Scott Sumner quotes of the day

So there you are. The GOP doesn’t favor small government and the Dems don’t favor regulation. Instead the GOP favors a bloc of people who vote for the GOP and contribute money to their campaigns, and the Dems favor a bloc of people who vote for the Dems and contribute money to their campaigns. ... whatever idealism exists is not strong enough to overcome the special interest groups. Fortunately, good governance is not a zero-sum game, so once and a while the two parties come together and strike a deal that is win-win (such as the 1978 deregulation bill, or the 1986 tax reform, or the 1996 welfare reform.) The most one can hope for is that some creative politician will be able to cobble together another such compromise sometime in the next 10 years. Of course it would be much easier to do if we were Switzerland, Denmark, or Singapore. Heck, if we were even Canada or Australia. But we are a nation of 310 million people with very diverse cultural values and perspectives on economics.--Scott Sumner

In the 1950s and 1960s it wasn’t that hard to figure out where capital needed to be allocated. Capital was allocated to produce steel, and the steel was used to produce cars and washing machines. Capital was allocated to the production of aluminum, and the aluminum was used to make airplanes. The most productive members of society were those who made things, and Michigan was near the top in per capita income. Today the most productive members of society are not those who produce things, they are those who discover the things that need to be produced. Once you have the blueprint, it is easy to produce many types of software and pharmaceuticals. The big money goes to those who figure out the blueprint, but also to those who allocate capital to the guy who has the idea for a Google, or Facebook, or Twitter. In contrast, the technicians who actually implement the vision often earn modest salaries.--Scott Sumner

The return to hedge fund managers, CEOs, billionaire investors, and Goldman Sachs employees has soared in recent decades because their skills are far more socially valuable than the 1960s, when the biggest decision was whether GM should put tail fins on Cadillacs. This dynamic, fast changing environment is like a big playpen for the shrewd and savvy investor. We all know how the founders Microsoft and Google and Facebook got really rich because their “product’ can be produced at ultra-low marginal cost. Or how great cost savings can be achieved by moving capital overseas. In that sort of world it’s no surprise that investors who allocate capital to profitable ventures also get much richer than in the world where big corporations raised capital to make predictable products using American labor.  It seems to me that this should be the standard explanation, and any alternative explanation should have the burden of proof.  Instead it usually seems like the opposite is true.  I constantly read opinion pieces that seem to simply assume that the big earnings in finance are unwarranted.  Partly this is a backlash against the behavior of banks in the recent crisis.  I’m just as outraged by our financial system as the next guy.  But those are completely separate issues; one issue is secular trends in financial income, the other is bad regulation in banking. ... Some accuse me of defending the wealth of financiers. But I’m not making a moral argument here. Because I’m a utilitarian I don’t pay any attention to the concept of “deserving” the money you make. Our tax policy should redistribute money in the way that best maximizes aggregate utility, and pay no attention to whether it looks like various people’s incomes are “earned.” Unfortunately I used the term ‘deserve’ in my post title, so I “deserved” that criticism.--Scott Sumner