Long time readers know that one of my big questions is why Plutocracy cannot be made to work. In particular, I wonder why society ruled by the owners of land combined with a “no serfdom” condition, doesn’t produce great outcomes.
We can argue over whether “no serfdom” is a stable equilibrium, but in the sweep of history so far all other arrangements are consistently beat out by liberal democracies which are a far, far cry from this.
Most of the standard answers to this I find interesting but unsatisfying, though if folks want to argue for them in the comments feel free.
Increasingly, however, I think it has something to do with the problem Paul Krugman outlines here.
One of the disadvantages of being very wealthy may be that you end up surrounded by sycophants, who will never, ever tell you what a fool you’re making of yourself. That’s the only way I can make sense of the farcical behavior of the wealthy described in this new report from Max Abelson:
Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.
“You’ll get more out of me,” the billionaire said, “if you treat me with respect.”
What I want to know is, how did these people get where they are with such incredibly thin skins? Can you become a Master of the Universe while screaming “Ma, he’s looking at me funny!” at every hint of criticism?
The lesson I would take is as follows. Profit or consumption maximizing incentives are just incredibly weak. We think we see consumption incentives in the general populace but we are really seeing status seeking. Folks earn or consume more in an effort to raise their status relative to others.
However, at very high income/status levels this has odd results. When Jaime Dimon or Leon Cooperman say that what they really want is to be loved, they mean it.
Indeed, twitter was ablaze a few weeks back over the fact that Jamie Dimon objected to his taxes being raised, but thought that he was already paying what Obama proposed raising his tax rate to.
This makes perfect sense if you note that Jamie doesn’t care about his tax rate. He cares about his taxes being raised. He cares about that because it sends a signal to him about how he is viewed in society and that really matters to him.
I see this in lobbying all the time. Because, I am a soulless technician who will faithfully advise anyone and everyone who asks I see the back rooms of opposing lobbyists all the time.
Here at the state level I can safely say that virtually no one has any idea what they are doing. That is, for the most part the lobbyist do not know and indeed are not particularly interested in what is in the best interest of their clients.
Further, this seems to stem from the fact that the clients are not particularly interested in what is in their best interests.
What they are very interested in is whether legislation is pro them or anti them. However, if you begin to talk about the economy as a complex system full of unintended consequences where anti legislation could be in their best interests their eyes glaze over.
Moreover, a very large number of business lobbyists are not even that interested in efforts that are pro or anti their business. They are more interested in legislation that is pro-business in general and that they perceive as being fair.
There are some notable exceptions but I will not name names.
My sense is that there is a huge but odd policy lesson here. I am still working to untangle what it is.