Entrepreneurship is not, in this view, a rational risk calculation. It is, as critics of capitalism sometimes charge, a bit like gambling. The few big winners are usually people who shouldn’t have bet their time, money, and ideas. They overestimated their chances of striking it rich. But they beat the odds — to everyone’s benefit. These “lucky fools” create new sources of wealth, new jobs, new industries offering less-risky opportunities, and new technologies that improve life. Society plays the role of the casino, enjoying the spillover benefits from foolish bets.Now, Postrel is not, in fact, a critic of capitalism, and in making this comparison she still, as the passage above makes clear, wants to make the point that a free market economy is greatly beneficial to all -- to spell it out: just as a casino itself is enriched by the gambling of its customers, so capitalist society is enriched by the gambling of its entrepreneurs.
Capitalist societies are indeed rich, and entrepreneurs do indeed take risks, or gambles, but this comparison nevertheless goes astray for the following reasons:
First, casino gambling is rightly looked upon as of dubious value because it's a zero-sum game -- the only way for the casino to make money is for the customer to lose, and vice versa. In fact, from the point of view of the customer alone, the game is negative-sum, or a net loss on average. Capitalist economic activity, on the other hand, is positive-sum -- individuals may sometimes lose, but on average everyone gains, and gains considerably. This is because, unlike casino gambling, capitalism actually creates wealth.
The second important difference has to do with the nature of the entrepreneur's risk itself. Unlike gambling on the fall of dice or a roulette ball, where the odds are known in advance, the entrepreneur is constantly active or engaged to influence the outcome of the gamble, so that the actual odds of success depend heavily on those actions and the planning behind them -- in other words, on the abilities and character of the entrepreneur herself. It's certainly true, as Postrel points out, that most such enterprises ultimately fail, but that statistical fact obscures the real differences between those enterprises and the people behind them -- differences, for example, that venture capitalists try to discern, with varying success -- and it's precisely those differences that determine the real odds of success.
This is why Postrel's title, asserting the entrepreneur's "exuberance" to be irrational, is a kind of misuse of statistics -- no doubt the exuberance is irrational for some, but not for others, and neither she nor econometricians are able to say which is which. But the difference is crucial, since it's that rather than "irrational exuberance" that really drives the whole wealth-creating machine.
First, casino gambling is rightly looked upon as of dubious value because it's a zero-sum game -- the only way for the casino to make money is for the customer to lose, and vice versa. In fact, from the point of view of the customer alone, the game is negative-sum, or a net loss on average. Capitalist economic activity, on the other hand, is positive-sum -- individuals may sometimes lose, but on average everyone gains, and gains considerably.
ReplyDeleteYour odds of winning in vegas--whether craps, or blackjack, or poker--are quite better than odds of succeeding in a small business, at least for gamblers who know what they're doing (even just Hoyle rules). Not sure what the success ratio might be either for Ma and Pa's griddlecake shop, or McSchmutzstein's latest software startup, but I wager less than 10% success--tho' usually McSchmutzstein's like a wealthy investor who can toss away venture capital--not the case for Ma and Pa; which is to say, for millionaires the odds are better in either case than they are for Joe Six-packs--another point you overlook (ie, Joe Six Pack may have a thousand to play blackjack--he can't really start any sort of business with that one grand--).
Ergo, morfita, you again offer generalizations with no empirical support. So, I would say the capitalism/casino analogy holds, broadly speaking (tho Postrel herself generalizing).
What you would say and what reality would say are two different things, J. Not only do you offer no empirical support yourself for your biases, you offer no logical support either -- logically, for example, casino gamblers must lose on average for casinos to stay in business (which they do, quite profitably), whereas logically entrepreneurs must win on average for there to be an economy at all. Not that you'll let either logic or facts get in the way of your illusions, of course.
ReplyDeleteP.S. By the way, regardless of odds, the capitalism/casino analogy fails anyway, for the two reasons I've given in the post (among possibly others).
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ReplyDeleteHah. You can say that, but in fact, it's nothing but logic, morfita--first off, verification of your premises (which you never do). You made the claim that startups have better odds than vegas casinos. So, the burden's on you to provide data/demographics/stats to prove it, ie establish that premise.
