I don't see why anyone should need to put forth a "defense" of billionaires. It's like asking if you are "pro-Israel" or "pro-Palestine", labels that are akin to waving little flags but have little to no semantic content.
We didn't appear on this earth with all property equally divided among individuals and peace and love in our hearts. Many billionaires' wealth is rooted in war and conquest, legal oppression of genders, ethnicities, or other arbitrary classifications of humans, and other forms of non-consensual or fraudulent transactions.
On one side of this, we say "Oops! Clean slate! From NOW onward, we will use a non-collectivist libertarian ideology. But everyone can keep all the shit they stole beforehand." This is notably unpopular among those who were stolen from.
On the other side, we can say "Alright, we're coming in with Tanks to take all private property. The People's Dictatorship will equally divide everything among all people." This is notably unpopular among those who did the stealing (or who merely bought or inherited stolen property), and also, there's never been a successful People's Dictatorship that actually followed through instead of being just a normal Dictatorship.
"Tax rich people and give money to people or to fund social services" is the middle way through.
All wealth is derived through illegitimate means. From whom and to whom do we redistribute wealth stolen during the religious warfare of medieval Europe? From whom and to whom do we redistribute wealth stolen during European colonization? From whom and to whom do we redistribute wealth stolen during the Second World War?
The whole of history is a wash of blood and theft, on the grandest to the smallest scales. To require proof that wealth was built on theft is simply to advantage those who stole so comprehensively or long enough ago that their crimes are invisible or their victims’ blood diluted across nations.
You don’t have to accept tanks, or even taxes, but do so with the following fact clear in your mind, noticing the trade off you’re making and accepting it as worth it, instead of pretending it doesn’t exist: a libertarian fantasy is a jubilee for the war crimes of the inheritees of the wealthy.
If someone stole all of my money, and spent it on a luxurious life, and finally died penniless having spent all of it, I would not be satisfied with a system that said “well, all the money is in the hands of people who didn’t steal from you, they were just making voluntary transactions, you’ve done nothing wrong but we have no mechanism to give you anything.”
I don’t think that the chefs who cooked the thief’s food are morally blameworthy. I don’t think the landlords of the mansions where the thief lived are morally blameworthy. I don’t think the driver of the limousine the thief rode in is morally blameworthy. But it was my goddamn money, and I want it back.
I have a feeling that if we took the route of "Let's come in with tanks to take all private property, redistribute it equally among the people, but THEN it's a clean slate and we have free-market capitalism" would result in a very similar wealth distribution to the one we have now within a few years, and a lot of people would be just as unhappy with it as they are the current system. Their problem is not with the starting conditions, it's with the rules of the game themselves (i.e. economic freedom).
I don’t dispute that, but I attribute it more to the fact that wealth and poverty compound in a way that I find distasteful. A rich person will *always* be better equipped to hide from the consequences of crimes, and therefore crimes which produce increased wealth compound on themselves, resulting in a endless flow of money to those who would unethically use that money to maintain their wealth, which is why a one-time redistribution would only work to solve this problem if people really could be Lawful Good Libertarians.
The other reason I believe in constant redistribution via taxes is not an argument I included in the above post, because I don’t think it’s as compelling to a libertarian audience, is that—well, I feel bad about condemning people to suffer for the rest of their life for bad decisions early on in it. If someone orphaned at the age of 18 puts their entire inheritance in the lottery and loses, I would consider it a failure of society to let them die of a curable disease at the age of 30 because of a bad choice made 12 years past, even if it was fully consensual and non-fraudulent. And as someone who is part of the 1%, I’m happy to sacrifice some of my wealth to systems that would protect people in those situations.
There's no way to even have a meaningful discussion *unless* the option to take someone's property by force is on the table. So a sine qua non of the discussion is a belief that that property (or some big part of it) is in fact by some clever philosophical judo actually the property of the collective, i.e. you must accept major tenets of a collectivist worldview.
How you get there --- well, there are a million ways, history is stuffed full of erudite rationalizations of this point of view.
*Why* you get there, well, I nominate the familiar green-eyed monster of envy and jealousy. As old as cavemen, I expect. 50,000 years ago I've no doubt if one Cro-Magnon by luck or cleverness acquired 50 sweet melons while the rest of the tribe had one apiece, then many (perhaps most) of the tribe rationalized why Mr. Fifty was actually, when you think about it correctly, only entitled to an equal share of the melons that were actually, when you think about it correctly, the property of the whole tribe.
Technology changes, people don't. We can construct much more elaborate rationalizations for our base urges, but the base urges haven't changed a particle. So it goes.
You could say the same thing about any human right.
"Bodily autonomy is some clever philosophical Judo. Bodily autonomy rights only exist because the government enforces them - there's no fundamental right not to be raped."
Uh, yes? Even if you’re a moral realist, it’s not like there’s a pile of human rights in my backyard and I can go and pick up the ones labeled “property” and “bodily autonomy”.
You have to actually argue for how and why they exist! Otherwise I can just win any argument by saying “X is a human right”.
Yes, of course, human rights are not physical objects.
"You have to actually argue for how and why they exist! Otherwise I can just win any argument by saying 'X is a human right'."
Right, and what Carl Pham pointed out is that a question like "How should 'We' distribute the stuff?" presupposes something to the effect of "We, The Collective, have an inherent right to all the stuff, so it is up to The Collective to determine how we want to distribute that stuff and to what degree we want to let individuals keep 'their own' stuff."
