https://youtubetranscript.com/?v=VcHMKAklPPM
Okay, but inequality is inevitable, is it not? Well, that’s another thing I wanted to talk to you about. Well, let’s talk about that. Because I had this client who is a mathematical genius, a clinical client, and he taught me a lot of things I didn’t know and hadn’t learned as a statistician. And one of the things he talked to me about was the Pareto principle. And so I went and looked into that in some depth. And so I found, for example, that it’s so, such a strange phenomenon. It’s like the square root of the number of people operating in a specific discipline produce half the output. That’s the law. And so there’s a thousand scientists working on a particular, in a discipline. 30 of them publish half the papers. And you can look across, it’s the same with basketball, hoops successfully managed, hockey goals scored, soccer goals scored, records produced, books written, books sold, records sold. It’s like everywhere, this law, this weird square root law, sometimes people sum that up as the 80-20 principle, but it’s way worse. Yeah, that’s the way I heard it. Yeah, it’s way worse than that. Yeah, it’s way worse than 80-20. Yeah, well, it implies, for example, if you have an organization with 10,000 people, 100 of them doing half the work. Now, if you have 10, it’s three, and that’s not so bad. But at 10,000, it’s 100. And you think, no way. It’s like, well, if you meet some of those people who might be in that 100, you might think differently. And this looks like there’s some fundamental rule. And so you’re interested in income distribution. And so what have you make of this sort of thing? Well, it reminds me of a classic paper by the late economist Sherwin Rosen, University of Chicago called The Economics of Superstars. And he starts it out by observing 80-20-like observations by, you know, let’s look at the earnings of tennis players and look at the rank. So how much total prize money is won by tennis players and what proportion of it goes to people based on the rank? And he gets something like an 80, you know, the top 20 or 25 tennis players are taken in, you know, the vast majority of the winnings. And, you know, record sales by musicians in various genres of musical production and whatnot. Similarly, the top ones are getting those. So he says, how can we account for this? And this, I think, should be a part of anybody’s effort to explain the Pareto principle as you’ve defined it or the 80-20 rule. He says, look, to produce something that people wanna see, you need talent, but you also need other resources. And so it’s the combination of the productivity of the talent, which is scarce and distributed in the population, and the effectiveness of their ability to command other resources, which taken together, determine what they will be able to produce. So you need a combination. So imagine one distribution would be talent. And so you need to be in, say, the top 10%, but that’s not enough. You also need, I don’t know, you need to be in the top 10% of education, say, to be a successful research scientist. And the juxtaposition of those two curves produces a real fractional percentage. And those people are hyper-qualified for that particular enterprise. And so they can- It’s something like that. Now, he adds another element, which is, let’s take opera singers, he uses this example. So in the old days, before you had high-quality sound reproduction, such that you could sit in your living room and listen to a recording of an opera singer through your speakers that produced an effect that was almost as good as being in the opera house. Before that, before that, you had to actually go to the opera house to hear opera. Now, the opera house can only accommodate a couple of thousand people max. So the very, very, very best opera singers could still only command an audience of a couple of hundred thousand people in any given performance, which leaves plenty of room for the second, third, fifth, and thirtieth best to be able to travel to the small towns and still make a living. But once it becomes possible for the best to record their performance and to distribute it in that way, the person sitting in the small town has a choice. Do I go to hear a 20th-rate opera singer in the local hall, or do I put a recording of the best one on my device? Now, often they would choose to go with the recording rather than to go to the 20th best. And that means that the top opera singers are not gonna command an even greater share of the market. And the insight there is that technological change, which permits the most talented to lever their talent to a larger audience is the key to understanding why they get so much of the take. Compared to- Right, right. So it’s like, the smaller the game, the less the gain at the top. But we expand the games continually with technology, and recording is an excellent example of that. And so I guess what we hope is that we produce enough new games so that everybody can win at something. But we’re still funneling a tremendous number of resources to people at the top of whatever the game is, especially as these games become big. So, and you see that, you see that, well, it’s really obvious with money, and people complain continually about the top 1%. But the problem is is that, there’s a book called Big Science, Little Science that was written in about 1962, and the author escapes me at the moment. But he did exactly the same sort of analysis for the scientific literature. It’s exactly the same story. So hyper dominance of a tiny minority of people. And so there’s a natural, it’s something like positive feedback loops too, isn’t it? Because, and I’ve noticed this as I’ve become more famous, I suppose, is that you get known, and some more people know you, and some more people are likely to attend you, and then more people are willing to talk to you because you have an audience, and so that drives the expansion of the audience, and your connection network grows at the same time, and you have more resources, and so it’s a bunch of positive feedback loops moving upward. I think the word network is very important there, and I think what with social media and whatnot, and magnifying the ability of individuals to have influence and to have influence on people who have influence, the density of that network is a tremendous asset for improving a person’s competitive position. Well, it makes the problem of inequality a real tough one from the political perspective, right? Because we could, and conceptual for that matter, because we could perhaps agree that regardless of whether you’re on the left or the right, you might view inequality on the right as a threat to social stability. So I know there’s this native Canadian tribe on the West Coast, Haida, the Kwakuwaks did the same thing. In their societies, they’d have big chiefs, and the big chiefs would just accrue everything. And then now and then they’d have a potlatch and give it all away. And then their status was dependent on their ability to give a lot away, and that stabilized their society. Now those were made illegal by the Canadian government, I think about 70 years ago or so, but they were thought of just some pagan, an unnecessary pagan ritual, I suppose. But I do believe that that was one of their so-called evolved solutions to the problem of, the terrible problem of