When a business occupies that kind of niche it collects monopoly rents that should be taxed or regulated away.
I thought a bit about credit allocation (mostly from an effective altruism point of view).
I think you're missing the next important step which is that people who would counterfactually do Bezos' work presumably also have good next-best options. So Bezos1 taking the Amazon niche means Bezos2 is free to do their next great project. So Bezos1 + Bezos2 combined created utility equal to Bezos' apparent utility minus Bezos2's counterfactual utility (if Bezos2 were to create Amazon instead) plus Bezos2's apparent utility minus Bezos3's counterfactual contribution plus Bezos3's....
In the EA space I have a moderately strong intuition that a lot of this adds up to normality so people should mostly just do what their naive highest impact is. I'm less sure how it applies to the (substantially more competitive and less coordinated) moneymaking world.
Scott, the argument you're making rhymes a *lot* with the argument put forward by Anne Margrethe Brigham and Jonathon W. Moses in their article "Den Nye Oljen" (Norwegian for "The New Oil")
I translated it a few months ago and Slime Mold Time Mold graciously hosted it on their blog, where I posted the english version and a short preface: https://slimemoldtimemold.com/2022/05/17/norway-the-once-and-future-georgist-kingdom/
Their observation is that when access to something is gated either by nature or by political regulation, you get what's called a "resource rent" -- a superabundance of profit that isn't a return for effort or investment, but purely from economic leverage -- a reward simply for "getting there first." Norway's solution to this in two of their most successful industries (hydropower and oil prospecting) was to apply heavy taxation to the monopolies, and treating the people at large as the natural legal owner of the monopolized resource.
(To address Bryan Caplan's argument about disincentives to explore and invest, you can just subsidize those directly -- a perpetual monopoly should not be the carrot we use to encourage development, and Norway's success over the past few decades bears this out IMHO).
The Oil & Hydropower systems aren't perfect, and there's plenty of debates (especially lately) about what we should *do* with the publicly-owned profits from the monopoly taxation, but it's clear that without them Norway would be in a much worse place.
The thing the authors warn about in the article is that all the hopes for new resources on the horizon to be the "new oil" (Salmon aquaculture, Wind & Solar Power, Bio-prospecting) are likely to be dashed, because Norway has lost touch with its traditional solutions, and so new monopolies are likely to arise uncontested, allowing private (and often foreign) countries to siphon money out of the country.
Do we have a way to test the "if x inventor wouldn't have existed, some other inventor would have done the same thing a little bit later" argument for validity?
"I’m not sure anyone else would have started SpaceX if Musk hadn’t" seems wrong to me. While it's clear that SpaceX is the most successful private spaceflight company, there are many many others. Wikipedia's list (https://en.wikipedia.org/wiki/List_of_private_spaceflight_companies) is long, and SpaceX has competitors in every type of spaceflight they work on. So I think SpaceX is pretty similar to Amazon. If Musk hadn't started SpaceX, Blue Origin or Northrop Grumman or someone else would have filled that natural niche.
Well, in defense of Bezos, look at Walmart's website. It's an obvious knockoff of Amazon, and, presumably designed by people who used the Amazon website as a pattern, and yet, it is still a piece of junk, and a pain in the neck to use. So, at least one 'next guy to come along' still couldn't quite pull it off, even with Amazon actually already there as an example.
I know someone working for someone like Bezos. They have proven that they can solve a lot of new Bezos’s problems. They also let it be known that they aren’t quite sure if they can continue in that role without new Bezos giving them some of his equity. In this case 3%.
How this all shakes out depends on the regulatory environment. CA famously only allows non-competes on very limited circumstances. That’s why the “traitorous eight” who founded Intel were able to tell their old boss to f-off.
A world were new Bezos can force all his 22 year old employees to sign a non-compete is going to be different from one where anyone can walk about the door at any time and walk across the street to a competitor.
TL:DR a lot of this has to do with fine tuning the relationship between capital and labor.
The other common argument from the left about this kind of thing is: if Jeff Bezos were to stop doing any work now, then Amazon's share price might drop a bit, and perhaps there'd be some temporary chaos at the upper levels of the company for a bit while his work is reallocated, and *maybe* in the future the company will miss out on some innovation or good decision he might have made, but it would otherwise continue to function and produce value; but if all the warehouse and fulfilment workers were to quit, there would be chaos and the whole thing would collapse. So who is generating the value right now?
(Genuine question, I don't know the answer)
Good lord, where to start:
First, you assume a perfect government that taxes and redistributes fairly to everyone worthy and deserving. Second you assume that the environment that billionaires can innovate and flourish in would magically exist when government has a heavy hand on the scales of reward and penalty.
Innovators take massive personal risks to fill that ecological niche. America has been uniquely successful in producing those innovators for 200 years in large part due to its outsize freedoms and rewards for success and meritocracy. The government’s heavy and arbitrary hand on the scales of freedoms ineluctably drives away innovators and depresses productivity. It is the invisible hand of the market rewarding and penalizing according to clear and transparent rules that creates the ecosystem for innovators to thrive and yes, greatly earn money in. The government takes in trillions of dollars and yet you worry about the billionaires and not the trillionaires who do not innovate and only earn by taking money from others’ hard work and creativity.
It isn't just about the innovation or the hard work - it's also about risk. If a business tanks, employees at that business can generally find another similar job. If you start/own a business and it tanks, you lose a lot more.
This argument falls apart if you use the CEO of AirBnB as an example. The tech for Airbnb existed for a decade and several inferior and not-very-usable versions of Airbnb existed (and still exist). But the huge network of hosts and guests is a cultural phenomenon that wouldn’t have happened without Airbnb. It’s possible that without Amazon, today you’d have 20 Jet.coms, which will never reach the massive scale and selection that Amazon has. AWS is even more likely to not have existed- and that spawned an entire separate industry.
First, I think most of the intuitions here are captured well by the economics of natural (or in the case of patents, unnatural) monopolies. If Amazon were not a natural monopoly then the advantages of being first would only persist until a competitor entered the market, and Bezos would only earn those extra two (or whatever) years.
Second, I think the political critique of billionaires (and other capitalists) really has to be understood as a critique of power inequality rather than consumption inequality. The intuition “inequality isn’t that important, it’s absolute poverty that’s a problem” is pretty good as far as consumption goes but doesn’t capture most of what wealth can do - from control within workplaces to political influence to control through investment on path-dependent questions about how/whether we’ll pursue space colonization, AI, and responses to climate change. More concentration of wealth means more direction by either whatever happens to be profitable or whatever particular billionaires happen to like.
> But suppose that we go back in time and prevent Jeff Bezos from ever being born. Does this mean Amazon wouldn’t exist today? Probably not by that name. But does it mean that we wouldn’t be buying things online today?
In the case of buying things online? sure we definitely would be. but for instance AWS, arguably amazon's biggest contribution to the world? that definitely didn't have to happen the way that it happened, and if it it had happened for instance 5 years later, countless startups wouldn't have been born.
Assuming another Bezos comes along and builds another Amazon seems like a big assumption.
And what would you do in the case where the founder only owns a small percentage of the billion dollar company and most of the equity is spread between many investors and institutions?
In terms of someone else would have done it. There is an old economist joke that goes, two economists were walking down the street and they saw $100 lying on the ground. And one economists goes to the other, “There can’t be $100 lying on the ground, if there was someone would have grabbed it.”
I don't know about Amazon. But part of Bill Gates fortune comes from making the internet worse. When you are the first. When you get out infront. You can use your surplus, your fortune to keep anyone from competing with you. Microsoft did that. I remember them doing that. Bill Gates made his fortune by grabbing a monopoly and he kept his monopoly but destroying innovation he did not own. They destroyed surplus value.
I suspect other billionaires do similar things but I don't knowhow and where.
Internet retail was already a race in 1994. Amazon won the race but it was through business acumen, not because of a particularly novel idea. Amazon Web Services, which launched in 2006 and now earns more profit than the retail side, really was a completely novel idea and I’m not sure how long it would have taken another entrepreneur to come up with the concept.
This is a question of mechanism design, right? Like markets are great at solving the problem of how much do you reward people who make and sell identical goods with decreasing returns to scale. But for increasing returns to scale we may need a tweak.
One example would be, say we knew in 1998 there would only be one Amazon, we (the government) could auction off the right to be Amazon. Every year you have another auction and whoever wins gets to be Amazon.
Now this is crazy for many reasons, but you get the idea, right? You take a natural-monopoly market and allocate the right to the monopoly in a way where the public keeps all the surplus except for the value that the top guy provides over the next guy down the list. This used to be much more common — governments would grant monopolies to fund innovation or infrastructure development instead of using cash.
I don’t think that “MV=MC” markets are some sort of natural law that needs to govern all commerce, it’s just a mechanism that has gotten so ubiquitous we assume it’s what God intended.
A more consequentialist approach to private property law would dissolve this question and replaces it with a more interesting one: What is the socially optimal strategy for rewarding innovation?
I feel that this overly downplays the role entrepreneurial risk plays in all of this. Focusing on billionaires shows a survivor bias; all the companies that go under every year aren't receiving some sort of entrepreneur compensation. Bezos certainly had capital to give Amazon a go when many others didn't, but his success wasn't guaranteed. And say an online bookseller rose to the top instead of Amazon; it probably wouldn't have branched out into different products as aggressively (certainly no other rival bookseller did in our timeline), nor would this hypothetical winner have probably gone into cloud computing the way Amazon did. I don't think risk is the entirety of the payout picture, but it's an important component.
If startups were paying out "too much" reward when successful, more people would start them and invest in them. Indeed more people have started doing that and it's actually quite difficult to make money that way. If there were *much* higher taxes on successful startups, than less startups would be formed and we would get lower quality results overall. Maybe there could be a slightly higher capital gains tax above a certain income point, since it probably wouldn't disincentivize startups that much. But note that most super wealthy people anyways give most of their money back to society as charity, so I'm not sure why the government specifically needs to take control of it.
- Sure, $50 billion would have been enough to incentivize someone to found Amazon, he wouldn't "need" $200 billion
- The problem is that Bezos doesn't have $200 billion in income, he has stock in Amazon
- It's hard to tax unrealized capital gains
- If you try, you are basically taking his company away from him by forcing him to sell shares to pay tax (I suppose he could borrow against shares to pay tax, but that's obviously risky). Whether he deserves this or not, it becomes a good argument for founding your giant multinational in a country that doesn't tax unrealized capital gains.
- For the reasons above, the consequentialist in me lets Bezos keep his stock. "Deserve got nothing to do with it."
What's the argument for treating the question, "how much is it fair to pay billionaires for their entrepreneurship?" as a public policy question, but not the question, "how much is it fair to pay plumbers for their labor?"
> But this model convinces me that “taxing billionaires a lot” and “taxing billionaires not at all” are at least two different unfair failure modes with their own advantages and disadvantages from a desert point of view.
What's wrong with the status quo of taxing them a normal amount? Is the argument that if and when they realize their gains and pay their taxes, they end up with more than X in liquid wealth, that is also a failure mode?
"How much should they keep?"
You're approaching the question from entirely the wrong angle. This isn't a moral problem; it's an engineering problem: What kind of rewards need to be offered to founders and investors in order for them to bother innovating and founding new companies? The answer has been worked out many times before--every time a company is started. It isn't fundamentally different, nor more or less just, than the way that the wages of janitors vs. engineers vs. blog authors is worked out. It's just more complicated.