Instead of trying to bake an assumption of collectivism or property rights into the framing of the discussion, we should leave both options on the table and debate their merits.
Weird. I think I see where our miscommunication stems from:
I don’t understand why “How should ‘We’ distribute the stuff” sneaks in a connotation of collectivism but “ ‘We’ should leave both options [for distributing the stuff] on the table and debate their merits” doesn’t.
I don't think so. First of all, there *are* quite a lot of atoms that are clearly owned by me, because they are literally what constitutes me, and this is where our idea of owning our own bodies comes from. It's an intellectual step we take at approximately age 2, when our brain learns to segment ourselves from everything else, and starts to become resentful at impositions on our ability to control our body for ourselves.
Property -- in terms of things in our actual grasp at the time -- follows soon after. There does not live a 4-year-old who does not resent his lolly being taken by force.
To be sure, there are elaborate extension of these core natural concepts -- we have to invent the idea of being able to "own" something when it is not in your immediate control, and we need a whole appartus of deeds and ownership certificates and what not. We need a cadre of philosophers to rationalize these base drives post-facto, and another larger cadre of lawyers to hammer out agreements that function in all the weird edge cases.
But this is all just superstructure, as fundamentally inessential as the rules of marriage in a species wired to be sexually jealous. The core of these ideas, of bodily autonomy and property, are apparently baked into our DNA and arise in us naturally at an exceedingly young age. It's probably why attempts to undo them -- to impose some kind of alternate formulation of social living -- have been uniform and often spectacular failures.
If you mean to say that some other species, on some other planet, could have different DNA and come up with different basic working concepts of community life, then sure. If you're asserting that *human beings* could live differently by mere conscious choice -- no way. We are who we are, and these ideas are inextricably part of who we are. That's as close to "natural law" as one can imagine.
Wrong. AWS was mostly Bezos. Even the engineers/PMs who pitched it to him pitched it as an internal product. He was the one who pushed it to become its own entity and public facing. There are numerous documented accounts of this. He also had a lot of internal hurdles to overcome and had to create a culture change at his own company that took a lot of effort to make it happen. The Steve Yegge Google platforms rant references this (https://gist.github.com/chitchcock/1281611).
I think you're missing something here. Sure, if every worker refused to work for Amazon, Amazon would go out of business. And if every entrepreneur went on strike, we'd all be vastly poorer.
None of that is relevant here. The question is, what is irreplaceable? What is unique? Workers are replaceable. Is Bezos? Would Amazon have been started two days later if he hadn't? If so, the value he contributed was very little. Would it have been started two years later? Then he contributed significant value. Would it never have existed in the form we know it, meaning many goods would now be more expensive? Would AWS not yet have existed except as an internal product? Then he has earned every penny of his wealth.
If every power plant decided to stop producing electricity tomorrow, a lot of businesses would be in trouble. I don't think that we should conclude from this that power plants create most of the value in society.
> If every Amazon worker on Earth agreed to walk out tomorrow and never work for Amazon again, the shares would plummet and his wealth would disintegrate overnight. This suggests to me that a good share of his wealth is not dividends on the idea of Amazon but directly tied to the ongoing labor of his workers
But you've based that on a silly hypothetical; the whole world isn't going to refuse to work at Amazon, and any employee who leaves can be more-or-less fungibly replaced by another one.
Labour is just one of many, many raw products that Amazon buys. What about screws? Let's suppose that all the world's screw manufacturers got together and agreed that they would never sell another screw to Amazon. Amazon couldn't screw servers into racks, they couldn't hold their warehouse robots together, they couldn't fix their delivery vehicles, and sure enough they'd be forced to go out of business for want of screws.
Does it follow from this that the world's screw manufacturers ought to get a greater share of Amazon's worth? I think it doesn't. Screw manufacturers get paid whatever the market price for screws is, and they should be happy with that.
Imagine you have a chain holding up a heavy object. Every link in the chain is necessary to hold up the object, and if you removed any link in the chain, the object would fall. But it does not follow that every link in the chain is equally valuable. Some of those chain links may be be stronger than others, or harder to build, or more expensive, etc.
The fallacy is essentially the idea that "the value of X = how bad it would be if X did not exist", i.e. "the value of X is the demand for X". The problem with this is that it clearly ignores half of the equation for value - supply. The value of something is a result of both the supply and demand for something.
It's trivially true that if an entire profession or class of people stopped doing their job, things would get bad, since jobs are done because people have some need for them. If we removed receptionists at hospitals, that would mean doctors wouldn't know who to prioritize or know the medical history of their patients, and a lot more people could die. But does it then follow that the receptionist is just as important as the doctor? Taken to an extreme, let's say there's someone operating a dead man's switch - a job where all you do is press a button once every 10 minutes to prevent nukes from firing off and ending the world - and if you stop pressing the button, the nukes will automatically fire. If this person went on strike, the world would literally end - but does it follow that that person is particularly skilled, or non-fungible, or deserving of $400 trillion because without them all the wealth in the world would be destroyed? No, it's a very easy job that requires almost no skill, and there is a huge supply of people who could be button-pressers, so button-pressers as a class of people are not "just as important" as brain surgeons even if the world would end without them.
I'd say, "some combination of both". There are several built-in assumptions in your statement, and I disagree with all of them:
1). "Most relevant business/innovation ideas are so obvious as to not be worth mentioning" -- if that were true, we'd be awash in continuous innovation, but we're not. Sure, incremental improvements to existing technologies occur all the time, but genuinely transformative inventions are few and far between.
