1. On Economic Justice
I agree with and admire people whose sincere goal is to have a more equitable distribution of wealth in society.
I disagree that a heavy-handed government intervention in the market is a good way to achieve a more equitable society. Allow me to explain.
I agree with and admire people whose sincere goal is to have a more equitable distribution of wealth in society.
I disagree that a heavy-handed government intervention in the market is a good way to achieve a more equitable society. Allow me to explain.
2. I believe well regulated free market capitalism is the best progressive-taxation and wealth re-distribution system known to mankind.
3. Wealthy voluntarily end up paying an enormous "social tax" by risking enormous amounts of capital in pursuit of profit, as most of the capital gets wiped out by failed experiments, which nonetheless move the needle for science and technology forward.
4. And that eventually benefits humanity far more than any government largess ever could, even though there are long periods of time in which the process seems to come to a grinding halt, when it pauses in-between major waves of innovation.
5. During such hiatus periods, rich seem to get richer by doing little which is socially useful.
6. However, ultimately, all wealth is generated through innovative use of time, energy, natural resources, and human intellect. But breakthrough innovation rarely happens on demand. Frenetic societal impatience and envy is value destroying.
7. I hasten to add that for such a system to do the most good, it has to be paired with rigorous and good regulation, which is no small a challenge, and perhaps even a bigger challenge, but that is a challenge for politics, not for economics.
8. The political challenge for a society is to harness the laws of physics and economics wisely for the greater good, not try to repeal them, which is futile and destructive.
9. Left to its own devices, the same breakthrough innovation (railroads, automobiles, airplanes, radio, television, medicines, internet, smartphones, biotech, you name it) which creates enormous wealth also does a pretty good job of progressive-taxation & wealth re-distribution.
10. How so? Let me illustrate with a familiar breakthrough innovation -- internet and the dotcom revolution of late nineties.
11. Well, the invention of the internet was a triumph of science and technology, but the process of its commercialization to bring its myriad benefits to everyone in society was as instructive an exercise in free market capitalism and economics as anything ever could be.
12. Who could miss the frontier spirit of the heady days of late nineties -- the dotcom boom!!! Internet companies large and small were being born overnight, attracting godawful amounts of investor dollars in a matter of minutes and seconds.
13. Take a company called Global Crossing which, through a convoluted set of financial engineering moves, ended up participating in laying fiber optic cables across oceans to carry internet traffic. The global internet as we know it wouldn't be possible without those cables.
14. In 1999, during the dot-com bubble, Global Crossing was valued at $47 Billion. However, the company never had a profitable year. In 2002, the company filed for one of the largest bankruptcies in history. Tens of billions of dollars of investor wealth was wiped out.
15. But what happened to all those fiber optic cables on the seabeds? Well, they are still there, carrying internet traffic day in and day out. Who owns them? Myriads of other telecom companies who bought them over. Who cares? The entire world is still benefiting from their use.
16. Who paid for the build-out of those fiber optic cables? Well, the investors, motivated by the desire to turn a profit, who lost their shirts, pretty much lost it all. Call it a 100% social tax on their wealth. But no government tax law made them pay for it. They volunteered.
17. Could the investors in Global Crossing afford to pay such a high price for what ended up benefiting the world but leaving them holding the bag? Sure, most of them could. You see most of them were relatively rich. They didn't ask for a government bailout.
18. Had government tried to come up with an equitable scheme to bankroll the fiber optic cables across the oceans, it would surely have bilked the middle-class (because that's where most of the tax revenues always comes from) while using "tax the rich" rhetoric.
19. What did the free market do? It imposed a monumentally progressive tax (100% on the rich, 0% on the poor) and re-distributed wealth from the willing rich to all of humanity, without coercing anyone to do anything they didn't want to do.
20. How did the free market perform such a stupendous magic trick? It used its favorite, tested and tried, tool which never fails to deliver -- the profit motive! Hate it all you want. But know, it always delivers the goods -- for everyone! You just have to channel it right.
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