Perhaps legislation could intervene to increase social benefits... but trying to "fix" an economic situation by forcing a "just" distribution of wealth tends to degrade or break the system.
The simple and effective answer is to increase estate taxes. Anybody who tries to get a social-justice movement to focus on any mechanism of wealth distribution other than estate taxes, is probably funded by somebody trying to distract people from imposing higher estate taxes. I'm pretty sure that most of the money for the Social Justice movement today comes from large foundations like the Ford, Hewlett, Packard, Rockefeller, and Kellogg Foundations, which are usually run by people connected to the family in question, with its enormous inherited estate.
BTW, it's pretty unusual for the founders of a large company to get such large fractions of the stock. It probably happens more often in tech due to low startup costs. But even in tech, it's rare. See https://priceonomics.com/how-much-equity-do-founders-have-when-their/ for a list of recent tech startups and how much equity their founders had at IPO. Median was 2 founders who collectively held 15% of the stock.
"Which of these distributions happens depends on competition; if there’s no competition, the company will be able to take the whole surplus"
Only if it can engage in perfect price discrimination or if all consumers value the car the same amount, neither of which is likely.
Labor is paid whatever their leverage yields them. So if it’s $50k at one company then it’s likely $50k at another. That has no relationship to the value they create except they probably don’t get paid more than they produce.
I say leverage because being a productive worker is only one way people get paid. There’s also nepotism, sexual favors, just being likable, blackmail, convincing your boss you’re worth more than you are, your union’s threat to strike, the effort of hiring a replacement, etc.
To illustrate: a friend of mine worked a role in Amazon where if he messed up his job, Amazon would lose hundreds of millions of dollars of value. He was paid extremely well for labor, which is nowhere remotely close to the value he preserved and created. As valuable as he was, he was replaceable so his leverage went only so far.
So I wouldn’t attribute any notion of fairness to how much janitors are paid. There isn’t any.
I spent some time thinking about this "compensate the hypothetical competition" model a few years ago. I eventually decided that it was a bad idea. Finding the hypothetical competitors is very difficult. How do you know that the next company was really just as good but just a bit slower? By redistributing profits among the competition, you throw away a lot of the incentive to innovate. A bad actor could game the system by waiting for someone to do all the work to figure out an innovative product, copy them, and claim that they deserve some profit too. Further, it is worth noting that these large companies *do* innovate to maintain their lead, and they do so by reinvesting a slice of their profit into new ventures, better infrastructure, etc. In a sense, they are *continually earning* a speed premium. The market price of Amazon stock is due to investor expectations that they will continue to earn it.
Congratulations, you've just reinvented (a part of) Marxism. Seriously, your argument is the Marxist argument of what an entrepreneur is and why they don't deserve to control their inventions or companies. It's what the Soviet Union taught people. Innovation comes from structural improvements in the economy that create material progress. Entrepreneurs are just people who happen to get there first and then establish a position from which they can extract surplus value. Without them the innovation will still happen. At worst slightly afterward and probably not even that since our Communist society will make everyone richer and more able to innovate anyway.
They had an answer for what was fair: Marxism-Leninism! Where the innovator is paid for their labor in innovating but does not get ownership rights or the ability to hire (read: exploit) workers. Instead that is done through cooperatives or state owned enterprises or whatever. The system is more fair because all of that benefit accrues either to the people directly or indirectly through increased government revenue. Or perhaps Maoism if that's your preferred flavor. Or any number of systems that only exist in Berkeley philosophy departments.
This is widely considered a bad idea and empirically wrong. The only place where it's still practiced is North Korea.
The issues would take more than the character limit to explain. But suffice it to say the assumption that progress naturally happens is simply wrong as is the idea that there is simply a pre-existing surplus to be distributed. Wealth does not fall from heaven but is created and it can equally be not created due to bad incentives, bad laws, whatever. The assumption we just get Famazon, which is just as good as Amazon, if Jeff Bezos dies is entirely conjecture and empirically doesn't appear to be true. Whether that's the extreme case of Soviets eliminating his entire class or the more moderate case of various ecommerce companies that simply never took off (some of which still have't).
> But given that Jeff Bezos has $200 billion, there must be some world in which $200 billion more could have gone to consumers through lower prices.
yeah there probably is, but it wouldn't be significant. quick example, amazon's quarterly revenue is around $120 billion, so if bezos tried to cut the prices by 10%, his $200 billion would only last 4 years. obviously this makes a lot of assumptions and wouldn't be so easy to do in practice, so the impact will likely be even smaller.
"It’s like that old joke about how if Thomas Edison had never existed, we’d all be browsing the Internet in the dark; no, we would have waited another few years, and then some other genius would have invented electric light."
His name was Joseph Swan. I believe that in the UK he is considered the inventor of the (incandescent) light bulb.
But there is a difference between "someone else would have invented that sooner or later (and usually sooner)" which would be an argument against patents and "someone else would have created this valuable company."
I'm happy to see this topic being discussed on ACX! But there are a couple oversimplifications here that distort the discussion.
* Bezos/Musk/etc are not the ones creating all the value. E.g. Larry Page may have created pagerank, but Google has retained dominance in search by hiring tons of PhDs and paying them large salaries (but much less than billions). The janitor argument is a little disingenuous.
* Most very rich people don't get there by creating some fantastic innovation. They get there by reaching a certain carrying capacity of weath and letting compound growth do its thing. Some invest their capital better than others, but even just dropping it in an index fund will roughly double your money every decade.
The question we should be asking isn't "what's fair to billionaires". The question is how much innovation would we stifle by taxing them more.
And I think you started to answer this question well--there are plenty of innovators waiting in the wings. Doubling top-tier tax rates might delay the singularity by a few years, but it's not going to create total stagnation.
Thinking of Bezos as an inventor seems clearly wrong-headed; wikipedia puts the invention of e-commerce in 1969 or 1979; ebay was started in the same year as Amazon and books.com was an online bookstore three years before Amazon:
Now maybe that suggests Bezos deserves more credit, since nothing before that ended up becoming the giant that Amazon did.
Or it could be that many such companies existed, and only Amazon got the network effects to succeed. In that case, Bezos could have caused Amazon's success by sabotaging competitors, this amassing his fortune by actively destroying value!
Or it could have been a pure coincidence which site took off, in which case his fortune is purely rents.
I don't think any of those stories are true, but I do imagine some amount of eating-the-available-air (damaging opportunities for other companies), rent-seeking based on coincidental victories, and labor market distortions (e.g., lower level employees earn much less surplus than they create due to low ability to negotiate) are part of the story.
I don't have any heuristics for how to measure the different contributions, but I might guess that Page and Brin, who developed Google on the strength of a research paper, had a larger share of innovation and value added than Bezos.
No entrepreneur should be taxed when they sell their business. Since all businesses scale at a much lower value than their eventual stock market peak, there could be a generous cap on this. No taxes on the first $10 billion or something. There already are very generous tax rules for building businesses.
Entrepreneur = built a company from scratch. Buying an existing business and fixing it up wouldn't count. Someone like Buffett who bought and sold all his companies, would not receive this tax exemption. If there's a stock bubble and Bezos' "wealth" goes from $50 billion to $150 billion because the stock market tripled, he should pay capital gains on share sales.
We want people incentivized for risk taking, not incentivized to support corrupt govt and central banking policies that inflate the value of their paper assets.
> Now someone invents a new better car company, and its workers do the same job as the workers at the old car company (ie their advantage isn’t more skilled workers, it’s equally-skilled workers making a better-designed car). It seems pretty fair to also pay their workers $50,000
The workers at the new car company are creating more value, even if what they actually do is very similar. If one worker at each company quits, the new company would suffer a greater absolute loss in value produced. Similarly, if both companies want to expand production, the newer one can afford to bid higher, so it increases wages, transferring some of the surplus to the workers.
Or suppose the janitor at some small company quits and they don't hire a replacement. The office gets filthy and the other employees all quit. That's a lot of value lost if that was a high-value tech company, but less if it's some mom-and-pop store, so it makes sense for the former to be willing to pay more.
I’m not sure this has any bearing on the actual moral facts of economic fairness, but within the context of the neoliberal game, I think you can square the circle of billionaires with a more granular understanding of how wealth of billionaire proportions is built.
An important caveat - at almost no point are the billionaires popularly thought of anywhere near as wealthy in cash as they are on paper. Their wealth is best understood as function of their control over highly valuable companies. While they can liquidate some of their positions, doing so in truly large amounts would depress the price of their ownership and their ultimate take from the sale would be much less than the paper wealth. TLDR, Bezos Billions is best thought of as x% of Amazon’s total value + some other stuff he’s liquidated.
The underlying business value is not an annuity. Which is to say the process is not *invent amazon* > *collect $200mm for 35 years* - there is a whole life of a company that comes after a successful founding. America is filled with entrepreneurs who found a company, grow it to $20mm in revenue and sell out to private equity and semi retire by 50. The difference between that and bezos is two decades of winning competitive tournaments for online spending every day for years. It’s also about reaching scale faster. An Amazon idea may be saturated by 2000 but if it takes until 2040 to fully implement with the second best entrepreneur, that is also lost value.
Can this be construed for as apologetics for capitalism? Yeah. But it’s also a real look at the ridiculous amount of human compute thrown at optimizing the world’s markets. Love em or hate em, they’re a remarkable invention.
Bezos did not get rich by "discovering" internet shopping. He just executed it better than others (ie generated more consumer surplus), year after year. If Bezos was never born, there would be no replacement Amazon two years later.
As others have mentioned, Walmart has been trying for 20 years to be "replacement Amazon:"
- they've invested billions, while Bezos had to start in his garage
- they already had a massive logistics network
- they got to use actual Amazon as a model, which nobody would be able to do if Bezos hadn't been born
And yet they're still behind Amazon!
I can see your logic for pure "inventions," like Edison's lightbulb or Bell's telephone, where the founders got rich thanks to rents from patents. But Bezos has no patents and no rents; he just outcompetes year after year.
Another note: the majority of Bezos's wealth is essentially from gambling on Amazon stock. Anyone with $140 million in 1997 could have bet it all on Amazon and have $200B today. I think Bezos should be rewarded for being so bold. Others would have retired and diversified with a few million, or have been content with a job at DE Shaw.
"It seems pretty fair to also pay their workers $50,000, which means that the big surplus created by the better car should mostly go to the capitalists."
I feel like "it seems pretty fair" is doing a lot of work in this point of view. I agree that it's the status quo, and I agree you can make an argument for it, like you have below that quote. But I don't think that's necessarily the same thing as 'it's beyond reasonable doubt that this is true'. Has there been a serious attempt to try and measure what disadvantage there would be to giving workers at very successful companies a greater share of the surplus?
While it's easy to imagine a different Amazon-like retailer existing, maybe worse maybe later, without Jeff Bezos in particular, it's very difficult for me to imagine it existing without founders who get very wealthy from their successful efforts. And if you want to tax away founders surplus at some very high rate once they get "too rich," you disincentivize making a successful enough business in order to become "too rich."
None of this seems quite right to me. I never thought of the classical liberal argument as being about “deserves” at all. I always thought about it as incentives, and designing things in a way where the most benefit goes to the most people.
In that sense, almost none of this applies. The one thing that does apply is that we should be trying to structure things in a way where the surplus is distributed in a where everyone gets some, and negative value isn’t created. If that means the billionaire gets more, that’s fine, but no one should get less and ideally everyone gets more if we’re doing it right.