2). "Management is not work" -- but it is. Those 200 workers cannot all work together in a happy family, making every little decision unanimously or by popular vote or whatever. Maybe 5 people could work together that way, but not 200. They'd either be spending all their time on decision-making, or just doing things at random, and neither option gets you that $200B car. Management is a full-time position; and, as such, it can be performed poorly (and often is). However, good management can be the difference between a new type of car, and a pile of broken dreams.
3). "Investment should not be rewarded" -- then where will the money come from ? The whole point of investment is that you assume the risk, in exchange for a monetary reward. The expected value of this reward is proportional to the risk -- and the risk can be quite large, especially in cases of radically new technologies. Without the startup investment, all those clever and hard-working people would likely have an empty warehouse and a torque wrench, not a car factory.
The difference, obviously, is that a state can use violent force to coerce people to do things, but all a corporation can do is offer you a voluntary contract to work there or to buy goods and services from them.
What you want to do is use the violent force of the state to make it illegal for workers to voluntarily enter certain agreements, e.g. to work in exchange for a wage.
> So you think that democracy doesn't work, and that (at least in the workplace) autocracy is the only effective form of leadership?
But those are not the only two options ! In any large organization (one that survives for some time, anyway), you will see small groups of people managed by middle managers; who are in turn managed by higher-level managers, etc., in a hierarchical tree structure. Such managers might be chosen by vote, or by autocratic decree, or by word of God or whatever; but they will nonetheless exist -- because they reduce the communication overhead from O(N^2) to O(logN). This has nothing to do with morality or liberty; it's just math.
> Why not have workers elect their managers?
There are companies that do work that way, but they tend to be less successful overall. The ability to manage is a combination of talent and skill just like the ability to weld metal or write software; and so is the ability to choose the right man for the job.
> Maybe a democratic process, instead of the investments being decided by a small group of wealthy VCs?
The reason these VCs are wealthy is (primarily) that they have the skill and talent to select good investments among bad ones. This skill is not uniformly distributed throughout the population. Let me put it this way: let's say you have to go to the hospital for some life-saving surgery. Would you choose Hospital A, where surgeons are chosen based on performance, and only the best or the best are retained; or hospital B, where surgeons are chosen by popular vote ?
The process doesn't end up making the final decisions, the elected individuals do. What's the ratio of members of Congress you respect? 80%? Higher, lower? Personally, as someone who pays very little attention, I wouldn't go above 60%.
Democracy is described as the least bad system of government, but part of it is that government is necessarily a monopoly. Their job is to create and enforce public policies; it would be very hard to enforce laws if there were multiple sets of laws in a location, with citizens free to switch between the sets as they saw fit.
But businesses don't have to create and enforce public policies; the public has to come to them first. So there's no issue with having a whole bunch of them in the same place, trying every possible model. We don't need to employ the least bad option as a failsafe, we can try every option at once and see which ones people prefer, based on which ones succeed and which ones fail.
We sort of have that with the States system; there are 50 sets of State law, and people can move from State to State at will. It just requires uprooting every part of your life, which is too expensive for a lot of people.
The people with democratic control over a company are the financial stakeholders such as stock owners or partners, because the financial stakeholders the ones out if the company goes under (some companies can work with the workers as the financial stakeholders and democratic management, but only in ideal circumstances). There's a very good reason we give that democratic control to the investors rather than the workers, especially with high-risk start-ups.
Suppose you and your friends want to start a company. You're all workers, and you actually know better than the people that used to manage you. So you evenly pool your money and get the expensive factory, machines, stock of raw materials, and so forth... you do have a lot of money just sitting around, right? After all, the workers that built the factory, made the machines, and refined the raw materials need to get paid. Assuming you get this far, your problems are just beginning. What happens when somebody gets sick and can't work for an extended period of time. Do they still get a vote? What happens when someone retires... where does their payout for their initial contribution come from? What happens when you need to hire someone new... how much do they need to pay to contribute? What happens if your company fails (as most do)... do you all just starve in the streets?
To put this into comparison: Boeing has a net value of $140 billion in assets (based on a casual online search), and 140,000 employees. In other words, the company has a value of $1 million per employee. If the money for Boeing is to come from employees, which you so easily suggest, I would need to be able to pay a $1 million buy-in to start a job at Boeing, and I would be out $1 million if the company goes bankrupt while I am employed there.
Your perspective is interesting, but it doesn't answer @Civilis's question. If investors cannot expect a payout on their investment if things go well, then what is their incentive to contribute money to the creation and expansion of a company ? I understand that giving rich people power in exchange for money sounds distasteful; but where is the money going to come from ? Workers don't have it, since, in your scenario, they're barely making ends meet. Should we just give up on starting new companies, and expanding existing ones ?
And, of course, our public servants (and "servants") in such a scenario are especially out of luck, with either nothing to invest in or investments riding entirely out of their control.
Of course, there is a solution to this. Just switch 'worker control of the means of production' to 'public control of the means of production'! The ultimate in democracy! The public decides what should be invested in and controls the company! And this will never ever be manipulated by politicians (that is, the individuals most skilled at manipulating votes). Never. Especially once they realize that democracy only says that people get a vote; it doesn't say that they get a choice, at least in a "Democratic Republic".