inequality, the fact that goods tend to accrue in the hands of a few. And the lefties that I see, the left political thinkers, economic thinkers as well, especially the ones on the extreme left, they tend to associate that with capitalism, but that’s a fundamental underestimate of the magnitude of the problem in my thinking. And that’s a real problem if you’re concerned about comparatively poor or actually poor people, way bigger problem. I wonder if we could apply the same kind of thinking that we use to explain why an athlete or musician or even an entrepreneur might end up at the very right end of the distribution, garnering for themselves a great bulk of the reward. To apply that to the huge financial fortunes that are accumulated either through, savvy in the marketplace, I’m a hedge fund guy, I know what to buy and win and win the sale, or to the fortunes of land holding, family fortunes and things of this kind. I wonder whether those simple insights extend to the institutionalized wealth generating process. Well, I think they do to some degree. I mean, I studied entrepreneurial success as a researcher for quite a long time too, because one of the personality factors that predict entrepreneurial ability is this trait openness, which is essentially creativity. And what defines creative thinkers in part is, so here’s a simple creativity test. And it actually is reasonably predictive of creative capacity, both in terms of originality of thought and creative productions as assessed by experts. How many uses can you think of for a brick in three minutes? You gotta write them down. Or even how many four-letter words can you think of in a minute that start with C? That’ll be correlated at about 0.3 or 4 with your creativity, depending on how it’s measured. Very simple test. And what seems to happen is that creative people, when they think of one idea, the probability that that will trigger an associated idea is higher, especially a distally associated idea. So that likely means that creative people have more erroneous ideas as well. And then they have to, what would you say? Edit them and select. But one of the things that makes creative entrepreneurs successful is that they produce a large variety of creative products and then they throw them out in the marketplace and most of them fail, but you just need one to hit that Pareto point and then you’re successful. So you throw, you know, it’s, you throw some, what do you do? Throw a mess at the wall and see what sticks essentially. And most entrepreneurs, before they’re successful, have had a very large number of failures. Because even if you’re intelligent and creative, the probability that you’ll build a product that’s actually timed for the market is extremely low. So, well, what do you do? Well, you create more and that’s what happens. That’s what creative people are essentially biologically predisposed to do. So I think that, yeah, I think that principle, that underlying principle of positive feedback loops and, you know, the combination of scarcity of ability and resources, I think it accounts for all those inequalities. So, you know, the question is, what do we do about that? Well, you were saying something I find interesting a moment ago about how even a right-winger ought to be able to see that inequality, unrestrained could be dangerous to the stable social order because the losers are gonna end up having to say one way or the other at the end of the day. And you better watch out because if they don’t have a stake in the system and they’re feeling aggrieved and without status and dignity, they may act out in ways that are harmful to others. Oh, they will, especially if they’re young men. Absolutely, they will. Absolutely, they will. And that is definitely dangerous. And so, you know, partly we’ve tried to solve that, so to speak, we in the West by trying to ensure something like equality of opportunity across a wide range of games. That’s not a bad sort of meta solution, right? It’s like, well, we can’t predict, we know that there’s gonna be wild disparities in outcome and we can’t really do anything about that. But maybe we can give people something approximating an equal shot at winning some game. And that would be better for everyone too because then we can harness their creative resources. And it isn’t obvious to me that there is a better, technically even, I can’t see, like, I don’t understand, I don’t know what a better solution could be. Well, now, what does that mean in a world where the people who have engineering degrees or got to law school or got a good education and are connected, are making six figures and living comfortably and someone who dropped out of high school is working for $30,000 a year and just barely getting by. What is that latter guy’s venue where he or she can feel like they’re winning the game? Well, I think it depends to some degree on each individual. I mean, you can find status and meaning in your family. You have your pursuits outside of your work. I’m not saying that money isn’t a good singular marker of relative status. It’s probably the best singular marker there is, but it’s not the only one, right? There are diverse places where you can attain a certain status. And so, and you know, you can be poor and dignified. You’ve certainly met people like that. You can be poor and admired within your family. You can be poor enough, decent or outstanding character for that matter. And so, and that’s not exactly a domain that’s regulated socially like the economic domain, but it’s not nothing. And so, and by the same token, you know, you can sacrifice a lot of those things to economic pursuit and then you’ll have lots of money, but man, your life sucks in 50 different ways. So, I don’t know if that’s a sufficient solution, but it’s not nothing. But this is not constantly laissez faire, if I understand it. It’s not saying the government should just withdraw and let the chips fall within may. It could be advocating for a policy of some kind of, you know, everybody needs work that’s meaningful. You know, everybody needs a kind of sense of security, you know, that they’re not gonna get sick and not be able to pay the bill, that they’re not gonna get old and not know where the next meal is coming from. Let’s guarantee, let’s try to guarantee to the extent that we can. We know it’s, the world’s not just perfect and we may not be able to solve all these problems. Let’s try to make sure that there’s decent housing for someone that’s not, so they don’t have to sleep on their bridge, et cetera, et cetera. And then we can let the chips fall within. Yeah, well, it seems to me that societies like, well, the US to some degree, but more specifically, I would say the Scandinavian countries and probably Canada would more or less fall into that, what, ballpark, I don’t know, we fall into a ballpark, it’s a pretty bad metaphor, but you know, that’s kind of what those democratic socialist countries have tried to establish. Now, it seems to be easier to do that in a smaller country that’s more homogeneous in its ethnic and racial grouping, and maybe also technically it’s easier with a smaller population. You, the US is so damn big. It gets very complicated to try to do the same thing, that those smaller polities have managed. And then of course there’s, because you might think of something like a guaranteed income.