In which I bastardize the phrase “Corner Solution”

It’s not surprising that the entrepreneur class would gravitate towards a theorist who postulates that said class is the root of all virtue and creator of all value, like a Joseph Schumpeter, or the many others since, and their passel of magazine covers and business books sold in an airport near you.

It’s not surprising that the vast classes of salaried employees might have gravitated towards the Labor Theory Of Value. It’s not shocking that as the industrial revolution came into full swing, the allure of communism was extremely attractive for large numbers of people around the world. It postulated that the vast masses were the root of all virtue and creator of all value.

It’s not surprising that people who already had successfully acquired wealth and paid quite a bit in taxes gravitated towards people like Arthur Laffer and supply side theories. It’s hardly a shock that people who the market had deemed to be winners would advance the theory that the market is always right, and that it always distributes resources with perfect efficiency. People like Lucas and Sargent and Friedman on the academic side, or Ayn Rand (god help us all) on the pop culture side said that the rentier class was the root of all virtue and creator of all value.

There’s an entire industry devoted to privatization of everything. They’re not interested in discussing the details, asking if privatizing X really leads to more efficiency. Hard to figure out why, until you notice, of course, that they’re the ones looking forward to getting their hands on the assets. You could argue that the private sector does everything more efficiently. It’s a good way to get a contract providing armed soldiers to the US military at 10 times the cost of just having actual, you know, soldiers do the same job.

It’s sure hard to figure out how these theories spread, isn’t it. The reality of course is that a well functioning economy is created by a mix of inputs. Corner solutions don’t work. Total state ownership of the means of production (communism) strips incentives and leads to corruption and terrible allocation of resources. We’ve established that didn’t work. Well sort of, China hasn’t done too badly lately has it, and they are nowhere near an open economy.

Prosperity requires effective flow of capital and capitalists and the ability for people to have incentives to innovate and invest and assume risk and reap rewards. It also requires government intervention where market failures occur (like making sure insurers are properly capitalized, or to break up monopoly situations) and to stimulate things that the private sector can’t or won’t efficiently create because of excessive time horizons, risk, coordination issues, or capital requirements (things like the interstate highway system, the internet, air traffic control, etc, for example).

It’s been an amazing and historic week. An inspiring one, no matter which side of the aisle you’re on. I would hope. But it’s sad to see that the same tired arguments prevail, on the right, but on the left as well sometimes.

The reality is that entrepreneurs, bankers, investors, academics, inventors… and yes, government regulators, bureaucrats, factory workers, and cashiers all contribute to prosperity. All or nothing attitudes are kids stuff.