Part of it is that a country requires a fair number of companies that produce necessities like fuel and power to keep functioning; if the workers running those think that they have a say in whether the lights stay on, they have another thing coming. Obviously those workers are enemies of the people. Kulaks, wreckers, and hoarders, the lot of them. This is how the ideals of 'worker ownership of the means of production' when implemented always end up as what we saw in the USSR and the People's Republic of China.
In your hypothetical, are the Tesla workers better at their work than the workers at the previous companies that the new company is $200 billion better than? EG are they better than Ford workers, GM workers, or the workers of some terrible car company that went bankrupt? If so, what would explain why all the good workers are at one company and all the bad workers are at another? How did they get to be $200 billion better than all other car company workers?
From the hypothetical it sounds like in his example the workers have created the better car on their own, but then were bought by someone with excess wealth. This is not a realistic scenario, as far as I'm aware the people assembling a product are rarely if ever responsible for innovation, but this does occur with people slightly higher up the ladder such as engineers or researchers. Sometimes the innovations that improve a company's comparative advantage are created not by leadership but in the design process, and I imagine much of the time those people do not share in wealth creation. This speaks to some existing flaw in the distribution of wealth.
If tesla started chronically losing money, are we going to start charging the workers money to work at the factory (or at least stop paying them)? If the only source of a companies value is through the labor performed, are the workers to blame when the company has negative value? You want to have your cake and eat it too. And tell me, are Tesla workers any better than Ford workers? No? Then the difference has to be the company, in which case it's strange to suggest Tesla workers should be paid any more than equally skilled auto workers at other companies.
>this random apartheid scion named Elon who came up with some pretty obvious ideas and had access to enough capital to buy the factory
Oh noes, not apartheid! Do you speak this way about Zulu people? You know, the ones who treated the actually native south africans much, much worse than anything that ever happened under apartheid? Or is that cool because their skin is dark brown?
Notice that countless people with much more capital than Musk never successfully implemented this "obvious" idea. And the idea you or any other "random" person could pull it off with access to the same capital is a sick joke.
What musk did that created vast amounts of value is not just making some EVs. He has almost single-handedly made EVs cool and desirable, which in turn has sparked untold billions of dollars in investment in EVs at many companies other than Tesla.
But the workers couldn't do their work without raw materials. So clearly, the answer should be that the benefit should accrue to the owners of the iron mines that create the ore that is turned into the steel to make the cars.
No, that's silly. Iron ore is a commodity, just like labour. Both raw materials and labour should be bought at whatever the market price is.
I'm not sure "liquidity is finite and generally trading volume is a small proportion of the value of an entire company" is really that interesting. They can certainly access a significant number of billions with no issue, whether they do so via the open market or OTC with (or in Elon's case, I suppose often without) the proper disclosures, it just takes time.
And it's not like any billionaire needs all his money in cash all at once. Selling a $billion or two annually is enough to satisfy virtually any desire. And once your portfolio is diversified, you actually *could* convert the entire portfolio to cash with minimal losses, and with lower taxes than than Warren Buffet's secretary pays. The only reason billionaires don't do that is because it's worse than staying invested.
>Getting Bezos to where he is did not require that, and in fact, AWS was a spinoff that happened well after Bezos was the richest man in the world. My point stands.
Not even close to true, AWS was founded in 2006, in which Bezos was tied for the 147th richest person in the world with a net worth of 4.3 billion, while the richest was Bill Gates at 50 billion. (https://stats.areppim.com/listes/list_billionairesx06xwor.htm)
>In the case of Amazon, many and various, but some include the pricing model of Amazon Prime and using its market share to intentionally drive up prices for literally everyone selling what it sells, including Walmart.
How are either of those "loopholes"? The first is just a business model and the second doesn't even make any sense, increasing your prices makes you *less* competitive, it doesn't force your competitor to match.
Amazon Prime is only a year older than AWS. If you only care about how Bezos became a billionaire, you shouldn't care about Prime. If you care about how he became the richest man in the world, you should care about both.
Counterexample - Google's search engine as well as adsense (the innovation of which was in fact making ads less annoying). Twitch. YouTube.
Apple also does not seem to have a tollbooth, or even a monopoly on anything major.
As for your specific claim that manufacturing never makes billionaires: Morris Chang, founder of TSMC, currently has a net worth of approximately 2.8 billion.
There are many many more counter examples to your claim, but I feel that your statement was so strongly worded that even one would be enough.
Neither Apple or Google or any of the tech giants are monopolies in the sense that their existence prevents others from competing. The fact that all Apples products compete in highly competitive mobile / computer segments is self evident. Nobody buys an Apple phone because it's the only option - there are literally dozens of competitors. But Apple has been historically the best for many customers. You have a very inaccurate view of competition and what makes a monopoly.
Having high market share because your product is good does not make you a monopoly mate or a rent seeker.
Then your argument makes even less sense. You are talking about monopolies and antitrust yet can't actually explain how any of these companies are a monopoly? A person can't be a monopoly so if you can enlighten me, that would be great.
Markets and competition do a great job in dynamically coordinating supply and demand especially of scarce resources. But like in every competition or game there need to be rules that are binding for every one. As soon as somebody tricks the rules or cheats, the market doesn't work as well as it could.
"It is categorically impossible to make a billion dollars without recognizing, or worse yet, creating, a bottleneck or tollbooth in an otherwise functional system and extracting rents from its operation. We call these tollbooths "monopolies," and their operation "exploitation" of people, economies, systems, and societies."
