Monday, January 25, 2021

Jordon Peterson's Failure to Understand the Basic Economics of Income Distribution

Jordon Peterson

Jordon Peterson has done some truly heroic work in the battle against social justice warriors and political correctness but it is truly shocking to hear him discuss economics.

During a recent podcast interview with a former student of his, Gregg Hurwitz, an author, scriptwriter and producer, Peterson revealed just how lacking he is in basic economic understanding.

He lamented during the interview about the "problem of Pareto distribution." The Pareto Principle says that 80% of income accrues to the top 20% of income recipients.

Peterson went on to say that it could be easily understood how some young people tend toward socialism because of  "concern about economic distribution."

"The rich get richer," he said, indicating a rigid caste type system

But this is a misunderstanding of the Pareto principle.

In his 1916 book, A Treatise on General Sociology, Vilfredo Pareto actually developed the concept of "la circulation des elites" (the circulation of the elites), which means that it isn't a case that the "rich always get richer" but that there are always people who are at the top of the social ladder, who are wealthy, who are politically important, but these people—these elites—are continually changing.

So from the Pareto direction, Peterson should have zero concern.

But he plowed on and said that there is a "cost of being at zero." That is someone with no capital has no chance at climbing the capitalist ladder. But as I have pointed out before, in response to others, this is a failure in recognizing the keen observation of Prof. Israel Kirzner that ownership of capital is not necessary to become a great entrepreneur. Indeed, I have argued that Kirzner deserves the Nobel Prize in economics for this observation (See: Why Israel Kirzner Should Be Awarded the Nobel Prize in Economics). 

Peterson just doesn't seem to get the damage that government regulations have in hampering economic advancement for many. It is not the extremely difficult task to be solved that Peterson makes upward mobility to be. It is a simple task of allowing unbridled entrepreneurship and labor. 

As for the basic concern that there is a dramatic spread in incomes between the super-wealthy and others, I discussed in a 2019 video why this occurs under free-market capitalism, especially as the population grows, and why it is no big deal. (The video also touches on the difference between crony capitalism and free-market capitalism.)




  1. I'd argue that the kids lean towards socialism because they've spent their entire childhoods being told "get a college degree and then success will be magically handed to you."

    They graduate (sometimes with good grades), and many can't find jobs with their new unimpressive credential. Some of them find jobs, but entry-level jobs aren't often the instant success that they'd expect. And yet, they still see people (generally older people) in the country who have lots of success and money.

    They then engage in deep analysis. Their conclusion? The system is rigged and it must be torn down. The new system will obviously be one where they are successful and maybe even in charge.

  2. They grew up in a basic form of communism in the family structure. Some never want to leave it.

  3. The best recent natural experiment on what happens when government regulations disappear happened in post-USSR Russia which by 91 was on the brink of widesoread hunger. Then the government fell apart and nobody was enforcing any eegulations. The outcome: tremendous economic growth with real (not nominal) wealth of population reaching level of poorer EU countries less than two decades later. And now Russia is recovering its superpower status both militarily and technologically, although as new government solidified the growth pretty much stalled.

    Better yet, there's a control - Ukraine - with essentially the same quality of population, very similar culture and starting point industrially and technologically. Yet the difference in welfare of population is striking. The difference? Russia resisted being overtaken by US stooges. Ukraine was always ran by US-backed oligarchs (and now by US-backed clown, er, comic).

  4. I have heard Peterson say in other lectures that the wealth distribution isn't static with respect to individuals. For example, the richest 100 people in the world is a list that changes dramatically every 10 years or so.

    Second, when Peterson says that people stack up at zero, I believe he means literally zero. No income, no skills, no education, no assets. That condition creates an economic quagmire with no easy answers.

    Third, Peterson consistently says he knows of no solution to the problem of income disparity because redistributed wealth tends to quickly re-consolidate at the top. Sometimes he makes the point that the role of the left is to tend to the people at zero. The middle and top tends to take care of itself.