Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

AI Summary. The author argues that billionaire fortunes are justified because the extraordinary profits earned by successful ventures signal which activities should be expanded and encourage others to imitate them. Allowing large wealth accumulation is argued to incentivize entrepreneurial risk-taking in a landscape where most ideas fail.

James Pethokoukis American Enterprise Institute
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Billionaires like Jeff Bezos are justified by their impact on market dynamics & innovation, as their wealth signals successful ventures that others should emulate.

Do billionaire fortunes signal which activities should expand and encourage imitation?

Core argument: Deirdre McCloskey argues that billionaires such as Jeff Bezos should exist because their wealth signals which ventures have succeeded and which activities others should emulate and expand.

Billionaires like Jeff Bezos are justified by their impact on market dynamics and innovation, as their wealth signals successful ventures that others should emulate. The market's quasi-rents indicate activities that should be expanded, as seen in Bezos' transition from books to a global marketplace. This wealth serves as a beacon for entrepreneurial risk-taking, crucial in a landscape where most ideas fail. While critics argue the marginal utility of the last $1 is low, McCloskey emphasizes the broader economic incentives created by billionaires, which drive growth and innovation. Bezos' journey underscores the importance of allowing wealth accumulation to foster ambitious projects that might otherwise be stifled by wealth caps. The existence of billionaires thus incentivizes others to pursue groundbreaking paths, contributing to overall economic prosperity and innovation.

Takeaways by Macro Roundup® AI

  1. Deirdre McCloskey argues that billionaires such as Jeff Bezos should exist because their wealth signals which ventures have succeeded and which activities others should emulate and expand.
  2. McCloskey holds that market quasi-rents identify activities worth expanding, citing Bezos' move from selling books to operating a global marketplace.
  3. Against critics who note the low marginal utility of a billionaire's last $1, McCloskey emphasizes that large fortunes incentivize entrepreneurial risk-taking in a landscape where most ideas fail, and that wealth caps would stifle ambitious projects.

Justification for billionaires"...it is the effect on others that matters, and on their incentives to follow a path marked out by Bezos (or Edison or Ford) that justifies his billions. The market is saying, “Do more of this, for Lord’s sake!"..."

McCloskey’s perspective is especially apt at a time when so many politicians and pundits are sending the message, “Do less of that!”

In other words, it is the effect on others that matters, and on their incentives to follow a path marked out by Bezos (or Edison or Ford) that justifies his billions. The market is saying, “Do more of this, for Lord’s sake!”

Nice piece. I’d add this: Large “quasi-rents,” as economists call them, are signals from the market (which is to say, from people, the suppliers and demanders) that the activity should be imitated (as Bezos’ has been) and expanded (as Bezos did, books to everything). Your piece stresses only the incentive effects of his high income available for consumption, and on Bezos himself. Certainly there is something in it, as you argue, in the face of the great uncertainty of enterprise: most ideas fail.

But to emphasize the incentives in consumption is to fall into the rhetoric of the left, which notes correctly the low incentive effects of the last $1 out of billions, believes incorrectly that the price system has no function but as a tax by the bosses on the rest of us, and is enviously indignant about levels of luxury (no matter if Warren Buffett still lives in a modest house).

James Pethokoukis, "Deirdre McCloskey on why Jeff Bezos and billionaires, even superbillionaires, should exist," American Enterprise Institute, March 5, 2020, https://www.aei.org/economics/deirdre-mccloskey-on-why-jeff-bezos-and-billionaires-even-superbillionaires-should-exist/

Deirdre McCloskey on why Jeff Bezos and billionaires, even superbillionaires, should exist

Would Jeff Bezos have started Amazon even if he could have become only as rich as Bernie Sanders? That is, a modest millionaire rather than a superbillionaire? Doubtful, I wrote in a recent blog post. Bezos had a great job and fantastic future earning potential when he left it all to start Amazon. The journey to massive entrepreneurial success was a hard slog that could have easily failed — and plenty of smart people were sure it would. Indeed, Amazon’s greatest success came after Bezos was already a billionaire. We can all be glad he didn’t quit because there was a maximum limit on wealth back in 1999.

But there’s more to it than that, according to economist Deirdre McCloskey, author of the Bourgeois trilogy on how the modern world got rich and, most recently, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All. (And here’s my interview with her about that latter book.) After reading my post, McCloskey sent me the following generous and insightful email:

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