Couldn't be more wrong. The way to make a billion dollars is to create a lot of value for other people. The whole concept of antitrust is mostly a farce. The only real monopolies are government created- historically, anyway. All the non-government-created monopolies that were broken up were crushed because they were creating too much value for consumers by lowering prices and driving other companies out of business (i.e. standard oil). The theory made up after the fact that at some point they would raise prices has been proven false time and again. The original purpose of anti-trust was explicitly to protect other businesses against competition.
Fact free assertion much? Like your original post in fact. Others in the threads have pointed out several counter examples, and you're responding without engaging
How could he present examples where you're wrong, when all you're saying is he's categorically wrong? There's nothing to argue with when you don't engage and just tell people to read so-and-so.
I disagree. Others have provided specific counter examples that show you're incorrect. You're not engaging there either. And far from being a Gish gallop, the comment you're responding to is quite tightly focused on responding to your statement.
No single person can possibly create value worth a billion. If you would say a million I would think about it...
a monopoly is basically a situation there is no real competition. This can be caused by government willingly or not, but there are definitely many other reasons and situations too.
"The original purpose of anti-trust was explicitly to protect other businesses against competition" please give any prove for this, as most people see it differently.
"No single person can possibly create value worth a billion"
Why would you believe that? What about song writers who are super popular and bring joy to billions? Paul McCartney?
"please give any prove for this, as most people see it differently."
Not people who are actually familiar with the history. Like I said, it's not some kind of secret. They were quite open about the purpose being to stop the monopolies from driving smaller companies out of business.
Why could Paul McCartney reach and bring joy to millions? Definitely not on his own. This was only possible by a lot of technology work and resources the society provided. Also if he wouldn't have this reach, there would have been smaller stars in all counties. The key effect that so many people could enjoy music was technology because otherwise they had to attend a live concert everytime.
"Protecting business from competition" is not the same as "stop the monopolies from driving smaller companies out of business". In the latter case its more about protecting the public from the bad effects a monopoly has by ensuring competition on a equal playing field. "Driving companies out of business" usually means other means than fair comptition. So this was not caring about the single protected business that could still loos the market in to one of many competitors.
That's obviously true of everything, but without McCartney all that enjoyment would not exist so it was solely due to him. Music is non-rivalrous so if he didn't exist we wouldn't have that wonderful music and it would not have been replaced by other music.
As far as your last paragraph it's dead wrong. Unfair competition had nothing to do with it at all, just efficiency and lower prices.
We wouldn't have had 'that' wonderful music. But we would have enjoyed other wonderful music that also exists. The point of people have joy is more connected to the access to good music in general than to this particular artist.
Well, yes. efficiency and lower prices are ear exactly the main reasons why we want to have a fair competition and prevent a monopoly then and now. It was and is always about preventing big players form misuse of power, not about protecting some business from competition as your first suggested.
I think your point's on the right track, Mr. Rollins. I'd add to it by pointing out that Amazon is simply one form of exploiting (in a value-neutral sense) the Internet, the outcome of a series of inventions that each seem at least as substantial as anything Bezos contributed, and many of them were developed with tax-payer supported government funding.
It's neither surprising nor necessarily a negative feature that the Internet attracted rent seekers who monetized its potential. One of the Internet's obvious social benefits is its potential to stimulate transactions that produce economic growth: jobs, further investment, and also some concentrations of individual wealth. But if we're considering fairness as an ethical, rather than a political or legal category in the scale of individual wealth, it seems misguided to treat all the socially sunk costs that lie behind the opportunities presented to Bezos as vaporized to zero, although laws and regulatory regimes may allow rent seekers to operate as though they were.
This is just a version of Obama's garbled "You-Didn't-Build-That" semi-misstatement: the accrued basis of public and private infrastructure for all corporate activity forms a sedimentary continent on which individual market accomplishments rise and fall. Capitalist theory concerns the hidden hand that rewards the commonweal by incentivizing individual profit (whether in manufacturing or marketing), but when the social basis of corporate success becomes a hidden factor, the scale of individual profit can exceed anything benefiting the commonweal, and the ethical basis of capitalism becomes harder to defend. The comment of metaphysiocrat (about an hour earlier than this one) gets to the heart of this by pointing out that when wealth reaches a certain scale it translates into a significant pivot of individual social/political/economic power that can be destabilizing.
So I agree that Scott has probably started from the wrong place, treating an economic playing field that includes an array of never-fully-compensated investments and innovations as a tabula rasa. (And this doesn't even get into the manner in which Amazon's semi-monopoly status allows it to wring rents out of every manufacturing and service vendor for which it has become an indispensable middle man.)
Look, whatever you meant what you actually said is "Manufacturing does not make billionaires." The reasonable thing to do when confronted with empirical proof that this is false is to say "Oh, huh, interesting. Well, I appear to be wrong about that -- but it doesn't take away from my main point, which is..."
The move to AWS was extremely unpopular and management had to give and follow through on crazy "become a microservice or we fire the whole team" style threats to get the company on board. Really think that call was a unique, extraordinarily valuable one that should be chalked up to a visionary CEO earning his whole paycheck.
I completely agree. It was also probably even more incredible than "sell products on the internet" given how it drove down the cost of a lot of activity, and wasn't remotely as obvious to laypeople.
There is a restaurant here in San Francisco called Just Desserts (which serves desserts). I imagine a lot of people get the joke, but without realizing that the spelling is different!