This is also means that whether or not billionaires exist is sort of secondary.
I love the presumption that we can do some reasoning about counterfactuals or something and, if we come up with a good enough story, that makes it OK to take stuff from people.
Like, Scott, if I reason about the stuff in your house and come up with a good story, can I just come over and take stuff?
Obviously, it's very easy to say "well it's not the same, because something something." But I think it really is the same. (More precisely, I think there should be a very strong presumption that wealth acquired through otherwise legal means, regardless of its quantity, should not be subject to forfeit based on anyone's narratives.)
This is an allusion to the prospective AGI trillionaires that may be created during the coming wave of AI innovation, right?
I mean, obviously its an interesting topic in and of itself, but, knowing what's on Scott's mind these days, I have to think that Scott is using Bezos/Amazon as a vehicle to generate debate on this topic from a different angle, avoiding the specific dogmatic perspectives that might be triggered by using AGI as the example. Classic Scott.
Here's an alternative argument.
A billionaire has shown some degree in competence in making money – having a good idea, being able to persuade people, having facility for compromise over the unimportant but not over the important, and so on. Having money in the hands of such people allows them to use their skills a second or third time to various good ends. Steve Jobs from Apple to Pixar to Next/Apple 2.0. Elon Musk from Tesla to rockets, likewise for Bezos.
The bets may not pay off (you may think rockets are dumb, or that those two particular companies are dumb) but they seem overall more likely to advance society than having those billions distributed equally, a hundred dollars or whatever in the pocket of every American.
Now, this justification/explanation comes to an end when the founder dies and the money goes to heirs. And I have no complaints with an extremely aggressive, loop-hole-free inheritance tax. But that's a very different argument. In my perfect world, that is the solution: the billionaires get to enjoy their wealth while they are alive (and most of them, in fact, "enjoy" it by building their companies faster, or starting different companies), and the windfall reverts to the people at their deaths.
(Of course they can control this by donating it to some cause or other, which I'm sure mainstream socialism thinks is terrible, but I'm even willing to give them that. For the most part, while their charitable causes may not be my charitable causes, they're not completely insane.)
First off, any time we're talking about super wealthy people like Jeff Bezos I think it's important to keep in mind that he doesn't actually have 150 billion dollars in a bank account. What he has is control of a fraction of a company that he founded. Other people are willing to pay a certain price for a marginal millionth of a percent of that company. When you multiply that marginal price out, Bezos' fraction equals 150 billion dollars. I think that's a meaningful distinction.
That's not my true objection though. My true objection is hard to describe but I'm going to give it a shot. Scott's point here is based on there being an Amazon-shaped niche that would have been filled by something eventually. And I agree it's hard to imagine a 2022 where online stores aren't a thing. But it feels to me like looking at Amazon at all is kind of cheating. Something like privileging the hypotheses is going on. Out of all the potential ways to make money by providing goods and services, would an Amazon-like-thing be promoted to our attention at all if Bezos hadn't done it? We have a system where everyone is constantly competing to come up with the next billion dollar idea. Millions of very smart people are desperately trying new things to improve peoples' lives, often failing and only rarely succeeding. They're doing this partially for the incentive of being the next person to start a billion dollar company. It seems reckless to look at that system and say "yeah we can cut that incentive way back; all those things they're creating will exist anyway, eventually."
Maybe what this argument boils down to is: Are you sure Amazon would have existed anyway? I know in this universe it feels like it must have, but is that feeling true?
This argument doesn't really resonate because it ignores that all those other entrepreneurs did try to make their store. Many, many startups attempted this, many large companies attempted to own this space, and Bezos outcompeted them all. He was usually able to do this by unlocking value in his own technology stack that he offered to others (AWS, 3rd party selling, etc.).
Every step along the way he had to compete. The value of the company is a reflection of his own skill in a repeat, iterative game, and the value of his equity is a reflection of how much he bet on himself and how well he served as an executive in hiring well, building a culture, and setting the right priorities. I simply don't believe you could swap out a professional manager at Walmart (or maybe rather, Barnes & Noble) with Bezos and get a giant of the scale of all the things Amazon does (ecommerce and AWS being the biggest two).
I don't see not taxing billionaires like Bezos as a failure mode at all.
I read from either Scott Sumner or David Henderson the idea that if you tax billionaires and this does not result in them changing their consumption (which it probably won't) then you are not really taxing billionaires, but whoever would have gotten the money that got taxed.
Say Bezos is thinking of investing a billion in a startup, but before he can do so congress passes a law that taxes him by $1 billion. Finding himself $1B poorer, Bezos decides not to invest in the startup after all. Can we really say in this case that we taxed Bezos? Or did we really tax the startup?
More generally, unless the tax causes Bezos to refrain from buying a yacht or something like that, he is not really paying for the tax. His welfare is the same with or without the tax. The welfare of the counterfactual beneficiary of Bezos' taxed income, however, has decreased.
Another way to think of this is that, at those levels of wealth, Bezos' net worth is a measure of the resources that he controls, not a measure of his material well-being. The latter is probably not that different from that of your regular billionaire.
Additionally, the fact that he has a proven track record for finding excellent investment projects (i.e., projects that generate lots of value for society) is an additional reason not to tax him. We want him to have access to lots of resources and put them to valuable economic use.
Bezos' wealth is almost entirely his Amazon stock times the price of a share. The price of a share is the present discounted value of expected *future* profits. Bezos is wealthy today not because of what Amazon did, but because of what they expect it to be. To earn those profits, you not only have to have a good idea, you have to have an idea whose profits are protectable by something otherwise, those profits are competed away to zero over time by new entrants. Among the possibilities of protective elements: (a) patents; (b) economies of scope and scale; (c) consumer inertia; (d) anticompetitive behavior; (e) R&D effort to improve profitability. There are others, of course, but these are the biggest, although patents are probably trivial in the Amazon case. But in any case, Bezos' job (or whomever runs Amazon after Bezos) is to maximize future opportunities by fending off competition however they can.
This is just way too confident and deterministic.
A) this neglects that Bezos was, sure, early, *but also ran the company better* than the next best guy would have.
B) market inefficiencies happen all the time. Business inefficiencies happen all the time. This notion of a “natural niche” is begging the question. No obvious reason that the “buying stuff on the internet” niche couldn’t have proceeded with a fractured marketplace, no ambition for next day logistics, no AWS, and comprised of smaller companies that sought to make money by charging large margins on transactions as a result. Just look at the next generation of delivery companies.
If I grant you that Amazon is effectively a giant rent-seeking operation that gets to extract value by claiming the market position of “monopolistic seller of goods on the internet” 2 years ahead of the competition, sure this works. But I don’t see the difference between “Amazon is a giant rent-seeking operation” and “Jeff Bezos shouldn’t be entitled to his giant fortune” - *especially* by neoliberal lights.
A better example of this was the simultaneous invention of the telephone by Alexander Graham Bell and Elisha Gray. Apparently Gray's application arrived at the U.S. Patent Office a few hours before Bell's application, but Bell's lawyers paid the application fee first. It's been claimed that Bell's application contained elements of design taken from both Elisha Gray and Antonio Meucci. Apparently Thomas Edison was also working on a telephone design at the same time. Given the technical advances of the time; it was almost inevitable that the telephone was going to be invented in the 1870's by someone.
I think this is painting an overly-simplistic story of why Amazon is super successful. You say it’s first-mover advantage; Amazon just got there first. I suspect it’s much more about execution - Amazon just does a lot of little things better. The thing you need to replace Bezos isn’t just one good call to found Amazon; it’s decades of leading the company well. Obviously without Bezos we would still have online retail - there’s plenty of non-Amazon online retail today - but plausibly we’d be missing a lot of consumer surplus, because the replacement companies would just be worse.
Questions I’d love to know the answer to:
1) How replaceable was Bezos? What does the world look like if he never founded Amazon? Or if someone else founded Amazon at the same time with the same resources as him?
2) How much of Amazon’s success is being early to the online retail space vs. being good? Same question for AWS.
How does this theory fit with cases where the enterpreneur coming second is far more successful? How come Google beat Altavista and Yahoo despite being late to the game? What should Google's founders be paid despite being second in the race?
I think this view of billionaires and their companies is rather simplistic. First of all, their wealth is largely illusory. Sure, Jeff Bezos might have trillions of shares of Amazon stock on paper; but in practice, he can never realize this wealth. If he starts selling off shares, stock price will plummet, and he will be left... well, not with nothing, but with a tiny fraction of his original value (and that's not even counting SEC regulations).
Secondly, companies do not allocate 100% of their profit into the pockets of their shareholders. In practice, they re-invest most of it into R&D and future growth; thus, their value to the customers is compounded.
Lastly, you kind of gloss over the issue of incentives. The model of the "Inevitable Bezos" only works if there are lots of wannabe mini-Bezoses waiting to fill the market niche. But they exist in large part (if not primarily) because of economic incentives, and so do the VC funding firms that are willing to give them startup money. Take away the incentives, and you'd be diminishing this pool, thus potentially pushing back new technology by decades, not years.
At some point in time, we were all labor.
Capital arose as a consequence of specialization. I build a castle and train knights, you farm to feed us, he works on clothes, she works on shoes.
Capital and labor had to work together until we developed the technology for industrialization. Both classes were required to work in tandem to get us to that point, but the benefits went predominantly to capital. We think of purchasing a machine as a capital investment, but it was an investment born from the cooperation of capital and labor.
After industrialization labor is relatively devalued, but still required. Now we are working on automation. Again, we call it a capital investment but it was born from the cooperation of capital and labor. Yet one class benefits more than the other.
I’m sure I’m missing a lot, but that’s my intuition on this subject. Capital exploits labor because we’ve been working together for this whole project of human history, but one class has been running away with the accrued benefits.
My other complementary intuition is simply math based. Billions is just so large relative to median wealth that it’s incredibly unlikely that the value came from that person. How many standard deviations away from the mean is Bezos? What would the equivalent IQ be, or physical strength?
Some portion of it came from them — but the rest came from luck, it came from timing, it came from the value created by other people, it came from monopolies and rent, it came from economies of scale, it came from industrialization, it came from automation, it came from living in a society we developed collaboratively where entrepreneurs are relatively free from risk of murder and there are nice roads on which to deliver goods.
You can point to so many other things that collectively it’s hard to put much on the entrepreneur. At least not so much that they are that far out there relative to the rest of working society. Especially when it’s all in a society that capital and labor created collaboratively.
I worked in tech startups for 10ish years. I grew up poor and I want to be rich. Entrepreneurship needs richly rewarded, because even though these things would happen anyway, the entrepreneur did do a ton of work and did take tremendous risk and did bring something from zero to one.
But you can retire at median US salary on low single digit millions. BILLIONS is obscene.
"The problem with the neoliberal argument is that it gives the first person to fill a niche credit for the niche’s entire existence, not just for filling it earlier than it otherwise would have been filled."
I just don't view this as a problem. A reward can be somewhat arbitrary, but still entirely deserved/earned. When someone buys a lottery ticket and wins millions of dollars, we don't see many people pouncing on their windfall as unearned or taking away from the person who would have won the pot on the next drawing. And why should we? If lotteries are relatively uncontroversial, being rewarded for being the first person to fill a valuable economic niche should be even less so.
Response 1: This is why IP law is intended to expire exclusive rights to use inventions after a set number of years. Odds are, someone else might have come up with it by then. And if the persistent advantage isn't technological, but only first-mover winner-take-all economies of scale, well, that's ostensibly what Anti-trust laws are for.