ReplyDeleteTypically the odds are given at less than 10% of small businesses/start ups succeeding--prima facie, that shows you're mistaken. Either way, it's not a sure thing that businesses succeed at all (blackjack with Hoyle tactics, you probably have 46% to 49% chance at winning). So it's a gamble--as is a vegas casino, and thus the analogy's relevant. You routinely mistake your little business school hype for empirical-based studies when it's nothing of the sort.
Actually in your response you merely say the economy depends on profit, a different point. Yes, the capitalist economy depends on profit (then, what is profit?). But that doesn't mean that all businesses are succeeding whatsoever. It means something like a few high rollers (ie corporations ) in the private sector succeed, and turn a profit, and can thus pay their employees (of course many employees--teachers, cops, janitors--are on the state dime, and in that case, its not that much like gambling, unless you consider like Ahhhnuld decides to axe your job). But given lay offs, bankruptcy--not a sure deal, for either owners or employees--but something like "gambling".
ReplyDeleteBut that doesn't mean that all businesses are succeeding whatsoever.
ReplyDeleteAs I've already said, "It's certainly true, as Postrel points out, that most such enterprises ultimately fail...." -- just one more example of your inability to read. And if you can't read, or comprehend what your're reading, you certainly can't follow the rest of the argument, so I won't bother repeating it. As an exercise, though, you might ponder questions like -- where do you think those "few high rollers (ie corporations)" come from in the first place? Where does the "state dime" to pay teachers, cops, etc. come from? If businesses lose on average, how do we still have an economy? If casino gamblers don't lose on average, how are the casinos still in business?
The simple point is that, while life itself is a gamble, all gambles are not the same.
Nyet. It's your inability to read (e.g Postrel, or my comments), and to offer half-truths and biz major hype as certainties. What's more, it isn't a strictly logical point anyway, but about weighing the relevance of an analogy--you errored in viewing an analogy as a type of deductive argument.
ReplyDeleteGiven that gambling involves uncertainty, risk, expected value, speculation, and pay-outs as does capitalism, the casino/capitalism analogy seems...quite apt, which is to say, entirely Relevant (the zero-sum game is a straw-man--failed businesses could be zero, or negative -sum as well). Indeed in some locations, certain types of speculations are considered gambling.
Moreover that investors don't know the odds in starting a business, but might in SOME games of chance doesn't suffice to overturn the analogy--playing poker, for instance, few players know the odds nor do blackjack players playing with say 5-6 decks. (Anyway, that make the business venture worse)
the zero-sum game is a straw-man--failed businesses could be zero, or negative -sum as well
ReplyDeleteMaking no sense whatsoever -- try looking up "game theory" in Wikipedia.
Yes, if the casino-capitalism analogy is simply based on the fact that both involve risk, then it works, but it's trivial -- everything involves risk, and an analogy that applies to anything really applies to nothing.
it makes perfect sense, but that wasn't the point--the point was whether the analogy held. When starting a business, you could end up losing your investment, or worse, due to loans, etc.--so, like playing craps, but possibly worse (if in the hole).
ReplyDeleteThe geek "game theory" hype doesn't apply when there's no real contract, just speculation (ie, a roll of the dice). Game theory actually means something like yr dreaded enemy Rawls meant--people negotiate a deal, ie, a co-op, perhaps, or at least some business deal where both sides benefit. Its an anti-competition, cooperative model when used correctly (the old Win-Win sort of the businessman's example).
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ReplyDeletenow, assuming you are suggesting a business might provide a product which is valuable to the community (ie, both the owners and consumers benefit--via the old Win Win, and not "zero sum", per se), and casinos don't (which you may have suggested,but didn't flesh it out very well) that doesn't change the fact of the investor's risk-taking, and expectation, probability, etc., which might be zero-sum-- and the analogy holds. Besides, a business might just sell...burgers, or booze, or shotguns, whatnot, so that point's sort of moot. Joe Six Pack might be better off playing blackjack than buying booze.
ReplyDeleteOkay, Itzik was right, you're just an idiot.
ReplyDeleteNol you're an idiot, satanist, and about to STFU, punk--you don't know shit about Rawls, and you certainly don't know an analogy from yr mama's asshole
ReplyDeleteI got yr number, jew canadia faggot (so do others)
take yr shit offline, puto
Hey, your true colors, shining through there, J! I see you've finally found something you're good at.
ReplyDeleteI'll leave this up as an example of what so often lies just beneath the surface of the more rabid liberal-lefties.
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