Inequality Is a Bug, Not a Feature

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Jim Manzi is founder and Chairman of Applied Predictive Technologies, and the author of Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics and Society.

I played in a lot of party bands in college, and there was a common expression among the soul and funk musicians I knew: "Never follow Aretha." In other words, it's rarely wise to walk onto a stage to perform right after the audience has just seen a virtuoso. Megan was very kind to invite me to help fill in here; but she was also pretty cruel, in that it will be natural to compare my writing to hers. It won't measure up. But at least she'll be back soon.

You are Megan's audience, so I'll try to stick to the kinds of economic topics that you come here to find. One of my co-bloggers for the week, Scott Winship, is a leading scholar on inequality and social mobility, so I'll start on that topic.

There is extensive blogospheric commentary right now about the article in the May 1st New York Times Magazine in which retired Bain Capital executive Edward Conard puts forward the view that current American income inequality is positive evidence that the market is correctly rewarding the innovators who drive economic growth. According to the article, he believes that America needs more technological innovation, and hence more income inequality, to motivate "art-history majors" and lawyers to become entrepreneurs.

I'm a technology entrepreneur. I think that Conard has an important point, but I also think that he is looking at one side of a trade-off. I argue in my book that America does need more technology-based innovation, and that this will likely require an even greater orientation toward markets and market-like mechanisms to accomplish. However, I think that this is likely to exacerbate social problems, and that those on the short end of the stick will not only react as Conard predicts by feeling "compelled to try to join" the successful entrepreneurial class, but also by attacking the innovation process.

Here's how I tried to put the problem concretely in one passage of Uncontrolled, after describing how the company I founded was one of a number that independently stumbled into the creation of Software-as-a-Service, or "cloud computing," as a method for delivering enterprise software:

Many entrepreneurs hold the opinion that "I did it all on my own," which may be well adapted to leadership success in certain situations, but it is objectively myopic. The entrepreneur relies on an ecosystem of venture capitalists, risk-taking purchasers, and so on. This ecosystem itself rests on a deeper foundation of collective, government-led enterprise. The delivery of our software, for example, depended on the existence of the Internet, which is the product of a series of government-sponsored R&D efforts, in combination with subsequent massive private commercial development. Government funding has been essential to much of the university science that entrepreneurs have exploited. Honest courts and police are required for functioning capital markets and protection of assets; physical infrastructure is required for the roads and running water without which we would not spend much time thinking about artificial intelligence software. At the absolute foundation, national armed forces protect the whole system against external aggression. All of our exciting technical and economic innovations ultimately require men to stand watch all night looking through Starlight scopes mounted on assault rifles--and die if necessary--to protect our commercial, law-bound society. Would you do this to protect a billionaire hedge-fund manager who sees his country as nothing more than lines on a map?

The vessel of the broader society must survive if social evolution of any kind is to take place within it.

Innovation forces change, while humans generally resist change. The pain of the change tends to be visible, while the benefits are usually diffuse and invisible, and clearly involve luck when they are visible. It is therefore natural that people will attempt to organize to prevent the spread of innovation. The original Luddites were English cotton weavers who responded directly to their displacement by automated weaving technology: they smashed looms. This is easy to mock ... as long as you're not the one who is going hungry. In the contemporary West, such people rarely assault property en masse; instead they form political coalitions to pass laws that restrict the use of the looms. Threats to cohesion are not met with violent overthrow of the government, but with use of the political process, broadly defined, to slow down disruptive innovation.

Thus the inherent tension built into the very structure of innovation manifests itself as the fundamental tension of democratic capitalism: winners in this scenario require shared resources produced by the losers. That is, the market economy requires broad social consent. Why should those who lose out in market competition give it?

People are as they are, and to pretend that they will willingly conform to some abstract notion of a pure market is to wish away human nature. It is a libertarian version of the old Soviet attempt to will the New Man into existence.

The whole third section of my book is an attempt to lay out this problem as clearly as I can, and then to propose some modest programs to alleviate it, very partially. I don't think there are even partial solutions that fit on a bumper sticker.

(h/t to David Frum who makes a similar point, very well and very succinctly)

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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