Richard Epstein’s Magical World
The abracadabra of classical liberalism
A defender of stratified inequality, privatizing everything, and the Gilded Age, Dr. Epstein fundamentally believes funneling money to the ruling class and relying on their benevolence is totally awesome.
His axioms, dominated by classical liberalism, manifest anywhere from a negligent representations of capitalism to a call for enlightened monarchism.
We’re going to use an EconTalk episode as a guide wherein he makes a number of fantastic claims explicitly or as an implicit assumption for his views to hold.
- Everyone has the same amount of money
- Pricing is directly correlated with cost
- Everyone’s out to maximize their wealth
- Money goes to the right place
- Chance plays little role in success
- Emergent properties are stable, fair, and have integrity
Everyone has the Same Amount of Money
At a fundamental level, he presumes that effectively everyone can participate in a market economy at equal footing and a given financial commitment impacts everyone equally.
If this accusation sounds absurd, read this excerpt from the episode:
Another class of people who sit in first class are those people who have medical conditions which really don’t tolerate sitting in small areas. They’ve got arthritis; they may be severely overweight; they may have other kinds of problems with their backs and so forth that make it difficult to sit in the coach class.
If someone has a medical condition, they sit in first class not through a doctor’s note but via a price signal.
That works only if everyone has the same amount of money to spend on the ticket and the individual can signal their need by allocating more finances.
However, if there’s stratification of wealth or ability to pay or a significant price difference, this mechanism breaks down and the price signal model to represent need does not work.
Instead, Dr. Epstein fundamentally assumes everyone’s got the same amount of money to use as an implicit precondition for his arguments to work.
This is why people are clearly not distributed in first class based on anything like he suggests and instead as if it was by some ensemble of chance and a pre-existing social order.
Pricing is Directly Correlated with Cost
Concepts like artificial scarcity, monopolistic pricing, or other manipulations to maximize profits is nowhere on his radar. The inherent political power in pricing which goes beyond the underlying market mechanics due to limited information, restricted access, or just classic hoodwinking doesn’t seem to be possible.
Pricing is routinely 10x direct costs to cover the cost of business. The cost of the thing, its price, and the number of customers at a price are completely different things.
Outside of absurd pricing (ie, $1 million for a stick of gun), there is no deterministic correlative effect that can be mapped by a strictly linear system (regardless of any elasticity multiplier).
Instead, he makes the assumption that these things have something to do with each other:
What you have to do is to imagine an alternative universe in which there are two cruise ships, one which only has the 275 elite passengers — and it’s going to be a smaller boat; it’s going to have heavy fixed cost, and it turns out they are going to have to pay more per person in order to reach the same level of amenities. On the other hand, the 4000 people who don’t have these richer folks in there, they are also going to have to have a higher level of fixed cost to pay for the various amenities that they want, because the revenue stream which comes from the very rich people supports not only the particular benefits that that group get, but also the general operation and overhaul of the ship.
Even in the most perfect markets by all the neo-classical standards, say gas stations, prices within a few blocks can vary by 40%. Are we going to claim that the higher price gas has what? Higher quality trash cans?
Everything beyond the perfectly comparable open market of commodity equivalency in gas stations has even less correlation between cost and price.
There’s an entire school of psychological pricing based on how unbelievably disconnected the two things are. In basic marketing, price is one of the “4Ps” that provide signal.
Atomic anonymous single-unit isolated zero-externality perfect market transactions only exist on a chalk board. They’re an unrealistic and inappropriate way to model the real world.
Everyone’s out to Maximize their Wealth
Dr. Epstein fundamentally believes that value to society = personal success and personal success = personal money.
This tail wagging model of the economy with the assumption that someone getting $X is creating a societal value related to $X denies the extractive nature of capitalism and its destabilizing effect.
The Pareto principle works just as frequently for societies demise as for its benefit. Every economic transaction is a constitution of a variety of consequences to many parties — not just some optimistic benevolence for all.
Also, not everyone in capitalism is in it for capitalism. Success for social workers, teachers, artists, sociologists, authors, anthropologists, linguists, scholars… has nothing to do with amassing capital.
A first authorship in Cell Magazine is certainly success for a biologist. That reward? Negative $5,000 or so for submittal and conference fees alone. In addition, there were countless grants to pay for the costly research and lab work. (Of course let’s not deny the pharmaceutical with the lawyers to patent this and reap all the profit rewards as if it was their hard work.)
Researchers are constantly on the brink of starvation despite the immense value they provide.
There’s many motivations in capitalism besides accumulating personal fortunes. That’s why Dr. Epstein didn’t get paid to be on EconTalk. Not everything done in capitalism is for the accumulation of capital.
Blindly promoting people who prioritize accumulation of private wealth over providing social value is a grossly inefficient distribution of resources to those who have careers which focus on finance or who have come into wealth through no act of their own. It is a fundamentally corruptible and thoroughly arbitrary metric.
Money Always Goes to the Right Place
Seeing the underlying race, gender, class, religious or any other kind of bias or the fundamental power mechanics of society is apparently totally beyond Dr. Epstein’s interest.
The long history of female inventors who were kicked to the sidelines or black artists whose work was quite literally stolen by white capitalists didn’t come into play.
The already powerful, influential, and preferred; they are the ones most likely to receive the credit and profit. This is at an institutional, corporate, and societal level. We see it so often that it’s constantly joked about in multiple forms.
In capitalism, the capital goes to the capitalist — that is, the one with the capital. It tautologically moves upward and that is the underlying mechanic. Being anti-distributive is a fundamental property.
Meritocracy is mythical narrative. If someone enters the Capital class, it’s much more by some miracle of luck then by any justifiable value correlative.
Chance Plays Little Role in Success
As someone who has worked in the startup world for 20 years, success is about as correlated as a lottery ticket. A confluence of good luck is perhaps 95+% the credit of any success. Those who made it make constant appeals to the fortune that brought them there — because that’s how it works.
In art and music, genius and talent have almost nothing to do with how financially successful they were in their own lifetimes. There is no correlation — it does not exist.
Emergent Properties Are Stable, Fair, and have Integrity
Most of the people in this camp like to euphemistically call white-collar criminal law “regulation”. Their calls for deregulation is really for crimes of the wealthy to go unpunished and for them to be able to act with unaccountable impunity.
Beyond the fact that this attitude should stay in 16th century Italy where it belongs, as a system it simply does not work.
When you let the stochastic random market system go without any oversight, as the good Doctor wants, the instability and entropy inevitably leads to market bubbles and collapses. They happen at the points of least oversight when defrauding the public and placing them in unpayable debts becomes standard business (see dotcom 2000, S&L 1987, OPEC crisis, PIGS, Weimar Germany, Iceland 2008, even Tulip mania 1637 or Panic of 1857 … just about anything)
This was yet another remarkable interview with Dr. Epstein where I wanted to toss my radio across the room. Unlike say, AEI or Michael Medved who are pure shills for whoever is depositing money by their doorstep, I think Dr. Epstein is genuine and sincere about his positions and is not just deciding to defraud the public for financial gain.
I find it really disheartening that someone so scholarly can still believe in such hocus-pocus.