Arnold Kling  

Billers, Players, and Income Inequality

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Another Nassim Nicholas Taleb quote:

A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random, with huge disparities between efforts and rewards--a few can take a large share of the pie, leaving others out entirely at no fault of their own.

Yes, this is just the economics of superstars. But it suggests a simple dichotomy. As Taleb points out, there are safe professions where you charge by the hour, so I might call them Billers. As a Biller, your earnings tend to have a high floor but a low ceiling. Think of an accountant.

What Taleb calls scalable professions are ones where you are not limited by what you can charge for an hour. Recording artists, professional baseball players, entrepreneurs, corporate CEO's, and financial speculators enjoy scalability. But, as Taleb points out, they have to compete in tournaments where there are a few winners and many losers. So we can call these sorts of people Players.

When I was 40 years old, I changed from being a Biller to being a Player. I quit a well-paid job to start one of the first Internet businesses.

Rising affluence makes it easier to be a Player. I had a tolerable financial cushion when I became a Player, and I had a fallback position of re-enlisting as a Biller. Young entrepreneurs who don't have children don't need as much cushion. In addition, they often have fallback positions if they lose in tournaments. In the short run, they have their parents, and in the long run they can switch to Biller occupations.

In marriages with two well-paid professionals, one of the spouses can be a Biller while the other takes a flyer as a Player.

As general affluence increases, I can imagine more people having the freedom to be Players. If they were competing for a fixed set of prizes, this would simply increase the number of losers. But I think that on the other side of the market, greater affluence creates more tournaments and makes each tournament more lucrative.

So one story for rising income inequality is that a larger share of income is going to occupations that involve tournaments, and more people are becoming Players. More Players and fewer Billers means greater inequality.

I'm leaning toward buying Taleb's book, which would make him an even bigger winner in that tournament.

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The author at Continuous Productivity in a related article titled Billers and Players at EconLog writes:
    A very interesting post by Arnold Kling at the EconLog. He very concisely defines the economic differences between entrepreneurs and workers: [Tracked on June 8, 2008 11:00 AM]
COMMENTS (12 to date)
EclectEcon writes:

If there are more players, wouldn't that reduce the size of the required tournament prize? Wouldn't the increased supply of players and the increased competition among them lead to lower pay-outs and lower average incomes for players, cet. par.?

Hannes Edinger writes:

It is a great book. If you can endure (or enjoy!) his tone, it is most certainly a fun read. He also recommend that people are happier in "billing" type professions. Anecdotally, I have to agree, and hence my application to law school. I played, and I have yet to win.

Brad Hutchings writes:

I think Arnold is pointing out that Players have the ability to take no payout for an extended period of time in search of the big payout, so they don't have to act like Billers to secure a modest payout. If the natural equilibrium is one that few Players will accept, and there continue to be huge payouts for some Players, that natural equilibrium cannot be achieved.

Another great point that Taleb drives home is that Player success has a big random component. There is no formula for wild success. We can look at examples of success and notice some common elements, such as scalability. But see Arnold's last post about how hindsight bias can make us think that a desired big outcome can be planned.

Independent George writes:


And that's why I'm not likely to buy the book. I agreed completely with the actual content of 'Fooled by Randomness', but I couldn't stand the tone. I thought the book was 10% about randomness, and 90% about the wisdom & brilliance of Taleb.

Arnold Kling writes:

Yes, more players with a fixed prize lowers the expected value of the tournament. That is why I would argue that if more people have shifted from being Billers to Players, then either average income of Players must have gone down or the number of tournaments/value of prizes has gone up. My guess is that the latter is the case.

Tim Lundeen writes:

His book is highly recommended, good stuff.

Steve Roth writes:

I agree wholeheartedly on the idea of a cushion that gives people the economic (and psychological) freedom to risk new ventures. I talked about how that played out in my own successful entrepreneurship here:

and here:

But I draw a different conclusion from it: that increasing social support systems gives more people this cushion, which encourages innovation and risk-taking. (Yes, of course there are countervailing incentives at work at the same time.)

We tend to refer to the "safety net," but might we not sensibly refer to it as a springboard? A stable platform from which to leap?

Give another 10, 30, 50 million Americans a place to stand, and they'll move the world.

This might provide one explanation for Europe's equivalent growth compared to the US, despite tax and spending levels far above ours.

Joe Marier writes:

Then, there are the Player Haters. Some call them "Spitzers".

aaron writes:

I'll also recommend his book.

Fooled by randomness makes the same point, but Black Swan is much more enjoyable. BS is more literary, FBR is more for entry level business types (point is made early, I stopped after about 70 pages, it became repetitive).

eric writes:

Taleb is a true intellectual fraud because he practices everything he criticizes. He can't stand criticism, only fawning adulation (he would send my old boss letters whining about web postings). He prefers anecdotes, name drops, routinely travels the rubber chicken circuit, delinks his old ridiculous remarks about Value-at-Risk, recategorized his extinct Hedge Fund as a hedge (before folding it), is immodest, against any specific mathematical formula. But that's in practice. In theory, he's against all that stuff. Or perhaps he means, he hates when other people do it.

He makes some good points, but has big idea, 'shit happens', is not profound. Further, his idea that the more speculative something is, the more attractive it is, is simply untrue. Across the board, the more speculative the asset, from lottery ticket, to volatile stocks, to internet huckster campaigns, have lower expected returns.

If he's a font of wisdom, I'm a Sith Lord. More here if interested.

Gordon Mohr writes:

Tyler Cowen sketched out a science-fiction premise back in March about a wealthy world where only being a successful 'Player' earned people any happiness/status (apparently because all Billers and washed-out Players enjoy the same high baseline level of material comfort). "[C]apitalist enterprise starts to collapse," he suggests. See:

Mike writes:

Arnold, I always enjoy your unique perspective on things. The only thing I would add as a key to creating large wealth (income inequality) is being able to find a way to leverage your time. This is often done by creating a product that you can make a predictable profit margin on and once discovered repeat over and over. Good examples are, e.g., McDonalds or Starbucks. Other examples are artistic endeavors, e.g., recording artists selling music, film makers selling movie tickets or DVDs. You get the idea, but isn't that what we call entreprenuership and creative distruction.

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