1 and 4 are half-cognate, but not in the way you might think! I thought maybe “dessert” was what you deserved for finishing a meal. But actually “deserve” comes from the Latin for “serve well”, while “dessert” comes from the French for “de-serve”, i.e. what you have after the table is cleared 😅
I had misinterpreted dessert as a doublet of desert (that is, a word that was borrowed into English multiple times from the same root, with different meanings for each borrowing).
It's relatively rare and possibly old-fashioned. Now I'm wondering how much of my vocabulary is from reading fantasy (possibly written pre-1960 or so) where older words were used for flavor.
same here, and it's been 25 years (or 40?) -first encountered not today but in another ACX (or) SSC-post. “I am learning all the time. The tombstone will be my diploma.”
Danke! This helps me a lot! We only have dessert - pronouncing it /dəˈzɝɝɝ/ or sth, cuz: crazy French ... - and many prefer to write or say "Nachtisch" ("after table" - sweet meal) not to get the writing resp. pronouncing wrong. Had to google: Das Dessert ( [dɛˈseːɐ̯], [dɛˈsɛːɐ̯], [dɛˈsɛʁt] oder [ˈdɛsɛːr], von französisch dessert) lol, 4 ways to say one word - we really don't know Francaise.
I am so glad to know that ethnic Germans hate French borrowings into German as much as English-speaking learners of German.
(Most of the French borrowed by English was borrowed from Norman French before the Great Vowel Shift of Middle English, so the pronunciations at least *sound* English.)
"We're sorry, Amazon.com has reached its daily sales quota as determined by the US Department of Profit Control. You are being redirected to Jet.com" You can't regulate or tax incompetence into relevance, and a $1.3trillion market cap isn't unreasonable for a company that does half that many deliveries in retail sales alone every year, say nothing of all the other sectors they're involved in and actively improving. I trust even Bezos to spend the profits more effectively than Bernie, by far.
Precisely because Amazon has such low prices, as Scott mentioned, I expect the monopoly rents are being paid for by the employees more than the customers in the form of harsh working conditions created by what amounts to intentional understaffing combined with quotas so that each warehouse employee is performing more than one person's 'sustainable workload'.
Monopoly rents come from increasing the price above the marginal costs. Do you really think Amazon's success could be built on paying their workers less than other wholesalers or retailers? You must think those other workers are making a *lot* of money!
It's actually the opposite - Amazon workers make far more than their direct competitors pay at Walmart and other retail locations. That said, a big reason Amazon pays more is that they employ them as warehouse workers instead of retail sales employees, which is typically a higher-paid field.
The real question is whether Amazon employs fewer people per sales dollar - which is likely true, and a sign of efficiency. If Amazon pays their employees well (compared to alternative options at least), but hires fewer of them than Walmart or another competitor would have to in order to push the same number of sales, I'm having trouble with the idea that Amazon is acting immorally. They charge less than typical retail locations, and in large part that's because they don't have to pay for the retail storefront. Retail storefronts haven't been good careers since at least the 1990s, and even then weren't great careers.
Well, Amazon isn't the only company acting immorally, but working people hard enough to destroy their health without EXTREME need strikes me as immoral. It's not a "people/sales dollar" question. That's essentially irrelevant. Being an "efficient slave driver" doesn't make you moral, just both immoral and efficient.
You're using evocative language. Let's use more sober terms.
- For one thing, in my opnion it is totally out of play to compare workers at Amazon warehouses to slaves. I think that would only be OK if these people could literally not find any other work, but that is certainly not true.
- Next, most people who work in Amazon warehouses don't die decades earlier as a result of overwork, and so they aren't all "destroying their health". Perhaps they accept a modest decrement in health in exchange for higher wages. Moreover, as you say, they aren't all in EXTREME need. They simply choose to take the tradeoff. Don't young people engage in high risk behavior all the time, for a whole host of reasons?
Do you think companies should not permit people to engage in riskier forms of work? And if so, don't you have to draw a totally arbitrary line between acceptable and excessive risk? It seems awfully presumptuous to claim to know where that line is for the entire human race.
You know what? I had a long ass reply to this comment typed up and I was going to link this (admittedly a couple years old) gizmodo article as a source, but after rereading it to make sure I didn't mess anything up, I realized the article said it better than I could have. So here: https://gizmodo.com/i-tried-to-block-amazon-from-my-life-it-was-impossible-1830565336
Tl:dr Amazon makes its money from webhosting, internet infrastructure, and by being basically completely unavoidable and by being thiiiiiiiis close to being indispensable in regards to keeping the modern internet functioning properly.
Are you implying that the entire telecoms industry collapsed after Bell was broken up or that anti-monopoly laws, which are largely unenforced, do not work and all exist for no reason? This is rather a silly notion and ignores all of the harms to society and consumers and innovation which arise from the stagnant fearful monopolies who seek rent. It is silly and very straw-man to imagine some horrible alternative reality as the only possible alternative.
In most industries we see price gouging, abuse of workers, anti competitive tactics (many of which are also illegal), and reduced quality of service over time. It makes a lot of sense to break up any company which comes to dominate any industry.
D-Jimmy Carter's judge broke Bell Labs when he broke up Bell. D-JFK immiserated Baltimore and Gary when he broke US Steel. The Democrats turned the industrial Midwest into the Rustbelt. When the Clinton Foundation took a half-billion from Microsoft's competitors and the Clintons sent the Justice Department after Microsoft they broke the dot-com boom
Anti-monopoly laws exist for reasons as corrupt and feckless as the rest of US politics.