Response 2: it sounds like you're dancing around reinventing the Vickrey-Clarke-Groves Mechanism, whereby you are entitled to keep (up to) the additional utility you provide and obligated to reimburse the world for the utility you diminish, both as compared to the counterfactual world where you don't exist but that second-best entrepreneur does.
If your starting place is: "capitalism says that Jeff Bezos deserves all of his money" then you're going to get to weird places. I think "billionaires deserve their wealth" is a shorthand idea that works most of the time, but the true argument is more like "Jeff Bezos has his wealth because people freely chose to either give him that money, or chose to value more highly things (bits of paper with "AMZN" written on them) he happens to own, and capitalism says things work better when people are allowed to freely choose who to give their money to." Imaginary "2 years later Amazon-creator Beff Jezos" does not have 80 or 90% or the claim to that money than Jeff does, because all those people (who could've chosen to wait for Beff) chose to give to Jeff. (Incidentally, economic history is full of examples of 2nd-movers who didn't have the original idea actually reaping far more of the reward, often from observing first-mover mistakes)
This argument says nothing about "how much should we tax Jeff later on, in order to provide for public services?", it only defends against the anti-capitalist "we should disrupt the system that results in people giving Jeff so much money" argument.
It seems that such analyses are predicated on many assumptions. These assumptions are probably axiomatic to those who harbor them, but they seem worth noting.
The very first sentence speaks of a defense of billionaires. Why do billionaires need to be defended?
Why does the entrepreneur need reasons for why he should be allowed to keep his own money? Should the default be someone else seizing his property?
Who cares what Bezos "deserves?" Why does anyone deserve anything?
In another sense, an American might prefer if Americans win these contests faster, more often, and with a greater degree of success. That might be a society wide incentive for billionaires to retain a greater share of their spoils, but I'm not certain I feel that way. I do believe that our culture is also at stake in these contests.
Another of Bezos' gifts was to convince investors that it was OK for Amazon to lose money for years and years as long as it grew rapidly. And then there's the dominant AWS, which is pretty orthogonal to running a store. Entrepreneurial skills are truly multi-dimensional, which is why so few are really successful.
Economies of scale mean that Amazon can simultaneously have low prices and be extracting a lot of value from consumers: assuming every large web reatailer is equally competent, we can expect the largest one to have smaller costs, but such company has no reason to charge prices lower than number 2. This means Amazon being more efficient than "two times Amazon / 2" is *not* a guarantee that consumers are getting a better deal: it's actually the opposite because Amazon existing denies competitor #2 the economies of scale.
Class-based thinking works very well when thinking about "value extraction". The classes, however, are company X consumer, *not* capitalist X worker. Companies coordinating allows them to extract more value from consumers: if Amazon and web retailer #2 cooperate, they now can raise their prices to match web retailer #3.
It is technically possible for companies and consumers to cooperate ("let's buy from $ETHICAL_COMPANY as long as they charge fair prices"), as well as consumer among themselves ("let's boycott Amazon until they stop extracting all value from economies of scale"). However, this is significantly harder to do because it is much easier for consumers to defect since there are few opportunities for others to retaliate.
So what about cases where the inventor is an employee creating a "work for hire"? I.e. imagine Jeff Bezos paid a person $2000 to come up with "the next big thing in bookstores", they come up with Amazon, Bezos starts Amazon with that idea he bought, makes all the money, and the actual "inventor" gets basically nothing. In this case (which is actually pretty typical, albeit less extreme), I'd say it's pretty obvious that Bezos deserves close to none of the surplus value.
> This seems to me pretty hard to argue with - if someone creates a surplus, who doesn’t want them getting to keep some large fraction of it as a reward?
Yes, but except in the case where the entrepreneur is also the worker who creates the product, the workers are the ones who actually create the value. Without them, there is no product, just as much as if it was never invented.
And generally speaking, ideas are cheap. Implementation is hard. And it's (in almost all cases) workers who do the implementation. Bezos didn't build Amazon into a global retail and web services juggernaut with his own two hands. The workers built all of it, and they deserve pretty close to all that value.
I think the big unanswered question here is: Why aren't there any meaningful competitors to Amazon? It seems to me that the answer to this question determines how we should think about Bezos' billions.
Is it because Bezos successfully erected an economic moat around his business, and is suppressing competition? Well, then his billions are (largely, but not entirely) ill-gotten gains, and in some sense he owes them back to society.
Is it because he's just doing a better job than anyone else? If the advantage from being first is relatively small (and there's good reason to think that's the case; where are AOL and Yahoo today?), then the reason Amazon's so dominant is because they simply are better and smarter than their competition. There are numerous historical examples of "monopolies" that, on investigation, were just more efficient than anybody else.
Or is it, as you imply, primarily the first-mover advantage? If the second-place Jeff Bezos would have done just as well, and now be just as rich, if Bezos had broken his neck in 1993, then the answer seems to be somewhere in between the two options above. Incentives matter, but Bezos wouldn't have acted differently in the early days if his expected future wealth was $2B rather than $200B. So perhaps some sort of partial redistribution to…somebody…might be warranted (in practice, not, because of the awful precedent it sets, and do we really want government deciding who gets what here anyway?).
But until we know why Amazon is so dominant, it's really hard to know what to think here.
And I think this should be an answerable question. Look at other businesses in other industries. How often does the first mover get an indefinite advantage? Do first movers keep that advantage even when competitors are more efficiently run? How powerful is the effect of economies of scale? This should be very possible to determine, and indeed I'm sure there are numerous Economics papers on these very questions.
Yeah, I think this argument is right, and represents a strong challenge to both left with and right wing politics. I think of it as comparing two different distributions.
If my stereotyped rightwinger thinks that differences in wealth are down to some personal quality, maybe intelligence or business acumen, then their thought experiment is to think about a world in which everyone has equal intelligence. In that world, would we all have the same amount of wealth? I think plainly not, simply because of luck. The amount of difference that intelligence makes is then the difference between that imagined distribution of wealth (already, I think, pretty unequal), and the distribution that exists today.
If my stereotyped leftwinger thinks that differences in wealth are down to some form of exploitation, then their thought experiment is to think about a world in which that exploitation is eliminated. In that world, would we all have the same amount of wealth. Again, I don't think so: natural inequality is considerable. So the bit of inequality that can be blamed on exploitation is only the difference between that imagined distribution and the distribution that really exists.
Evidence can be adduced for both of these imagined distributions: forager societies don't have much worker exploitation; you can look at how equal they are. Sometimes people group naturally into groups of higher or lower intelligence (e.g. Ivy League grads); you can look at how equal they turn out.
Scott's treasure on the beach argument sounds very much like the gold rushes. I think a lot of people have the intuition that while those periods were pretty grim, there was in fact something fair about letting every search for gold, and accepting that chance would select a few lucky winners. I don't think chance is unfair per se.
1. Bezos contributed WAY, WAY more than the "two years". 2. For 25 years, consumers have shared massively in the surplus Bezos created due to low prices / greater competition / lower transaction costs / time saved, etc. 3. Taxation not about deserts / fairness / redistribution; taxation about raising funds for essential government services. Anything else is non-market based social engineering, ie shit. Income inequality is a mugs game--what matters is rising incomes / quality of life for the bottom quartile. So long as that's maintained, inequality fades into the background.
Leaving aside the argument that progress is inevitable (which I think is bunk) and that Amazon would have happened regardless, there is still the pesky matter of AWS. AWS was the first enterprise-oriented, on-demand VM company. Bezos made it happen. The PMs who pitched it to him pitched it as an internal product, he had the foresight to think bigger and told them he wanted it as an external product. Not only was that innovation not inevitable he got a 6 year head start because even in the midst of doing something that everyone now thinks of as blindingly obvious the competition sat it out. Giving large amounts of capital to people who know how to get things done seems like a good idea to me.
Also there's an ethical argument. Why is society owed any of the benefit of something that a group of private individuals built? How much do they owe to society for their achievements, especially since most of the patrimony is owed to people who are dead? Must they really be forced to give away their own work to others because of roads and bridges? I find these arguments dubious.
NO! Building a business is not "finding a niche." That is totally the wrong way to think about it. Business is more like a complex game where you have to make many moves, and the winner has to make more of the moves right than anyone else. You might read this from twenty years ago: http://arnoldkling.com/~arnoldsk/Poptarts.htm
In a world where nobody can be worth more than 999 million (say), does anyone create Amazon? Or does contrafactual bezos just create an online bookstore and then go fishing?
Does anyone do online retail as well as Amazon?
Is there any polity ever that has got a high level of innovation and growth while also practicing confiscatory taxation?
This sounds more like regurgitation of left wing talking points than I expect from Scott.
"So suppose that this new type of car makes the world $200 billion better off"
Imagine that company could charge the same and the customers would get $200 billion surplus. Now imagine that the company decided to charge more than that. Then, some customers would not have enough money to buy the better car, and would not be better off. If the company took that into consideration ( which they would on a efficient market) they would make less cars. Which means the world would be less than $200 billion better off.
In other words, this idea of creating value and splitting among shareholders/workers/consumers is zero sum thinking, and does not reflect reality.
On a different note, I don't get these "fairness debates". It might be because of what I said above, the world is not a fixed pie to be shared, or it might be because I see many people having wildly different intuitions about it. Whatever it is, I see fairness, outside very restrictive scenarios (such as sports) in a similar way that you see Justice (social justice, climate justice etc). Except that social justice can be properly defined by Rawls' veil of ignorance, and I don't know any similar treatment of fairness.
Entrepreneur here: This is quite true, and can also apply to the world of finance. Having capital allocated efficiently in a capitalist system is a huge benefit to society and worth creating billionaires to get it done. But, many finance types are just involved in making capital markets more efficiently priced by a millisecond. Or, many hedge funds aren't even doing that successfully but are just collecting huge paychecks from low information investors when they happen to do well and spitting out subpar returns overall. They just do a good job attracting funds from investors, and crowding out better investors who aren't as good at raising capital. I also like the middle solution from the gov't angle: heavily tax the people who make it big, but not so much that you completely reduce incentives.
Definitely, billionaires get waaaay too much respect in the media overall & from the right, but also probably criticized by too much by people on the left.
I am not sure this changes your argument much, but Jeff Bezos would not be worth anyway near he is today if it weren't for AWS. If Amazon had only stuck to retail, I think it is probably in the neighborhood of a ~$250 million market cap company. Still enough to make him worth $30 or so billion, but not the richest man in the world. He became the richest man in the world because he brought to market cloud computing, which truly was a technological revolution, and I'm not really sure that was as inevitable as you are making online retail out to be. Microsoft and Google and IBM had plenty of time and resources to bring cloud computing to market before Amazon, and they just....didn't.
Something that the essay doesn’t really take into account: Bezos doesn’t technically have 155 billion dollars. Instead, he owns about 10 percent of a company that society has decided is worth about 1.3 trillion dollars, and also about 22 billion dollars that he got from selling stock.
So Bezos played some important role in creating about 1.3 trillion dollars of wealth, and he personally got to keep about 10 percent of that wealth, in addition to a few more percentage points that he cashed out.
It’s a lot of wealth, to put it mildly, but the vast majority of the wealth he helped create belongs to other people, including you, if you own any Amazon stock or have invested in an S&P 500 EFT or something.
