An Influential Idea I Didn’t Get in a Book

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"An Influential Idea I Didn’t Get in a Book"

As long as we’re talking about intellectual influences, I thought I might talk about an idea that’s important to me that, as best I can tell, I thought up all by myself. I don’t want to claim that it’s actually original—and certainly one way to think about it is that it’s just public choice economics looked at through the other end of the telescope—but I didn’t read it anywhere.

This is an idea about the simple story you’ll find in your intro micro textbook about the behavior of a perfectly competitive market. The normal way people seem to react to this story is that people with right-wing views start talking about how bad government intervention is and people with left-wing views start talking about how unrealistic the assumptions underlying the model are. But another way is to think about it from the point of view of a businessman. This competitive market sure looks like a horrible place! You might make a living there, but you sure as hell aren’t going to get rich. Think of the immigrant family that owns the dry cleaning shop around the corner—long hours, hard work, modest income. That’s your capitalism and it pretty much sucks.

Obviously the whole reason to become a businessman in the first place is to get rich. Operating a business in a competitive marketplace is for suckers, or immigrants with limited English ability. The whole name of the game is to do something else. Get a license for something. Get into a line of work with network effects. Win government contracts. Get your hands on some intellectual property. Become a monopoly. Find some barriers to entry. If you think about Bill Gates, who’s about as successful a businessman as they’ve got, and he’s doing a whole bunch of those things simultaneously. That’s how you get rich.

From a formal point of view, you could consider this a libertarian analysis. But I don’t think the formal aspects of ideology are very important, and it has relatively little to do with any concrete political program I see anyone trying to advance. And to me it suggests that people overrate tax cuts as a means to spur capitalistic growth.

Update

A certain number of people seem to have decided to read this post as me claiming to have thought up the idea of rent-seeking all by myself. You’d have to have a very low opinion of me to think I would claim something like that.

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