Categories:
Human Capital
One of my favorite parts of Bryan Caplan’s book, The Myth of the Rational Voter, is where he talks about the importance of being able to get rich by solving problems. I remembered his statement only approximately but over the three years since I’ve read his book, I’ve used the statement in my lectures and, as often happens, honed it a little more each time.
I used it when summing up the importance of incentives in my last class last week. So Bryan gets the credit for the idea. Here’s my version:
Non-economists often get upset when they learn that someone has gotten rich by solving a problem. Economists, by contrast, worry when they think no one can get rich by solving a problem.
READER COMMENTS
floccina
Jun 14 2010 at 3:13pm
Getting Rich by Solving Problems, how about offering ideas of how solve problems for free:
I wonder, since it seems that BP chemically test to see if tar was from their leak, if they could offer say $400/barrel for petroleum from the spill to get people to be creative and do the cleanup, rather than having to contract with all those fishermen individually.
Ted
Jun 14 2010 at 4:27pm
Actually people are usually upset when they see someone successful while simultaneously doing a socially useless function or earning / gaining significantly more than they are worth relative to their skill / competence.
A few examples include:
(i) Congressman & Senators
(ii) CEOs of Incompetently Run Financial Firms (granted this doesn’t explain the anger at Goldman since they were actually competently run. But probably the Lloyd Blankfein’s arrogance explains that)
(iii) Rich heirs who are lazy
David Welker
Jun 14 2010 at 4:58pm
I guess this just shows that David Henderson doesn’t really know much about non-economists. =)
Mercer
Jun 14 2010 at 5:46pm
I think it is rare in America to complain about people getting rich by doing things that benefit average Americans. Who has complained about Jobs, Gates or Google’s founders getting rich?
People complain about people who get rich by doing things that create problems, like trading synthetic debt obligations, that do not benefit most Americans. People also complain about how much lawyers and lobbyists make for the same reason.
mike shupp
Jun 14 2010 at 6:38pm
Ah…. Jessica Biel has certainly earned her paycheck this week, solving a problem for me. One handedly, so to speak. You might not want the details.
Yancey Ward
Jun 14 2010 at 10:34pm
Well, I must honestly say that I have seen few complaints anywhere about Jobs and the Googlemeisters, but Gates? Yes, lots of complaints.
Pandaemoni
Jun 14 2010 at 11:10pm
I have seen complaints about Gates, but not about Gates qua problem-solver. Rather I have seen complaints that Windows (and DOS before it) only attained their position by way of government handouts or exploitation of monopoly power. In effect, I think the complaint was that he did not really (or at least fully) solve anything, but rather shoved a second rate program down our throats by uncompetitively forcing the first rate products out of the market.
I don’t agree with that criticism, but that was the crux of the issue.
I am hard-pressed to think of examples where the complaint was that problem-solvers qua problem-solvers did not deserve compensation. I think the classic example of problem solvers that do get slammed are hedge funds, as they tend to solve liquidity and arbitrage problems that most people do not know about, so again, the complaint is about greed and overweening financial power.
Sean S
Jun 15 2010 at 12:17am
I suppose Goldman does solve the problem of where should government employees from the Dept of Treasury go to work where they are virtually guaranteed to get rich through special access to the Treasury and other markets? Was it last quarter when Goldman earned a profit every single day? Doesn’t pass the market smell test to me.
It should also be noted that their connections to the highest level of government ensured that Lloyd Blankfein was talking to Paulson much more often than any other bank honcho. Okay it’s all a coincidence.
Thankfully, when AIG went under, Goldman was made whole. Goldman losing money in that situation would have been a big problem.
Then again, they are doing the lord’s work.
mulp
Jun 15 2010 at 2:05am
People who got rich creating problems:
– Ken Lewis, former CEO of Bank of America $83M
– Michael Ovitz Disney’s president $140M
– Stan O’Neal, former CEO of Merrill Lynch, $161M
– former Pfizer CEO Hank McKinnell $213M
– former Home Depot CEO Bob Nardelli $225M
– Carly Fiorina $22M
– Bernie Madoff
People who solved problems but didn’t get rich:
– Leonard Kleinrock, designed Internet Protocol used by billion users
– Jon Postel, coordinated thousands of Internet design engineers, used by billion users
– Jimmy Wales, wikipedia founder, used by billion Internet users (he did get rich speculating on options so he could do useful things)
– Nelson Mandela, liberated millions
– Jonas Salk, prevented hundreds of millions of cases of polio
In reality, the vast majority of problem solvers don;t get rich, and the vast number of those who get rich solve no problems, other than how to get rich.
floccina
Jun 15 2010 at 10:45am
People do honor inventors but the do not see things like improving things like distribution, management or marketing as a worth inventions.
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