Is that a good example? I don't think the dotcoom boom ended because of the Microsoft trial. It was inconsequential in the end, Bush ensured there were no outcomes. It ended because a lot of the companies being funded were stupid and the hype came back to Earth. Also, Bell Labs was hardly the end of corporate research.
Amazon also seems like a weird choice to build this argument around (which is nonetheless interesting). Selling things online is easy and with no moat: there is very little first mover advantage there. Amazon is still on top not because of some natural first mover effect, but because they consistently executed better than companies that should really have crushed them. And this is true of most billionaires. My experience especially of tech firms, is that people see that competing would be hard, see success and assume it must be somehow a "cheat". But then they struggle to identify what exactly is stopping them building a competitor beyond it being generically difficult and expensive to catch up with that level of tech, and start talking about how "data is the new oil" and other low value memes. In reality they could create a competitor, and people have done, but they'd just not be as good because they have no fresh ideas and can't match the value created by decades of huge, continuous R&D spend into the existing ideas.
The theory that the trial ended the bubble is a novel one, I've never heard anyone claim that before. Although the timing is a good fit, Microsoft weren't particularly critical to the internet revolution and actually the trial was proving the opposite - they'd been trying to stop it. Therefore a brief period where people believed Microsoft would be broken up should have been good for dotcom stocks.
I don't say Bell Labs was the end of research. I say it was hugely valuable, decades of huge, continuous R&D spend into existing ideas if you will, and fecklessly broken by D-Jimmy Carter's judge.
Microsoft opened a billion dollar office in DC because of the trial, which followed a half-billion dollar bribe laundered through the Clinton Foundation. Only the big boys can pay big bribes. Small startups were crushed by the chilling effect of the corrupted Justice Department. Crush the small startups, crush the boom.
This is sort of the argument for Jeff Bezos ""actually earning"" $200 billion -- Amazon made a very long series of strategic and tactical decisions right, during a time when nearly all important decisions in Amazon flowed through Jeff.
Most critically to all of them, Jeff found a way to prioritize growth over short-term profitability, successfully earning Amazon decades of time to constantly plough nearly every penny of free cash flow directly back into investing in the business.
There's a quote I can't find on Google at the moment where a ?Walmart? executive in ?charge of building out their internet-sales-portal? talked about competing with Amazon and said something like "We constantly had to skim off chunks of our operating margin to pay dividends, they didn't. They started smaller but got to fight with 100% of their resources, while we were essentially starved of oxygen by the demands of our shareholds."
Even if the Microsoft monopoly getting addressed killed the dot-com boom, it also saved Apple, which subsequently became the most valuable tech company in the world, created the IPod (breaking the music industries backwards attitude in the process) and the IPhone (which revolutionized the smartphone approach and made it useful for the masses). It also made Android phones relevant, instead of torturing us some more with those half-assed Windows phones. So even your own examples don't demonstrate what you actually advertise them to demonstrate ...
Apple had been ‘doomed’ for at least a decade prior. Apple didn’t need saving and was not saved by antitrust. Arguably it didn’t even remove Microsoft as a competitor. The browser antitrust case was a complete boondoggle that accomplished little to nothing, and Microsoft didn’t even have a monopoly.
Of course it was saved by Antitrust, but not the way you chose to interpret my injection. Apple was saved from certain bankruptcy by Microsoft specifically because they feared anti trust law. Microsoft needed a showcase competitor ...
I grew up in South Bend, IN do you think the demise of Studebaker was the result of industrial policy? It was horrible and greedy management.
I've been living for 40 years in Baltimore and represented Bethlehem Steel in late 80s and earlier 90s. My first solo jury trial was representing Beth Steel.
Do you understand how big Aluminum affected the steel industry and the canning market?
And the issues of quality and abandoning statistical methods in American while Japan adopted them.
American management spent a lot of effort to break unions and blame workers instead of listening to them.
The Republicans had no ideas for industrial policy.
Just saw this, but had to comment how ironic it is that you open with a strawman (where did I mention "collapse", say nothing of an antitrust case from 40 years ago before the www even existed), then proceed to call the wholecloth things I never said a silly strawman. Amazon is not stagnant. They're not price gouging. They treat workers well according to someone I know who works there as a side gig and loves it. They're not reducing quality of service, in fact most would say it's getting better every year. If they're broken up, people would pay more and get less. If that weren't the case, then maybe you'd have one, but until then their existence is a net benefit from the majority's pov, which is why millions work there and billions buy from them. That's why the antitrust laws aren't regularly used - because most voters don't want them to be.
The point isn't to allow competitors; it's to prevent monopoly rent collection. Taxing Amazon's profits and redistributing them would solve the problem even without allowing competition. So, in theory, would fixing Amazon's prices lower than what they are now, but in practice fixing prices is hard.
In my opinion, every major financial power needs AT LEAST 6 competitors approximately equal in size/efficiency for optimal results. This isn't necessarily true during the development phase, but it's true once development peaks. If there are fewer than 6, or one is considerably more successful than the others, then government regulation is needed. Ideally by breaking the largest entity into smaller entities. (And the smaller entities need independent ownership! Alphabet over Google should not be considered an answer.)
I thought the evidence from telecoms markets was that there were benefits from going from 3 to 4 major competitors but very few markets with more than 4 major competitors?
The fewer competitors, the easier it is to set up a "gentlemen's agreement" to control prices.