If entrepreneurs and early investors are the bottleneck for founding new revolutionary businesses, then those who are successful can claim full credit for their success. For simplicity, let's say there are only three important businesses and entrepreneurs every 25 years. For the last quarter century, they were Amazon/Bezos, SpaceX/Musk, and Google/Brin+Page. Let's say they're equally important, and that nobody else could have founded them. If Bezos had never existed, then Musk might have founded Amazon, and Brin+Page might have founded Google, but nobody would have been available to found SpaceX.
Then, when 3 new Amazon-class opportunities and founders emerge over the next 25 years, SpaceX would still need to be founded, and there would once again be an Amazon-class opportunity left unfounded. This would continue indefinitely, the world always having one Amazon-class business fewer than it should.
In this model, if Bezos magically was wished into existence on schedule, he'd be the make-or-break factor in fixing this problem. Hence, he could rightfully be rewarded full credit for Amazon's existence.
Contrary arguments require assuming that stellar entrepreneurs (and/or the other people, like early investors, who currently receive large amounts of credit for successful new businesses) are not the bottleneck for starting businesses. This might be true if our society is generating capable entrepreneurs at a faster rate than it's generating revolutionary business opportunities.
This is a bit of a tangent, but I don't know if it's strictly the prospect of having lots of money to spend on luxuries that motivate entrepreneurs. Their wealth also allows them to invest in capital-intensive new businesses (i.e. SpaceX). It also creates a power center outside of government control. That's usually what leftists criticize about unequal wealth distribution, but what if that's a feature rather than a bug? Distribute Bezos's wealth equally throughout the USA and everybody gets about $700. Let him and his fellow business moguls keep their money, and the small population of billionaires is probably much better able to coordinate on how to use their money to continue creating wealth. We already know they have the connections and talent to use wealth effectively to create surplus, why would we want to take it away and give it to people who don't have that proven track record?
Amazon's revenue is $489 billion per YEAR. If we take Bezos' *entire* $200b and distribute it as a discount to amazon customers over 10 years, it works out to like a 5% discount. So a really rough bit of napkin math is that he's actually only captured something like 5-15% of the total surplus he's created (if we assume the surplus is between 1 and 1/3 the revenue). It sounds pretty fair to me!
I think your argument about Bezos focuses too much on him specifically. Bezos didn't magically found Amazon a year ahead of another guy who could have founded it, he founded Amazon into a violent storm of competition that it took years to come out on top of.
The founder's surplus for a great new innovation doesn't just go to the guy who does it first (unless it's patented), it goes to whoever wins the market. In this case, that happens to be Bezos. I see no problem with the surplus $250B going to "the community of entrepreneurs who create new internet businesses", and him then winning the lion's share of that pot of money by competing against them.
Archimedes had a strong geometrical understanding of the pulley and also of the bow and arrow. Thousands of people struggled for thousands of years to build better bows, many of them well-versed in mechanics, and nations and empires hung in the balance. Yet the compound bow wasn’t invented until 1966.
Just because it seems obvious after the fact doesn’t mean an invention won’t arrive hundreds or thousands of years too late.
I think you are conflating the questions of “capitol” and “income”. All of Jeff Bezos’ income is taxed at very high rates. I suppose that the progressive tax system could go beyond the current maximum for folks with really high incomes but I don’t think that is really your point?
I think you are concerned that Jeff has amassed a huge amount of capitol. I work as an engineer and an inventor, and it is my experience that the most innovative companies are privately held. If the billionaire’s capitol holding were highly taxed then they would soon no longer control the company. In my experience, innovation would then slow or stop. I prefer to have Elon Musk creating StarLink capabilities and am willing to allow him to become insanely rich in exchange for him championing insanely innovative projects. If they were not tremendously innovative then they would be commodities and competitors would quickly emerge.
> Suppose that if Jeff Bezos had never existed, someone would have founded pseudo-Amazon two years later.
Let's assume that's true. Would it still be true if entrepreneurs didn't get to keep a chunk of the value they create? What is the relationship between the two?
Bezos will personally consume only a very small share of his $200 billion. Would the use that the government would make of Bezos' money (or Warren Buffet's, or Bill Gates') be more socially beneficial than the use he will make of it?
I'd say that the issue here is around the process and scale of growth. Bezos did not invent anything here, nor seize on an opportunity which others were not aware of existing. If you look into the early days of Amazon with selling books online, Bezos abused/used a legislative loophole for taxes put in place by mail order catalogues to not have to pay local state taxes.
As such, Bezos set up shop with his warehouse for books in Oregon and sold them into California. He was therefore able to sell books online to people in California in a way to undercut prices to the tune of the sales tax which brick and mortar stores were selling. He used the idea of 'commerce' which he didn't invent to sell things to people using a tax loophole which he didn't even have to organise political bribes to get passed. Not exaclty a $200 billion dollar accoplishment.
But the primary problem here is about feudalism. He started it and he owns it forever and gets whatever happens no matter who does the work. Amazon brached out into other areas beyond books, they organised and optimised warehouse routes, they also had incredible algorithms which powered their sales engine and allowed for semi-honest customer reviews since Amazon wasn't the direct seller of many products.
It is dead wrong to attribute any of this to Bezos. I don't think he knew much of anything about algorithms or optimising truck driving or delivery routes.
There was a massive massive amount of intellectual work which went into running and expanding Amazon which had nothing to do with Bezos in his role as anything other than a CEO.
What is also missing here are the efficiencies and gains in productivity which had nothing to do with Bezos. This feudal model of ownership where all profits forevermore from any advancement made by any employee or outside idea they steal, buy, or copy....these do not fairly flow upwards to some original founder.
The attribution of the collective effort of every employee over decades to do more than dumb 'labour' to a single man is absurd. You work, you invent, you think, you expand, and I collect the wealth forever. Organising people, exploiting tax loopholes, selling stuff people want...sure those all have value, but in most cases we are not looking at a genius inventor. Bezos wrote very few lines of code, brokered very few deals, and put in an exceptionally small amount of the intellectual effort which made Amazon what it is today.
A final question set is in terms of how to deal with such a phenomenon comes into play. Should we break up monopolies, only allow the 'sale' of companies to employees such that companies become employee owned rather than sold into stock markets? How do we tax, should we have a maximum net worth. Is democracy even possible with such insane wealth disparities? All these and more questions have many answers. Should we raise minimum wage? Should central banks buy corporate bonds or give out ultra low interest loans to companies? All questions about how we should run or not run our society so taht we don't turn into a mercantile oligopoly.
So, honest question, is there a New Zealand, Switzerland, Singaporean, or South Korean equivalent to Amazon? Or Amazon branches, like retail vs AWS.
Because, using the laziest source I could find (1), those are all high income countries that Amazon doesn't operate in. And, it sure seems like, if the Amazon-niche is easy to fill, somebody should be filling them in these countries. Plus, two day delivery sounds trivial in Seoul or Singapore.
But more broadly, the competition argument gets brought up and then kinda...dropped. Like, highly profitable companies bring in competition, which drives down price, which drives down profit, should be fairly self-correcting. That's not to say that competition works perfectly but this argument seems to propose that we should replace an automatic, non-political mechanism with a discretionary, highly-political mechanism.
Something we need to consider is the importance of network effects. Suppose entrepreneur B had looked around 2 years after Bezos founded Amazon, had the idea for Amazon, and realized it was already taken. Why didn’t he found his own version and muscle in on the action? Well, some people did do this, and Bezos is probably richer in the world where E-Bay and Alibaba don’t exist, but the reason why there is such a big first mover advantage is because Amazon benefits from network effects, so there is a premium on being the first person to invent the idea, whether or not we actually get that much more value from two more years of Amazon.
Another factor to consider is risk: Bezos took a huge risk giving up (IIRC) a cushy job at an investment bank somewhere to found Amazon. So at least some of the surplus is actually just a higher return for a high beta. Yes, entrepreneur B would likely have been willing to take this risk, but he didn’t, so it is fair that Bezos, and not him, receives the compensation for bearing the risk.
A better question to ask is "in what world humanity is better off?" regardless of moral considerations like fairness. We know experimentally from socialism that the state taking and redistributing most of the benefits from the inventor works rather poorly, but not much beyond that. One ought to write a proper model simulating different worlds, and maybe some exist already.
It’s possible that because the reward is so large that it actually pulls forward invention. If Bezos knew that he would get “2 years worth” of Amazon no matter what, and the next guy “1 years worth”, there might not be any incentive or competition to actually build the thing or make it as great as it is today.
I think people underestimate the compounding effects of innovations occurring even a few years sooner.
Thank you for the article.
Something to consider, maybe if Bezos hadn't been born a giant online retailer might have appeared a year sooner?
We stand on the shoulders of giants. Taxes are justified by the fact the billionaire didn't invent or build the internet, water utilities, stable government and so on. You don't get an Amazon or Tesla in Somalia because of national instability.
Most CEO's are worth as much as they are due to owning equity in the company, not a high salary. Capital gains is 20%, this is to incentive investment and disincentive high salaries because of the issues you highlighted in your article.
To be honest this entire line of arguments seems like it is barking up the wrong tree. I don't think that Jeff Bezos *deserves* to be a billionaire in the sense that in the counter factual where he acted exactly same way and Amazon had failed, he hasn't been wronged in any way. Given that Amazon succeeded, I don't think he needs a justification for keeping the money that he earned other than that he managed to pull it off without breaking the law or wronging anyone. (If you think he did break the law or wrong someone, then you could argue that he shouldn't have his current level of wealth, but that is an entirely separate issue from what I think you are trying to discuss in the article).
The central example here is Amazon. Is there an example that does not rely on either network effects or "natural" monopolies? It seems to me that this is only an issue with one of those two. Natural monopolies we have sort-kinda figured out (there is a comment in here from Lars Doucet about Norway that applies), but we haven't yet solved network effects.
I think that a good solution to the problem of network effects (aka, a "better" company can come along, but because of network effects, they still lose, and no one "creates" the network other than by being first), would solve a lot of problems in modern economies.
I certainly do not claim to have such a solution, but I'd be interested in anyone who is thinking about it.
The assumption that the second-best entrepreneur would've founded (and grown to a giant success) Amazon a few years later is entirely unsupported here, by evidence or argument, and personally I find it exceedingly dubious.
Mostly because it ignores synergy, of which anyone in the Internet Age ought to be extremely aware by now. When Amazon was founded, the Internet was a much smaller operation than it is now, not in the least ubiquitous. Nerds and academics were its most common denizens. *Because* Amazon was founded, it tremendously pushed forward the growth of the Internet, and its increasing ubiquity. People bought computers, learned to use Internet, *in order* to use Amazon. Perhaps that surging wave made it more plausible for Jobs to think of putting a computer in your pocket in 2007. And that growth in turn propelled Amazon (and Apple, and others) to still higher relevance and profitability, and around and around.
You simply cannot divorce the growth of the Internet -- the attraction of smart people into retail programming, the attraction to ordinary people of online shopping, et cetera -- from the growth of the first Internet giants. Which is cause, and which is effect, can't possible be easily disentangled.
So what happens without Bezos? Does our Internet-heavy society come to existence, only a few years delayed? Maybe, maybe not. It isn't a historical inevitability, any more than Protestantism, the Communist revolution in China, or the US Constitution are.
For all we know, all that talent and energy go into...something else. Maybe in the alternate world people still phone each other up, and only lonely old widows order stuff with credit cards off the Home Shopping Network -- but there have been Moon colonies since 1980 and a small settlement on Mars since 1990. Or maybe all the energy and money went into genetic engineering, and while people still write letters to each other on paper the average lifespan is now 150 and cancer is unheard of.
