The War on the West

Fascinating discussion worth the two hours.

My comments:

First, not sure why JP doesn’t understand the inequality problem. I think it results from the confusion sowed by General Equilibrium theory that has dominated macroeconomics. Inequality is a maldistribution problem characterized by Pareto distributions, 80-20, Power Laws, etc. where a small % of the population ends up generating most of the success. Dynamic Stochastic General Equilibrium theory can’t deal with maldistributions very well because of the constraints of its mathematical models, so it resorts to two unsatisfactory conclusions: it all depends on initial endowments, and in the long run inequality washes out (captured by the rags to riches to rags in 3 generations nostrum). We must deal with the dynamics of maldistribution.

Pareto distributions are natural phenomena: in biology Pareto found that 20% of the peapods produced 80% of the peas. This law is ubiquitous in nature because biology has determined that success breeds success in the interest of the species. In evolution, good genes prevail, bad genes disappear. This easily translates to financial capital. With market dynamics finance exhibits centripetal forces that draw wealth and success back to the center from the periphery. This yields the concentration of wealth. (Marx’s diagnosis was correct, his prognosis completely wrong.) With Amazon, Bezos just gets richer and richer. Same with Musk and Gates. In geopolitics, financial wealth concentrates in NYC, London, Frankfurt, formerly Hong Kong, Tokyo and draws wealth in from the periphery. This has economic and political consequences that contribute to the instability of the system.

For example, take the quintessential game of capitalism: Monopoly. At the end the winner ends up with all the wealth and the game is over. Monopoly is a finite game, but we want a free society to be an infinite game, thus the natural distributional dynamics of market systems must be addressed. Unfortunately, our financial system addresses those dynamics by making them far worse. Banks primarily lend money to people who don’t need it. Tax policy favors debt leverage, which concentrates risk and return. Policy corruption socializes risk and privatizes reward. You get the idea. Policy can address this injustice, but only if we understand it. It all depends on how we want to manage risk and uncertainty in a free society. There is an ironclad moral and behavioral law in finance (and in life): risk and reward go hand-in-hand, they can only be separated by violating this law.

For a discussion of Power laws see: Inequality, Power Laws, and Sustainability.

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I found DM’s comment about representation vs. achievement insightful. I think this is a product of modernization and excess information, whereby for meaning individuals start comparing themselves to the icons created by modernization. We see this in celebrity culture. We can’t all be born Michael Jordan, but we may be born black. So as a black male we can assume some of the glory of MJ. I live a stone’s throw from Hollywood and BH and I’ve always been amazed by the cachet afforded by merely observing a famous person on the street. People will breathlessly repeat who they saw walking down Rodeo Drive. My conclusion is that this association provides more meaning to their not-so-famous existence. Humans seek meaning in life, but modernization has twisted this into vicarious pleasures rather than true meaning. I believe the group mentality is a vain desire for greater meaning and a sign of the vacuum we have created in modern atomistic society. As JP has written and knows well, human meaning is achieved through the affirmation of creativity and love. This applies individually and socially. It is the biological imperative. We need to find our way back to true meaning rather than be absorbed by all these modern distractions.

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Lastly, DM hits upon the truth that doubt’s opposite is certainty. Faith is not certainty, faith is the acceptance of uncertainty. In a universe characterized by time and change, uncertainty is the only certainty. The challenge of life is to manage this uncertainty and its associated risks in a way that it does not consume us. I’m afraid we failed that test with the Covid pandemic. May we live and learn. DM’s book is definitely worth digesting, for everyone together on this planet.

Author: Edward Chapman