Borsalino Test #14: Breaking the law
Readers,
Reducing inequality is harder than we think. Paradoxically, it comes at a very high cost for the collective good. A society that does not offer rewards for risks is just unsure of itself.
Michele
Breaking the law
Reducing inequality
Economic inequality sucks. Nobody wants to be dealt an unfavorable hand. Suppose we decide to get rid of it. Two ways to go about it: shower the poor with gold coins, or tax the rich. Actually, let me reel that back. Only one way. Because they are essentially the same thing.
Sure. There might be a way to make the poor better off without shifting wealth from the rich. Instead of taxing investment bankers to pour bills in the shoe shiner's pocket, you could teach the latter finance. That’d go a long way. Or not. The evidence of the last couple of centuries shows these policies don’t work at all.
It’s not enough to elevate the shoeshiner. To squeeze the gap you have to push down the top as you raise the bottom. You could try decreasing the productivity of those who make the most money. Have the best surgeons operate with their left hands. Force celebrities to get fat. Sounds hysterical enough?
Western democracies let people do their best work, and then confiscate the surplus. But there’s an elephant in the room. Confiscating the surplus creates negative incentives to reach the summit. A hard bet with only a 10% chance of winning has to pay more than an easy one with a 50% chance. But if you lop off extreme rewards, you decrease people's willingness to bet against the odds.
Reducing economic inequality lowers the amount of intelligent risk we are wired to tolerate.
Jante’s Law and structural censorship
Why should we care about a few individuals taking outsized risks? Because collectively, we need it. The history of the human species is punctuated with Copernican thinkers taking big swings. That’s precisely how we leaped from hieroglyphics all the way to the Covid-19 vaccine, passing through gunpowder and penicillin.
So taking big swing matters. It matters to all of us collectively, not only to the wild ones. Hence, we must engineer ways to embed outsized returns in the fabric of society for those reckless enough to play a rigged game. In a way, we should fabricate some form of default inequality, in the name of the collective good. That sounds way easier than it actually is. Just look at how much astronauts make a year.
I have lived in the Netherlands for a while. There, I have noticed a widespread cultural phenomenon. Dutchies hold the idea that one should never try to be more, different, or consider oneself more valuable than other people. In Scandinavia, this code of modesty is referred to as the ‘Jante’s law.’ In Anglo-Saxon societies that’s the ‘tall poppy syndrome’. In Asian cultures ‘the nail that stands out gets hammered down’.
Jante’s law comes from the Danish-Norwegian author Aksel Sandemose and his novels about the fictional town of Jante. The town law states that:
1. You shall not believe you are anything.
2. You shall not believe you are as much as us.
3. You shall not believe you are wiser than us.
4. You shall not imagine you are better than us.
5. You shall not believe you know more than us.
6. You shall not believe you are more than us.
7. You shall not believe you are good for anything.
8. You shall not laugh at us.
9. You shall not believe anyone cares about you.
10. You shall not believe you can teach us anything.
Jante’s law imposes suspicion on those who dare to behave ostentatiously. It is the justice system of the crab bucket. Any crab that tries to get out of the bucket gets pulled back somehow. Interestingly though, it is not a source of self-deprecation. Rather, an expression of collective belonging, as opposed to individual pride. More importantly, it is a manifestation of fear of individualism and a hedge against the pains of self-actualization.
This law did not apply to the middle or upper classes in the town of Jante. Essentially, it was a tool to control values and beliefs of the marginalized. A form of hegemony. it is merely a device utilized by an elite with the power to shape the field of belief.
No more startups?
Social constructs of the likes of Jante’s law are rubber mutes slapped on the strings of your violin. Somehow we are led to believe that everybody has to play pianissimo for the orchestra to be in tune. That’s a blatant lie. The case of technology startups - something I am familiar with - shows you why.
Technology startups are intrinsically risky. A startup is like a small boat in the open sea. One big wave and you're sunk. A competing product, a downturn in the economy, a delay in getting funding or regulatory approval, a patent suit, changing technical standards, the departure of a key employee, the loss of a big account — any one of these can sink the boat. Statistically, around 1 in 10 survive.
If that kind of risk doesn't pay, venture investing, as we know it, wouldn’t happen. Well, why would we care though? That might be ok if there were other sources of capital for new companies. Why not just have the government, or some large almost-government organization do the venture investing instead of private funds?
Because then you're asking the government (or any collective institution) to do the one thing they are least able to do: take risks. As anyone who has worked for the government knows, the important thing is not to make the right choices, but to make choices that can be justified later if they fail. If there is a safe option, that's the one a bureaucrat will choose. That is exactly the wrong way to take intelligent risks. The very nature of human progress demands that we make terribly risky choices, if the upside looks good enough.
What founders invest is their time and ideas. But these are equivalent to money. If you're going to invest your time in something with a small chance of succeeding, you'll only do it if there is a proportionately large payoff. If large payoffs aren't allowed, you may as well play it safe.
That's what everyone does in societies where risk isn't rewarded. If you can't ensure your own security, the next best thing is to make a nest for yourself in some large organization where your status depends mostly on seniority.
Let's rehearse the chain of the argument so far, because I am aware to be meandering in a territory where many readers will have to be dragged kicking and screaming. Decreasing economic inequality means taking money from the rich. Since risk and reward are equivalent, decreasing potential rewards automatically decreases people's appetite for risk. Startups are an expression of intrinsic risk. Without the prospect of rewards proportionate to the risk, people will not entertain the idea of founding a startup. So eliminating economic inequality means eliminating outsized returns that come from successful startups.
Economic inequality is not just a consequence of startups. It's the engine that drives them, in the same way a fall of water drives a water mill. Some people start startups with a more or less conscious expectation to become ridiculously rich. If your society tries to prevent anyone from being much richer than anyone else, way fewer people would be attracted to startups.
Shooting three pointers
This argument applies across domains. It's not just that if you eliminate economic inequality, you get no startups. You get no Yo-Yo Ma. No contemporary art. And no Covid vaccine. To the extent you reduce economic inequality, you proportionately shrink the spectrum of human achievements. And that to me seems bad for everyone.
It sounds benevolent to say we ought to reduce economic inequality. When you phrase it that way, who can argue with you? Inequality has to be poisonous, right? It sounds a good deal less benevolent to say we ought to reduce the rate at which humanity expresses genius. And yet the one implies the other.
Collective good comes disproportionately from wild pursuits. If you don't have startups, you won't have established companies either. Modern basketball would not see so many 3-pointer shots if it wasn’t for Steph Curry.
If we're determined to eliminate economic inequality, there is still one way out: we could say that we're willing to go ahead and do without radical innovation. What would happen if we did? At a minimum, we'd have to accept lower rates of collective growth. Is that so bad? For some, it’s really not. For some others, it’s like denying their existence - Jante’s law No.1: “You shall not believe you are anything.”
A society that is insane and unsure of itself cannot allow that to happen. So when a society allows a certain number of people to withdraw or roam around, it should have no anxiety that everyone would want to do the same. Most people would just shoot free throws, and that’s okay. I enjoy watching half-court buzzer-beaters.