An additional minor point is that almost all of Bezos's wealth resulted from the increase in the value of his Amazon stock. But you have overlooked the fact that a crapton of *other* people also got rich. Amazon's total capitalization is $1.3 trillion, and Bezos's personal wealth is about $150 billion. That is, of the wealth "collected" by Amazon in the form of its stock value, Bezos kept about ~11%, and the other 89% was distributed to Amazon stockholders.
 And not just in terms of consumer appeal, either, of course, given the tremendous role AWS has served in enabling other Internet services.
 Which is what *nobody at all* in the 70s and 80s thought would be where the smart people who studied programming would end up in (this quarter of) the 21st century.
 Exempli gratia, the current 4th wealthiest woman in the world, MacKenzie Scott, Bezos's ex-wife.
The key neoliberal argument isn’t that Bezos “deserves” his billions. It’s that a system that rewards risk-taking and entrepreneurship will drive innovation and progress, while a system that takes the riches away will stall and probably go backwards. Very rarely a startup will be so successful that it creates obscene wealth. This may be a flaw, but probably a flaw worth tolerating given the likely alternative outcomes. Also taxing Bezos’ paper billions would have produced billions of tax losses in the past year.
I feel curious why anyone thinks we'd have no Amazon without Bezos or no space program and no electric cars without Musk or no PCs without Gates. We did a lot better in our country when we had top marginal tax rates over 90%, financed rural electrification and our post office and our space program and more, and funded our whole public sector more generously. 'Every billionaire is a policy failure.'
In past times a fire fighting force was considering a private luxury but these days is considering a public necessity. And due to its necessary status it is more efficient to operate only a single such fire fighting organisation. Fire fighting is critical infrastructure now, but at one time some enterprising fellow had to invent it and take on the risk of operating it and earn the profits.
A single general online marketplace that can collate reputation scores, product reviews, product suggestions, and similar benefits that come from near monopoly scale is in danger of approaching the "critical infrastructure" threshold.
The answer of how to reduce Bezos's wealth is for government to sponsor a publicly owned online marketplace that will be run in a fair and transparent way and make no profits (or if it does then it just reduces citizen's tax bills).
If Amazon still thinks it can do a better job then it can keep at it; private health insurance, private security, and the like, do exist after all. But I would expect the days of Bezo's as a gazillionaire to gradually erode away.
Microsoft and the monopoly of Windows is perhaps a clearer example. There is also AT&T for a lesson from the past.
The question isn't whether anyone would invent the lightbulb if not for Edison, it's whether anyone would invent the lightbulb if not for the incentives that reward first-place innovation. Billionaires aren't a good thing, but a necessary byproduct of a good incentive scheme.
There is another part of it - various governmental organisations funded a lot of the prerequisites and infrastructure essential to Amazon's success - starting with the initial DARPA's funding of ARPAnet, public education investments that helped make it possible for Amazon to hire the right caliber of workers, etc - basically, the Government helped pay to seed the field and Amazon did a great job harvesting. Now it seems fair for the Government to claim some of those gains, and use it to try seeding more fields.
The argument about capitalists oppressing labor is not about value. If your response is some weird counterfactual about a hypothetical shittier car company, you're going to get a lot of exasperated sighs and sad shaking heads, perhaps even a facepalm or two.
I think you know this, on some level. Or at least I think you could figure this out if you thought about it for five seconds.
How much should we tax the top 1% of professional athletes? Sure they work very hard to get to the top of their field, and they provide a lot of value to the consumers, but hard work is not what separates them from the competition, which also works very hard. What we are rewarding is genetics, or pure luck. If we taxed professional athletes at very high rates, would they be less motivated to perform? The Olympics suggests otherwise.
Who's to say that the success of Bezos is a result of hard work and innovation, and not genetics and luck? Surely his competitors worked just as hard to make their businesses succeed. And surely Bezos has some genetic advantages that make him a good business man (plus his Wall Street experience). Would Bezos be less driven if he was taxed much higher? I doubt it. I think he would be just as driven. I think the incentive problem applies to the average person, but not to highly driven individuals.
Here is a different intuition pump. Let’s say I am great at making chairs. I handcraft wooden chairs in my garage and sell them for $200/piece or whatever. I can make and distribute 5 a day.
Very few people would seem to think I shouldn't get my $1000/day.
How about if I am world class at it and they sell for $2000/piece? So $10,000/day. Do I still own the fruits of my labor?
Now let’s say my very smart wife comes to me and says, hey you spend 5 hours a day making chairs and 3 hours a day fulfilling orders. You can pay a HS kid $400/day to fill the orders for 8 hours and have 8 hours to make chairs. Now you can make $16,000/day.
Am I exploiting the kid?
Many would say yes, I am getting $15,600 and he is getting $400 and there are only 2 employees.
On the other hand $50/hour to fulfill some orders is great pay, how can I be “exploiting” him.
Isn’t Shapely Attribution meant to solve this all?
How much of Bezos' billions is from his salary and bonuses as CEO, and how much from is his ownership of Amazon stock and options?
How would we abolish him? Abolish stock ownership, or huge salaries, or accumulations of huge piles of money?
If he doesn’t deserve his wealth, what says the imperial we deserves it more? If “we” get to decide all these things, don’t “we” actually own Amazon?
Amazon wasn’t an idea that just happened and was over, one that would have happened anyhow. Amazon has been changing constantly, making important decisions and changing strategy. It could easily have gone belly up at any point, especially during the dot com crisis. The stockholders of Amazon, led by Bezos, seem to think Bezos has done a good job, and have paid him for it. Or maybe they have gone along for the ride, while he made the stock worth more and more.
Perhaps you could argue that it is all random, and Amazon just got lucky. So far, “we” haven’t figured out how to get lucky without stock ownership.
"But given that Jeff Bezos has $200 billion, there must be some world in which $200 billion more could have gone to consumers through lower prices."
This doesn't follow at all.
The important thing to remember here is that Bezos does not actually have $200 billion in actual existing USD. Bezos owns 15% or whatever of AMZN, which is a newly created asset that did not exist before Bezos created it. Currently the market prices are such that his stake in AMZN is nominally "worth" $200B. But he still owned 15% of AMZN back in 2010, and at that point it was only "worth" $20B or whatever. Nothing necessarily changed about Bezos' actual holdings since then. The change was all in the stock market.
Thus, Bezos didn't ever receive $200B in actual USD that could hypothetically have gone to someone else. The value of Bezos' stake in AMZN was effectively conjured out of nowhere. (And it can disappear into nowhere just as easily -- if AMZN crashes, then Bezos' net worth will drop a lot, even though his actual holdings won't change.) In particular, Bezos never received dividends from company profit, that could in theory have gone back to customers as lower prices instead.
"(as an intuition pump, if Google and Bob’s Tools produce the same amount of value per employee in 2000, and the janitors at both get paid the same, and then in 2020 Google produces 1,000x more value per employee, should a janitor at Google get paid 1,000x the amount?)"
While I don't think the janitor at Google should be paid 1000x the amount, I think there is a case to be made that they should be paid more than the janitor at Bob's tools. The expected utility to society due to good janitorial work at Google is very possibly higher than that at Bob's tools.
Consider for instance the impact of a negligent janitor who leaves floors wet without putting out a sign, causing an employee to slip, become disabled, and have to resign. If this happens at Bob's tools, the worst case is that the owner is the one who slips, and the store goes out of business. Within a year, Bob's tools is largely forgotten without incident. At Google, there is a chance that some high-level executive who is crucial to efforts to broaden Google usage in, say, Africa slips and has to resign. This could delay internet adoption in much of Africa and lead to several years' worth of lost human potential.
It thus makes sense to ask for a higher quality of janitorial service at Google and pay Google janitors an increased amount commensurate with those expectations. And this is just due to completely self-interested behavior on the part of Google-- no altruism needed!
I feel everything is impossible until its done by someone.
So it feels to me that Elon Musk isn't replaceable but Jeff Bezos is , doesn't really sound right. On what basis if I may ask, that you come to this conclusion that it looks plausible for Elon Musk not being replaceable?
Why can't you continue the same train of thought to say that someone down the line would have eventually replaced Elon if he wouldn't have been born ?
Another point to consider is, that if future losses due to a drained populace. Entrepreneurship costs, at least time, often moves (also for people with little paid time off 🕒 = €€€). If the system (as it does) distribute more to the capitalist, it reduces the incidence of entrepreneurs and innovation over time. In systems language, this is a feedback loop that needs a balancing counterpart to offset the effect. Now the question of which political vehicle best addresses the issue of enabling and sharing wealth isn't an easy one,but luckily we're not debating that.
Relative wealth matters. The argument against letting wealth accumulating too much is that gives more power for the wealthy to rent seek. Rent seeking comes from relative wealth rather than absolute wealth. If one person has more money than everyone else he can declare himself Emperor (which is an oversimplified explanation of how the Caesars gained power with the private acquisition of Egypt).
Second more equalitarian societies allow more seeds to germinate. To start a business you need resources, and if you are resource scarce you will never get to that point.
Hang on, aren't we all operating on the assumption that executives are actually delivering an amount of value equivalent to how well their company is doing? There were a lot of people involved in Amazon that made it the company it is today and saying Bezos delivered hundreds of billions just because he's the only guy whose name we know seems shortsighted. Plus, it's known that executive pay only loosely correlates with performance, and in some cases is inversely correlated:
What if there's a 3rd option where Bezos founded Amazon in 1994, but just earned a few orders of magnitude less money and the company achieved dominance in exactly the same way. In this case, is the value coming from Bezos or the employees? I think an argument can be made that management makes the most money not because they are delivering the most value but because they are the ones who decide how much to pay people.
This argument works with Jeff Bezos, because, yes, it would have been obvious at some point to build an Amazon-like business.
But history abounds with missed opportunities : sometimes the conditions are here but nobody seizes the opportunity. The opportunity seems obvious only in retrospect (and sometimes never).
Let's take Elon Musk as an example : he showed us that the conditions were right to create a sustainable reusable rocket that is effectively reducing dramatically the costs of access to space.
His take was against the prevalent wisdom that most of the professionals were expressing less than 10 years ago.
Without Elon Musk, how long would it have taken to discover that the conditions for a sustainable reusable rocket were right ? Certainly not 10 years, and even less 2. Probably at least a few *decades*, decades that could mean, if things go sideways, humanity surviving, or not, or at least billions and billions of additional humans living on Mars and the solar system (see https://nickbostrom.com/astronomical/waste for context).
These additional decades not wasted are worth a lot of money.
Same for Artemis vs Spaceship.
Here is why I think Bezos gets to earn and keep all this money: The capitalist system is very good at motivating people to perform. For it to work best, it needs the chance for everyone not just to make a living, but to get filthy rich. If you have a business idea, it comes with risk and requires a lot of effort to implement. If you know that your best case is to make a living off it or get somewhat rich, you might not do it. Some people might only be motivated by the idea that maybe they can make it to filthy rich. This can drive people for different reasons: Someone might do this to buy a yacht, some might do this with the idea that they are going to donate most of their money to charity after they die, some might do it to allow their grand-grand children to live off of it, thus being remembered for longer.
Net Worth doesn't matter, consumption does. Bezos doesn't personally consume 200 billion worth of resources, but only a tiny fraction of it. Now, most of his wealth serves as a capital to be invested. If you would tax it, or distribute it among workers, you would destroy the capital and replace it by consumption. I believe this would make us all worse off.
