# Explaining America’s Economic Success: The Concentration of Wealth

In regard to my response to Taleb’s article (it’s short but packs a lot of food for thought, which is probably why Taleb is so popular, because his ideas, even if many of them are wrong or unoriginal, at the very least provoke discussion), Taleb also argues that America, unlike most foreign countries, rewards tinkering, risk taking, and randomness, as opposed to exam/testing-abilities, which explains America’s economic success.

Although I did not mention this in my response yesterday, America’s economic exceptionalism, such as the strong performance of the S&P 500 and Nasdaq, the booming economy, and low inflation, is not because of the tinkering and entrepreneurship per say, but rather because of enclaves of high IQ and high productivity and growth, such as in new York , Seattle, and Silicon Valley. If these regions were removed, America’s growth, innovation, and stock market gains would be lessened and closer to that of other countries such as Britain, Germany, Spain, or Canada. There are no European or Canadian equivalents of Google, Amazon, Microsoft, or Facebook. [0]

So high IQ plus entrepreneurship are the necessary ingredients. Brazil, Turkey, Spain, etc. have plenty of entrepreneurship too, but lack the necessary IQ component so their economies and markets haven’t done nearly as well, but also there is much less wealth concentration. What this means is, even if such countries are expanding economically and have entrepreneurship, they are not the kind of businesses that have dominance in the way high-IQ businesses such as Facebook, Microsoft, Amazon, and Google do. Intellectual property and network effects are harder to replicate than tangible goods such as food, drilling, or apparel. So in these less intelligent countries, there is too much competition and not enough wealth concentration.

An example is selling hot dogs in New York, which is business that has low cognitive barriers to entry. Instead of a single vendor selling hot dogs everywhere and accumulating all the wealth, there are hundreds or thousands of vendors competing, so everyone gets a little. So if someone were to invest in one of these vendors, their returns would be poor [1] because inevitably someone else will open a stand. It does not have to be hot dogs but clothes too. Anything that can be copied easily faces this problem. I call this copycat capitalism. But high IQ businesses, especially when protected by intellectual property laws and buttressed by networking effects, are harder to replicate, if not impossible as shown by how Microsoft, for example, is doing better than ever despite being almost 40 years old and efforts by competitors to try to come up with cheaper and better alternatives to Windows. There have been dozens of attempts to come up with competitors to Facebook: all have failed to gain traction. Facebook and Google are bringing in more ad revenue than ever, and all that money is split among a fixed number of shares, which have risen substantially since theirs IPOs.

The same applies to real estate, too. In less intelligent countries and regions, when homes become too expensive relative to a certain benchmark such as CPI, they ‘built out,’ and so prices stabilize. But these smart regions, an increasing amount of wealth on an inflation adjusted basis is concentrated in the same square footage of geographic area, so prices have to go up.

This is also why the fracking and drilling industries were hit so badly ion 2015, because there was too much competition, which hurt margins. When the oil market collapsed, falling from $90/barrel in 2013 to as low at$30 in 2016, many of these companies did not have enough money to weather the downturn and pay the high interest on their bonds, so many failed at once. During the 2000 tech crash, although Microsoft stock was hurt, it’s earnings din’t fall. Microsoft was (and still is) so profitable that the tech downturn had no negative effect.