Inequality can be good for us

I enjoyed this Econtalk podcast with Richard Epstein, discussing the pros and cons of different ways cruise ships offer luxury packages.

One cruise ship operator offers a ‘ship-within-a-ship’ luxury experience, where the luxury passengers are separated from the other passengers.

Another operator embellishes its standard package to help set it apart, like putting a bottle of champagne in the luxury cabin.

The parts of the podcast I enjoyed the most was Epstein’s defense of inequality, which I agree with.

First, for those of us who feel unworthy because we may never enjoy a billionaire lifestyle, it’s helpful to remind ourselves that we live better than the elites of even 2-3 generations ago. Would you rather be a commoner today or a wealthy elite in 1900?

If given a true picture of what the life of the elite were in 1800, most people would pick being a commoner today. And, maybe they’d appreciate more of what they have.

Second, and probably more important, is Epstein’s counter to the belief that the wealthy and elite are just lucky. He says, shortly after the 25 minute mark:

There is no question that with respect to any particular venture that any person undertakes that luck will have a lot to say about whether this one works or doesn’t work. But it would be a mistake to assume that life is just one venture which either succeeds or it doesn’t succeed. It turns out that people try many different things in all sorts of different ways; and what you can say is that as you increase the number of plays that you take, the persons which perseverance, imagination, determination, and grit and so forth are the ones who will succeed; and the people who tend to be more lackadaisical and indifferent are the ones who will fail. So, when you look at the end of this particular game, what you are doing is, the people who see at age 50 or 60 turn out to be highly successful; and then you go back and you track how much risk they took, how much discipline they showed, how much hours they put into their job and so forth, I think that you will find that there’s a pretty good correlation between the efforts that people put in and the natural abilities that they have, and the outcomes that they received.

I’d add that it’s just not those who are lackadaisical and indifferent, but it’s those who view failure like the DJ sidekick in this post, while comedian Leslie Jones had a much different view.

Later in the podcast, Epstein discusses Warren Buffett’s view that he doesn’t pay enough in taxes. I’d like to make one point on that.

When evaluating whether to invest in a company, Buffett views what would be his share of the company’s earnings as his own, which is true. As an owner, those are his earnings, even though tax regs do not require that your report those as your own (since those company pays your share of its taxes for you).

But, Buffett is inconsistent when considering his own tax bill. He ignores the taxes paid on his behalf by the companies he owns, which is a considerable amount and would likely increase his average tax rate from what Buffett normally writes about. In fact, this income statement shows his company, Berkshire Hathaway, paid about 30% in taxes in 2015.

In this sense, Buffett like to have his cake and eat it, too.


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