Let's say you agree that capital is good. But why should Bezos command it? Well, who else? He won the race, so probably he has talents needed, so why not him?
Lastly, be aware that "net worth" numbers are largely virtual numbers. He can not just suddenly sell all of his AMZN stock without impacting AMZN price.
Commenting before reading all the comments:
It seems to me that the idea that's it's unfair for billionaires to have so much money is unfair usually carries with it the idea that it would be more fair for the government to get the money through taxes.
Governments are wealthy compared to individuals (with rare exceptions), and not very accountable. Sometimes it's possible to make a government to bend, but it's very hard.
Paypal can just take your money, though it's limited to what's in your account. The US government can just take anything you've got--civil forfeiture.
It seems to me that people who believe governments can increase fairness through taxation assume that the money which gets takes will reliably be used for projects that the person advocating the high taxation prefers.
It looks like you never used the word "efficiency" in your analysis.
But I think that efficiency, for example as measured by the degree to which the desires of society members are satisfied given available resources, is the only legitimate guide as to which policies are morally permissible.
If you tried to rerun the analysis purely with efficiency in mind, the results would be somewhat alien to human political instincts but nonetheless morally compelling on a level well-above the usual left- and right-wing prescriptions.
I think by the end you got to the actual reasonable argument against billionaires, which is that in a properly functioning market with sufficient competition, labor protection, etc, billionaires wouldn't exist.
It's not true of course, there are fabulously wealthy people who started businesses in crowded markets and still made money hand over fist. The Aldi family comes to mind: Groceries are a low-margin, cutthroat business with plenty of competition in the "discounter" category and Germany is not exactly a neoliberal paradise but they still managed to build a massive empire while treating their employees fairly and creating an enormous amount of value for their customers.
I've often thought about the importance of various people to world history in general in tends of replaceability: if this person had not been born, how much would the history change?
I'd guess the most irreplaceable would be religious leaders with specific, world-changing doctrines (or doctrinal changes), and certain political leaders, usually ones with very idiosyncratic, extremist views. For instance, taking out Lenin would lead to huge changes in history, as studying the Russian Revolution leads to the conclusion that the rest of the Bolsheviks often didn't know their own ass from their elbow, and probably couldn't have come to power without him prodding them to make the correct choices; some other socialist regime might well have come to power in Russia, but even there the Bolsheviks really stood apart from the rest in many matters. Likewise, taking out Hitler would probably lead to some other nationalist regime eventually coming to power in Germany, but again, Hitler was in many ways an expectional individual in history, standing both above and beyond the other leading Nazis in political acumen and charisma and from other leading nationalists in the willingness to not sign on to the various sacred cows of German nationalism (monarchism, actually-felt religiousness, African colonies etc.)
But of course, Jeff Bezos doesn’t have $200 billion in cash in a Scrooge McDuckian vault - he just owns a very large portion of Amazon, the company he founded from scratch.
Whether Amazon is founded by entrepreneur 1 or entrepreneur 2, 51% of “the inevitable giant online retailer” is going to be worth a couple hundred billion.
Now, if Bezos had instead founded “Honest Jeff’s AC Repair” and built it into a $5 million business, nobody outside of the hardest-communists would be arguing that he shouldn’t be allowed to continue to own at least half of it.
So the real question is when do we flip the switch that says you’re no longer allowed to own a controlling share of the business you founded?
"if there’s no competition, the company will be able to take the whole surplus"
This is only true if the company can engage in perfect price discrimination, selling to each individual for the maximum price the individual is willing to pay. This is pretty much impossible in practice, so even monopolists have to leave a big chunk of surplus in the hands of consumers. How much depends on the shape of the demand curve and how effectively the monopolist is able to price discriminate.
If nobody gets to keep the treasure on the beach, why would everyone rush to dig it up? Given the compounding effects in play here, the devil's advocate says Jeff Bezos being 2 years early has so many knock-on effects in the future that his part of the direct surplus Amazon creates is unfairly low compensation for him.
> The problem with the neoliberal argument is that it gives the first person to fill a niche credit for the niche’s entire existence
This is not a problem. The fallacy here is that businesses are not like inventions. Inventions don't automatically make someone rich, you have to patent it, which gives you at most 20 years of profits. If you invented something only a year earlier than the next person would have, then the patent system gives you a nice 19x increase on this difference. But if the invention wasn't going to be invented for another 40 years, tough luck, you only get the first 20 years of revenue.
In contrast, if Amazon stops doing a good job at their service, there's plenty of other companies that could easily take over. Recall how Barnes & Noble was the favored player in the online book sales market, until they weren't; then Walmart was the favored player in the online marketplace space, until they weren't.
> he gets to collect rent on all transactions forever
Networth is not income.
Jeff Bezos does not make any money on Amazon transactions whatsoever. Virtually all of his wealth is either in Amazon stock that has grown in value as the company owns more and more capital; or funds that he raised by selling this stock to someone else who had cash to purchase it.
Also, no billionaire is really self-made. Their entire existence, education, ability to transact business and discover new value, etc. depends on a complex society that lots of people are working to sustain. Some of those people are working in jobs where the value they create is rewarded straightforwardly (business, etc). Others are working in jobs providing critical support functions whose value is more difficult to price and has to simply be worked out politically (teachers, nurses, firefighters, stay-at-home mothers, politicians, FEC regulators, etc.).
The thought experiment I would suggest is this: suppose you are a member of a tribal village. The tribe has trouble finding water and has to collect rainwater painstakingly through a system of barrels and distillation. A drought is hitting the area, though, and there's a possibility some people will die of thirst.
One day, a particularly rambunctious member of the tribe decides to set out looking for water. He is more intelligent than the others - understands more about geography, etc. He also commits extra time and work to the project on top of his normal labor providing for the group. His searching pays off when he discovers a spring and constructs a device to siphon clean water from it. The village is elated. Suddenly water is no longer scarce and there is no threat of thirst.
What's the proper system for rewarding this? Our system is essentially: he discovered the way to get the endless supply of water, so he gets to decide what to do with it. He can trade the water for anything and pretty soon, he wields immense power over the other villagers and can take whatever he wants since he has the only supply of freshwater.
My guess is that this is an unsustainable system of questionable morality. He did use an exceptional amount of motivation and intelligence to solve a key problem for the community. It seems reasonable that the community needs to give him an exceptional reward and that he ought to have the highest status in the village. If the village failed to reward him sufficiently, it would probably deter other industrious members from doing the same in the future.
But the community also worked to get him to the point where he was capable of doing this. As you argued, someone probably would have figured the water out eventually - there is a significant element of chance involved in his discovery. A hundred other equally industrious and intelligent villager might try just as hard to solve a problem and fail completely. Or there could simply not be as big a problem available. After all, Amazon isn't nuclear science: how much of Jeff Bezos' wealth is attributable to the fact that he was just in the right place at the right time?
And even more importantly, at some point the incredible wealth amassed by the water discoverer begins to hurt the community. The finite act of discovering the water begins to turn into permanent control of the village along with all of its assets. One day far in the future, when we've forgotten how the discovery happened originally, the villagers might arm themselves with pitchforks, overthrow their totalitarian king, and be celebrated by modern libertarians.
Personally, I think an entrepreneur who discovers or creates something of great value to society should receive a significant reward and a big status increase, but not an infinite or indefinite reward. It's mostly chance that one entrepreneur's contribution creates $10 billion of value to society while another's only creates $10 million. We should reward the $10 billion over the $10 million, but not at a rate of 1000X. And neither should be rewarded at a rate 1000X the teachers and caretakers and farmers who labor day in and day out to sustain a society where that kind of discovery is possible.
Which leads me to basically a left-leaning typical European neoliberal position where the market is free, but income and inheritance taxes step up gradually until the wealthiest people in society have to give most of it back.
I can't really fault Scott's arguments about fairness but I don't understand why he would think fairness is so important. We should be structuring society to maximise for human happiness, fulfillment and achievment. Fairness is just one part of that. You could make a decent argument that the USSR in the 1920s and China in the 1950s maximised for fairness in appropriating and collectivising property.
When thinking about a billionaire's wealth it is important to distinguish between wealth that is being used for investment and wealth that is being used for consumption. While Bezos consumes a lot compared to most people, overwhelmingly (99%?) his wealth is being used for investment. He has Amazon shares that give him a lot of power to decide how Amazon will invest. If you take that away from him will that be good for society?
Firstly, who do you give it to? There are a number of possibilities: the employees of Amazon (but are they really more deserving than the employees of Barnes and Noble?); the 2nd best entrepreneur etc; consumers; the government. Who do you want to have that power to decide about how Amazon is run? Would the government have run it better than Bezos? Probably the best answer is that you effectively give it to all Americans by taxing Bezos, forcing him to sell his shares and reducing taxes for everyone else.
Then who is running Amazon? Whoever the shareholders decide on. Perhaps John Sculley. In that world maybe Amazon just becomes a very successful bookstore and AWS doesn't happen (or happens years later created by someone else at a different company). I would prefer a world where Bezos keeps his wealth, which is his influence over Amazon, and more exciting things happen.
Sure, when he consumes tax the hell out of him (Matt Yglesias had a good post about a better tax system recently https://www.slowboring.com/p/a-totally-off-the-news-post-about?r=1azjrd&s=r&utm_campaign=post&utm_medium=web). But to the extent that his wealth means he gets to decide on how a large pool of resources are used in production leave it with him - that's good for all of us.
(And when he dies impose a very steep estate tax).
Everyone knows that Hank Rearden was the person who generated all that value. The scientists and laborers and lawyers and marketers, all just parasites.
I think you're dismissing exploitation as a part of this equation a lot more than you should. On the lower income end, people don't get to chose whether or not they have to eat or have a home, so they'll work below their actual value at great personal cost. Towards the middle, they might be salaried, so if they're incidentally the linchpin in a multi-billion dollar innovation, their share of that value doesn't go to them. I know plenty of engineers who are the sole innovators of systems that regularly earn their company millions in pure profit, and then only make like a hundred thousand in return. They don't think twice about it, don't ask for anything more than a modest raise, and quit the company to move on to tougher problems elsewhere without even a thought about leveraging their relative skill to extract more from their employer. In fact, when they move on to the next job, they'll ADVERTISE how they built a system worth millions to entice employers without even realizing that this is an indication they should be paid more. The fruits of that productivity have to go *somewhere*, and I think billionaire compensation is one of the most obvious candidates.
(I literally cannot overstate how common this is, this describes like 90% of the software engineers I meet. The ones who don't just play video games at their desk to mix sawdust into their productivity.)
Like, you can call them stupid for not wealthmaxxing or whatever, but I think this is a pretty logical consequence of a system which is incentivized to lowball workers as much as humanly possible, and people in general being predisposed to charity. Taking advantage of your employees kindness and generosity by underpaying them on the order of millions is still exploitation, even if at the end of the day that employee is perfectly comfortable with the arrangement.
There is also a political argument for redistributing the surplus of billionaires. Roughly speaking: capital is convertible into political influence; as capital gets concentrated in fewer hands, political power gets redistributed from the general public to the wealthy (political power being a zero sum game); this weakens democracy and allows the wealthy to rewrite the rules of the game to their favor. Not sure if Benzos is the best example (not sure if he invests much in political power); the Koch brothers are of course the canonical example, but there are many others.
