree for at least a brief time, but note that the efforts to extend the building blocks of talent have never been remotely equitably distributed.

By asking people to praise the mostly white, male, and talented billionaire of today, you're much closer to realizing a value system much closer to Mr. Sailer than you are comfortable with.


The question you should ask yourself is on the margin should billionaires be respected and admired more or less. On the one hand billionaires almost by definition hold an incredible amount of influence, power, status and resources. The very existence of such individuals has an anti-democratic effect on society. Giving billionaires as a class more respect would contribute even further to this concentration. I think this effect is generally greatly overstated, but I don't deny it exists. On the other hand increasing their social respect would mean that their traits and characteristics would be more widely mimicked. Unless you're a hardcore Marxists its hard to deny that widely dispersing the behavior of the most economically successful wouldn't increase overall economic wellbeing both on an individual and societal level.

Directly relevant to this question is how meritocratic you believe the billionaire class to be. If most billionaires got to their positions by luck or connections, then marginally increasing the propensity of their characteristics across the population would have a small, or possibly even negative, effect. I would contend that the vast majority of billionaires, particularly those in the West, are smarter, more knowledgeable, more curious and harder working; and have better judgement, self-control, and honest self-assessment than the median person. As such a marginal increase in the social admiration afforded to billionaires would almost certainly promote very positive social behavior among the wider population.

Because having millions or billions isn't enough, individuals really need that "Doug will lick my boots" incentive in order to strive to be filthy rich.

Doug's true colors are showing.

Probably true but also irrelevant about whether A kid born to 20th or 30th percentile parents can expect to be "middle class" -- a standard of living several multiples of his parents'.

And just to ensure clarity, the phrase "If you possess one of those" is not in reference to a singular good idea. You must possess a network of interconnected and supporting good ideas to reap the rewards of growth - even more, you must possess a system that produces such networks.

Tyler becomes a massive troll the longer time goes on. He's got real intellect, but is too interested in glib deep think these days.

Good ideas are in short supply?! What absolue horse shit. There is an astounding amount of low hanging fruit as far as improving human well-being goes. Getting people to exercise and literally add years to their lives. Allowing people to build more houses in urban areas. Taxing inheritance like crazy to pay for social welfare programs or reduce taxes on labor. I can spout them off all day. We still have plenty of good ideas. What we lack are political and social institutions capable of implementation.

I have good ideas on getting people yo exercise, do you?

Treadmill desk.

The problem is every time I tell an employer that in ten years the thing they prohibit they will eventually require their eyes glaze over.

I'm not sure who to blame for intransigence to ideas.

"tell that to Steven Cohen or the other hedge fund billionaires who have made massive empires of wealth on capital alone"

In the context of the possibility for substitution of labor with capital, or in the context of Piketty's "r > g" the wealth of hedge fund owners is pretty much an irrelevance. The successful ones make money way above regular rates of return because they make good predictions (whether by luck or by insight) and because they are good at marketing their funds to investors. This has very little to do with the regular, average, return on "capital" and nothing to do with the substitution of labor with capital.

They certainly don't constitute a refutation to the claim that "capital" is a poorly defined entity.

"Cowen’s function is to provide a patina of intelligentsia for a right wing propaganda movement to win the hearts and minds of the egomaniacal middle class"

What would be left of progressive thought if we eliminate woolly-headed emoting? Not a whole lot apparently.

Sometimes I enjoy Flatliner banter, but not this time. I'm not really "left wing" per se, but I know dogma when I see it. Of course, the fact that you only see the world in left-wingers and right-wingers says a lot about the quality of this site's readership.

Your logic about hedge fund capital returns not really being capital returns because they're above average is bizarre. It's so bizarre I wonder why you would even think it--to satisfy some ideological post hoc, no doubt. Return on capital is return on capital, whether above average or below average, just like height is height, no matter whether you're taller or shorter than the median.

I'm trying to find non-emoting, intellectual content in your post and the best I can do is this quote:

"Your logic about hedge fund capital returns not really being capital returns because they’re above average is bizarre [...] Return on capital is return on capital, whether above average or below average"

which besides being just an empty assertion without any argument, it also does not betray any knowledge of how a lot of funds operate.

Take high-frequency trading. The actual financial capital that they use is relatively minuscule -- some make returns higher than 100% per year, if you count the money invested as their capital. Clearly a return on capital can not be the story here if you define capital as the actual financial resources invested. Instead, they make money from the use of their portfolio of algorithms and from the ingenuity of their traders and programmers.

So their "capital" is their ideas, which is part of the point made in the original post.

HFT is a tiny fraction of total funds invested in the market, and it is declining, so your example, while buzzworthy, is extremely poor.

"HFT is a tiny fraction of total funds invested in the market, and it is declining, so your example, while buzzworthy, is extremely poor."

The point is that the wealth of many Wall Street billionaires, including Steven Cohen (your initial example) and including billionaires that are owners of HFT firms, is to a large extent a product of their ideas : whether it's marketing ideas, insider trading ideas, exploitation of microsecond patterns ideas, ideas that are correct just by luck, or just plain evaluation of the prospects of some firms ideas.

I'm not making claims that all these ideas are a net positive for society -- I'm claiming just that your example of Wall Street billionaires is nowhere in the vicinity of providing a refutation to the points in the main post.

If "non-wage" income were taxed like wage income (after indexing capital gains) I think there would be a lot less animus about "hedge fund" income. It's the idea of special, favorable treatment that grates. We need a progressive consumption tax to complement the carbon tax..

And those revenues directed to public goods.And spending cut by 50% or more.

There is one issue with "natural resources"---one does not really possess natural resources unless society gives you license to possess them. You could get this license by discovering the resource, which is really nothing more then possessing a good idea, or you can acquire the natural resources by purchasing them with the fruits of a good idea. The one other option is to inherit the natural resources; however there is a substantial likelihood that many governments will use taxation of estates to prevent this.

"Good ideas" is imprecise. An idea can be good along many different possible dimensions, only some of which will make it profitable.

Right. I get that he is emphasizing the scalability part. But stealing tech is also profitable, n
Just not for the innovator.

That's true, but not what I meant. I mean you might have a meritorious idea that is not monetizable. "Good" is vague and "idea" covers way too many types of concepts, from mathematical proofs to business models to new makeup styles. David Hume was full of good ideas, but only his histories were profitable.

Seems to me that natural resources are becoming more abundant, thanks to better technologies for growing or extracting, or substitution.

Have you checked the price of aluminum lately? Or (before farmland-pinko ethanol) corn prices? Now there are subs for diamonds.

The run-up in commodities prices in the 200s looks to be a fluke, perhaps even partially generated by rent-seeking on the commodities exchanges, and some manipulation. But now we see a long secular decline setting in.

At $100 a barrel, there is hardly an oil field on the planet not worth developing.

Also a good point. I like to point out that in ancient times, copper was originally mined as pure copper. Then a relatively high grade ores like malachite (Copper hydroxy carbonate). Now in Utah they dig up a whole mountain of ore that has less than 1% copper and use various technologies to concentrate and extract the metal. Most deposits of pure copper are depleted or too small to worry about.

Know what EROI is?

Good ideas are terribly overrated. The valuable part is to have the know how and discipline to execute them. Apple is not where it because it has better idea people.

It is time for reddit style.

You don't know what you are talking about. I was once like you. I went to see the Pope. THAT guy is a name dropper.

While it's not enough to land you in the situation of Zuckelberg or Gates, a solid education and willingness to work hard with a positive demeanour will get you a fair few gains of growth in an increasing number of economies in the world.

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