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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.

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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.