- Robert Frank examines how market outcomes are shaped disproportionately by luck rather than significant differences in merit:
(W)ith each extension of the highway, rail, and canal systems, shipping costs fell sharply, and at each step production became more concentrated...It’s of course a good thing that their superior offerings are now available to more people. But an inevitable side effect has been that producers with even a slight edge over their rivals went on to capture most of the industry’s income.- Patrick Wintour reports on a new statement from top economists that tax havens serve no useful economic purpose. And Heather Stewart examines James Henry's studying showing that more than $12 trillion in wealth has been extracted from developing countries who can least afford to see their economic production parked offshore.
Therein lies a hint about why chance events have grown more important even as markets have become more competitive. When shipping costs fell dramatically, producers who were once local monopolists serving geographically isolated markets found themselves battling one another for survival. In those battles, even a tiny cost advantage or quality edge could be decisive. Minor random events can easily tip the balance in such competitions— and in the process spell the difference between great wealth and economic failure. So luck is becoming more important in part because the stakes have increased sharply in contests whose outcomes have always hinged partly on chance events.
What’s also clear is that the economic forces that have been causing the spread and intensification of winner-take-all markets have by no means run their course. We can expect continued growth in the intensity of competition on the buyers’ side for the best talent, and on the sellers’ side for the top positions.
In his widely discussed 2013 book, Capital in the Twenty-First Century, Thomas Piketty suggested yet another reason for rising inequality, which is the historical tendency for the rate of return on invested capital to exceed the overall growth rate for the economy. When that happens, he argues, wealth continues to concentrate in the hands of those who own the most capital. All things considered, then, it appears prudent to envision a future characterized by continued growth in income and wealth inequality—which is to say, a future in which chance events will become still more important.
Because the enormous prizes at stake in many arenas attract so many contestants, the winners will almost without exception be enormously talented and hardworking. But they will rarely be the most talented and hardworking people in the contestant pool. Even in contests in which luck plays only a minuscule role, winners will almost always be among the luckiest of all contestants.
- Laurie Monsebraaten reports on Kaylie Tiessen's latest study, discussing the growth of Ontario's poverty gap for single people in particular.
- Anjum Soltana and Antu Hossain rightly argue for increased access to sick days and other means of fitting work into a more secure life. And Jared Bernstein comments on the spread of non-compete agreements as a means of suppressing wages.
- Eric Holthaus points out that weather-related crises such as the Fort McMurray fire represent exactly the time to talk about how we're damaging our planet - and what we need to be doing to change course.
- Finally, Nate Cohn examines how Bernie Sanders' campaign - even if it ultimately falls short of the presidential nomination - shows a path to victory in the U.S. for a progressive candidate who doesn't need an alliance with big-money interests.