The summer in Europe did not give me much time for listening to podcasts, so I am only now catching up on the backlog. In early July, Russ Roberts talked to Mike Munger about the definition of capitalism. I will admit to my own bias against Munger and his style of lecturing that manages to be both dry and pompous at the same time, clearly meant for an audience of the initiated. In that he is the antipode to Roberts, another economist, so I always found it unusual that he was such a frequent guest.
Two things in this episode rubbed me the wrong way, one factual and one theoretical.
Factual first: Munger, in extolling the virtues of venture capitalism, spun a yarn about the origins of AirBnB. You see, before the company was founded, no one believed that home owners would give away keys to their apartments to strangers for money. A few people came with that idea to Y Combinator, but though that guests would sleep on an air mattress (hence the “Air” in AirBnB), but also wanted to call it “Couchsurfing” (make up your mind, Mike). Then the genius investors at Y Combinator spent a few years with them perfecting the model, with better packaging and monetization, and presto, we got the company we all know and love, using markets and human greed to efficiently fill beds around the globe.
But of course this is complete bullshit. Couchsurfing existed a decade before Airbnb and was completely free, relying on the kindness of strangers and mutual vetting of hosts and guests via online reviews. I remember this because I was both a guest — this is how I traveled the US for residency interviews back in 2009 — and a host in a tiny one-bedroom in Belgrade. Then came AirBnB, influx of venture capital into Couchsurfing, and its ensuing enshittification. So it wasn’t greed that led to the ideas behind sharing homes, it was altruism. Like every Faustian bargain, greed first made the experience more streamlined and user-friendly, then killed it.
Is this what economists do, spin every financial success story into a tale of the supremacy of capitalism and greed? In that they would not be unlike scientists, who spin every discovery into a tale of the supremacy of the scientific method, truth be damned. On one hand that is OK, everyone needs a motivational boost now and again, and more importantly this is how you get people to give you more money. On the other hand, students truly believing in these stories is a straight path towards degeneracy, like a large language model being fed its own output.
Now for the theoretical. Munger made a big deal out of capitalism having everyone do what they are best at, which leads to specialization, markets, rising tide lifting all boats, so on and so forth. The obvious problem is that there are at least five important factors that influence what people do: (1) what they are good at; (2) what they think they are good at; (3) what others think they are good at; (4) what they want to do; and (5) what others want them to do. Economists seem to think that all of these are aligned. When they are not is the stuff of great novels and, in fact, reality.
The episode finished with Russ Roberts posing a conundrum: life has never been better, but people in the most affluent societies in the history of the world yearn for something more. Why that is, nobody knows.