The difficult task comes in deciding how much impact any one man can have.
Because in truth, had there been no Gutenberg, the printing press would have been discovered in (or imported to) Europe - eventually. Would it have been five years later? 10 years later? 100 years later? Impossible to know. But, we should think, eventually, it would have been.
Yet there are interesting cases from history. We know of five different modes of human stone tool-making that pre-date the Neolithic (the New Stone Age). They are:
The Oldowan Industry. Simple core form rocks, used for things like chopping. Oldowan tools emerged 2.6 million years ago, devised by either Homo habilis or Homo erectus in Northern Africa.
The Acheulean Industry. Biface rock tools, with more complex design than Oldowan tools. The axe is the most notable example of this type of tool. Acheulean tools first date to 1.76 million years ago, devised by Homo erectus in Western and Southern Africa.
The Mousterian Industry. Fine-pointed rock tools that may have relied on greater grip strength to create. Mousterian tools date to 315,000 years ago, devised by Neanderthal man in Europe.
The Aurignacian Industry. Fine bladed stone tools, along with worked bone and antler points, struck from prepared cores rather than crude flakes. Aurignacian tools have been found throughout Europe and the Levant, and are believed to have emerged in the Levant around 43,000 years ago.
The Microlithic Industry. Microliths were small stones used in composite tools, fastened to a haft. They were devised in Europe and the Levant about 35,000 years ago.
Now here's something to think about.
We know how invention works. It is rarely (or never) collaborative across an entire society; an entire society does not invent something. Instead, one man comes up with an idea, and either builds it himself, or sets off a chain of competitors who race to be the first to build the thing (in which case you have the collaboration of the guy who proposes the idea, a few guys who try to build it, and one or more who actually succeeds).
Essentially though, you can boil the invention down to a handful of people. The guy who thinks it up, and maybe a few other guys who devise it and refine it (if the original idea guy doesn't do all that himself - and he may).
So, now. At some point, 2.6 million years ago, some human started to make simple rock tools. He taught it to his tribemates, and perhaps some of them helped to refine his designs.
No one came up with a new design for nearly one million years.
Or, if anyone did, he didn't share his design with others, or it never caught on. Because the tool industry did not change for 840 milenia
Finally, 1.76 million years ago, some other human figured out how to make biface rock tools. And he taught it to his tribemates, and maybe they refined how these were made a bit too.
Acheulean tools. Might look simple, but it took our ancestors 840,000 years to come up with these.
This time, no one came up with another new design for 1.3 million years!
So here's a question. If you took a time machine back and found that one guy who figured out how to make bifaced tools 1.76 million years ago, and you assassinated that guy before he came up with those tools... what happens?
When is the next guy born who figures this out?
100,000 years later? 200,000 years later?
It took 840,000 years for this guy to be born after the invention of the Oldowan Industry. And another inventor like him did not show up for another 1.3 million years, when the Mousterian Industry was set up. That's one great inventor every one million years or so. Go back in time and take one of those men out, and how long do you have to wait for society to produce another inventor?
We have one example of the time lag between invention: the Neolithic Tool Industry.
The Japanese figured out how to make ground stone tools (key tools of the Neolithic) 40,000 years ago; the Chinese had Neolithic pottery 20,000 years ago. It took the people of the West (in this case, the Fertile Crescent) a further 28,000 years after Japan to figure this out - they did not go Neolithic until 12,000 years ago. Europeans, North Africans, and South Asians entered the Neolithic around 9,000 years ago. The Native Americans, the Inuit, sub-Saharan Africans, and Australian Aborigines never went Neolithic, and instead leap frogged to later technology after trading and European colonization.
Japan had Neolithic tools 40,000 years ago. The next closest (China) took a further 20,000 years to get there (and may well have received it from Japanese immigration or a Chinese expedition to Japan). Everyone else took even longer (and again, the technology may simple have spread West from Japan - that is one possible explanation why Native Americans, Australian Aborigines, and sub-Saharan Africans never went Neolithic - the technology never crossed the oceans or the desert).
That's the quantifiable impact of one man: 20,000 or more years.
If that Japanese guy - name lost to history - who put the key parts of the Japanese Neolithic tool industry in place died in infancy, Japan may have had to wait until 20,000 years later (or more) before it discovered these tools. Perhaps.
Maybe there were conditions in place that made it more likely someone would discover Neolithic tools 20,000 years earlier than anyone else in Japan. Perhaps that particular inventor's tribe had some sort of way of living that made it easier to discover, or made it more necessary to discover, tools like these.
But just as likely is that this was just some lone, crazy guy - like many inventors are - who went off in a cave somewhere with some nutty idea that most people told him was insane, and came back with the next evolutionary step in tool construction... 20,000 years sooner than anybody else.
The great man theory is set up against 'history from below', the other theory we discussed, where great men are mere vehicles for the impulses of their societies.
Yet, as William James points out, there is no reason, need, or sense to be an absolutist about these. Great men are shaped by their societies, and shape their societies in turn.
A great man is the product of his society. Yet, he alters the destiny of his society too.
All men play their individual roles in nudging their society this way or that way. Men who accumulate more power, or act in outsize ways, are able to give their societies (and others they come into contact with) bigger nudges.
What direction do men nudge their societies in? This is impacted by all sorts of things, including the man's inherited personality characteristics, his learned/developed personality characteristics, personal (and especially childhood) experiences, the role models he's taken to, and the skills he has developed over time, as well as the opportunities presented or not presented to him. And of course it is impacted in a big way by what stage of the civilizational lifestyle the society he is born into is in, and what the overall environment of that society might be.
It is silly to suggest great men operate in isolation upon the levers of history - just as it is to suggest great men do not matter and history charts the path it would chart whether any individual man lived or not.
You distinguish two categories: "getting there first" and "having an original idea," and you want to distinguish two categories of property rights on the basis of this distinction. But this assumes that this distinction is actually (a) clear-cut and (b) distinguishable in real life. But what is the basis for this distinction. How do you actually know, in fact, that some particular feature (perhaps some detail that never seemed very remarkable to him or others) of Bezos's strategy or execution wasn't in fact an "original idea" in your sense, that couldn't in fact have been duplicated a couple of years later? If you're claiming that omniscience, how is your claimed omniscience different from that of the socialist planners who claimed to know everyone's preferences and the best technologies for catering to those preferences under the old socialist planning scenarios?
This is not a defense of Bezos. The same monopoly rules should apply to Amazon as to any other monopoly. But the superior knowledge that claims that Bezos falls into one category while some brilliant innovator's idea falls into another has no basis in any concrete, empirical criterion that can be applied to real cases in real life.
In terms of figuring out the "social value" of Amazon, I'd point out that each big, popular, reputable company on the internet made the next one more viable by being there.
So it isn't just "Amazon would exist 2 years sooner", it's "no Amazon means fewer people shopping online go to Ebay to check for used means maybe Paypal is delayed means every smaller online retailer feels like a bigger risk for longer". The network effects of a company on Amazon's scale are huge, and most of them don't accrue to Amazon.
There's also the argument of marginal value. One is that the marginal value of wealth is less to people with more money (example: going from $10,000 to $110,000 of wealth makes a much bigger difference in life quality than going from $1,000,000 to $1,100,000). And although people at the top would have less to invest, people near the bottom would have more money to invest or buy stuff from businesses so most of the money would go back to investment.
Also, there are clearly some advantages that come from already having wealth, that help people beyond their proportional value creation. Obviously inequality shouldn't be removed completely but there is still value in reducing it
This fails to acknowledge he political power afforded to capital (or resource hoarders generally). You can try to mitigate it, but money talks.
With that factored in, I don’t think Jeff Bezos’ hypothetical two year jump warrants billions of dollars in political power. In addition, taxing billionaires a lot creates demand for your currency which allows you to print money with mitigated inflation. These people have some significant fraction of all the wealth. Them needing to sell shit to pay the tax man is a good thing.
This is natural monopoly analysis. Very few businesses are natural monopolies to any great degree, especially Amazon. The second, third, etc Amazons actually exist and compete with Amazon. Their capitalists take all of the surplus of their sales even though they were only marginally better than Amazon in a given case. Jeff misses his share of their bounty, they miss their share of Jeff's. I'm not sure if there's a proof that this works out as you'd want it to, but it gets a long way there.
Interestingly most of Amazon's market cap is attributed to AWS, which was a less obvious invention. Anyway it's hard to say what an obvious invention is and what isn't. I'd argue that if Amazon's retail product was so obvious it would have been copied several times over. But in fact it's hard to copy (see Walmart's struggles with online retail). If someone can copy it then it becomes competitive and the surplus goes to the consumer.
The whole question seems framed wrong: Why look back and question, if this distribution is fair? Let's look ahead and figure out, if it's useful. And there may be a case that Elon Musk wouldn't have started Tesla, SpaceX or some of his other ventures (or Amazon started AWS) without the first big payout, be it paypal or the Amazon-is-more-than-a-bookstore-money.
Even accepting, that Tesla, or AWS or whatever secondary innovation may only be preponed by their inventors instead, there seems value in this aggregation of wealth and power in the hands of a few. As long as these few are capable and judged fairly in their future endeavors. - And this is where the image crumbles: Billionaires are not judged by the same standards - and their wealth might stay in the hand of the capable few for years or decades until whatever factor reallocate that wealth and power in new hands: Those of a megalomaniac lunatic, or their heirs who have not done more, than won the lineage-lottery.
So a simple solution might be: Let them have their gains, but give the next generation a fair chance and blank slate.
The fundamental issue that I have with this concept is that we did not *give* Bezos 250 billion dollars. That money is not like, the retained earnings of Amazon paid to Bezos as a dividend. His wealth is the appreciation of his share of the enterprise value of Amazon. We don't begrudge the small business owner for owning 25% of the pizza shop that he created, why do we begrudge Bezos for owning 25% of the online retailer that he created? The only difference is the value that market participants have applied to the share value of Amazon, which fundamentally is the present value of it's future cash flows.
Instead of asking whether Bezos should be worth 250 billion dollars, the question should instead be, should we allow companies to grow to be as big and powerful and profitable as Amazon is, or at some point in absolute size, does the state step in?
I think the answer is a mix of strong anti-trust enforcement to ensure that monopoly rents are not being collected and to preserve the overalth of the marketplace, but also very high inheritance taxes. The second is important so that we don't create a class of econonmic nobility that dominates through generations.
Of course, this all becomes moot when the singularity happens and processing power becomes the new store of value / influence / status / medium of exchange.
>wait a couple minutes
>wow that's an incredibly long scrollbar, must be huge article
>95% is comments
I have no idea how original these ideas are - maybe credit is better due to someone else who filled this "idea niche" first, and now they get to collect intellectual rent forever - but the intuition pump examples were particularly helpful. It genuinely is difficult to arbitrate the "fair share" of surplus value...like everything else in economics, tradeoffs abound. Capital needs labour to operate it, but who's going to build that capital in the first place, and why?
I remember arguing with a socialist friend regarding US medical spending spurring innovation (a clear case where advancing even inevitable discoveries is very valuable, the opportunity cost is literally lives lost)...I was all like "look how fast Operation Warpspeed got us a good covid vaccine!" and he was like "that was a German company, lol, QED". But that wasn't actually a good counterargument, because...like so many other medical advances, the allure of Giant Pots of American Gold is super tempting. In a counterfactual where covid magically never enters the US (and only the US), I bet vaccine development woulda gone significantly slower...surplus value