I'm quite willing to believe that the evidence that is shown matches what you've said, but that's not sufficient. There have been multiple instances of collusion to fix prices in the past, but with more groups needing to agree, the chance that one of them will break the agreement for individual profit increases.
Sure, but where are you getting "there should be at least 6" from? It seems very hard to maintain that metric for a reasonable definition of "approximately equal"
Which Telecoms markets? I was under the impression that in most of the USA other than the biggest cities a given area is under a local telecoms monopoly.
Here in Aus thinks work very differently, All the infrastructure is owned by one of 2 companies (one of which was government owned, relatively recently went private) but they're legally obligated to rent that infrastructure at fair prices to any and all competitors.
I was thinking of cell-phone signal providers (Verizon, AT&T, T-Mobile+Sprint, in the US). For cell-phone towers, nearly all of the US has coverage from all three of those physically distinct networks of towers.
They are also required to rent those towers to sub-players at fair prices AFAIK.
Yes, indeed. Thats the reason why any government should be effectively controlled by the citizens. This is why Democracy is valued so high.
So I fully follow your argument, but my conclution is not that government or taxes are evil, but that any monopoly has to be democratically controlled. Tell the big corporations: allow competition or adopt democratic leadership and give you monopoly rent for the public good. (This does not have to be the state)
I don't know, I think if a corporation exerted a coercive monopoly over important services, didn't allow competitors, and demanded payment regardless of quality of service with threat of locking you away for failure to pay, people wouldn't suddenly say it's cool if the corporation gave them 1 share out of hundreds of millions to make their voice heard.
Is not any Amazon "rent collection" currently reinvested into Amazon business, based on their best idea of how to create further value? So taxing or price controls just changes the benefit to go to consumers in the form of cheaper products rather than investment into a growing business? I don't see a clear reason why this is necessarily good. Maybe consumers would like to see better Amazon-produced movies rather than cheaper Prime subscriptions?
Worthy reading to be found in Matt Stoller's substack BIG on the monopoly extraction of value achieved by Amazon, and their price setting in all arenas.
Why regulate or tax it away? Why not just regulate or tax it enough to make it not collect monopoly rents (or to collect much less)? I feel like it isn't proportional to kill it.
This is what QL is saying. There isn't a missing punctuation mark between "rents" and "that"; the monopoly rents are the thing being taxed/regulated away.
If you regulate or tax it, why does that guarantee the monopoly rent is what is lost? It is still a monopoly. Seems more likely that quality would be reduced in order to maintain monopoly rent despite the tax. That would not be a benefit to the public.
It's not a guarantee but if you structure the regulation or tax well it tends to work pretty well. I think you may be making the perfect the enemy of the good here.
Monopolies - other than legally-enforced monopolies, and to some extent even those* - have a limited amount of headroom. If Amazon raised the prices on all its goods by 100x, it would go out of business; 100x the prices is higher than what a competitor could offer.
If you tax the monopoly distributor by the amount of headroom, it can't compensate to retain its profits, because it would then be subject to competition (at least, if you design the tax so that a competitor wouldn't be subject to it).
*The issue here is that running a criminal enterprise incurs large *but finite* overhead. If you have a legally-enforced monopoly on wine, and you raise the price to a billion dollars a bottle, you will get undercut by people illegally making/smuggling wine for a lot less than a billion dollars a bottle (even factoring in risk premium). You could probably get to $200 a bottle or so without too much trouble, though, assuming the law was semi-reliably enforced.
By your theory Walmart.com’s prices must be rock bottom beneath Amazon, right? Because Amazon occupies an unassailable monopoly position from which it extracts terrific rents?
Likewise, AWS must be much more expensive than Azure…
You have accidentally created an empirically testable proposition, but I’m not sure you’re going to like it.
I think steel manning the parent argument, I'd say that the first mover advantage allowed Amazon to get to a scale where its profits are higher than the 2nd mover even if the prices are the same. If there were 2 companies with the same efficiency of scale as Amazon, the prices would be lower, but you can't see that counterfactual because Amazon's monopolized this position.
I don't quite buy the argument that someone else would've done it a small N years later in this case. It may be closer to Musk/SpaceX and I don't know how to tel for sure.
I think it’s weird to say that Walmart doesn’t have the demonstrated capacity to operate at Amazon’s scale… Walmart has been operating at Amazon’s scale for many many years before Amazon existed.
Walmart is operating at the same scale in some ways, but not others . Walmart's efficiency is pretty different from Amazon when it comes to home delivery logistics, online product selection, customer service, etc. Walmart's not at the same scale in those.
I don’t know, they look pretty obviously comparable to me when it comes to end-consumer service. Have you ever used Walmart.com the way you might use Amazon.com? Huge selection, quick delivery, fast customer service options. I’m not going to pretend that they’re exactly equal in offerings, but that’s not the point. The point is that they’re a legit competitor at enormous scale, and the idea that Amazon is simply operating at a level Walmart can’t is not obvious.
I recommend pointing out some specific things that Amazon can do in online retail which Walmart cannot due to issues of unassailable scale. Then we can discuss at an objective level whether Amazon occupies a position where it can deny Walmart the market.
And you’re ignoring obvious benefits to the consumer and the marketplace which are made even more obvious by the stunning popularity of the services and goods provided. Shrug.
Actually, I'm not. I agree that there are lots of advantages to having a monopoly marketplace. It's easier to get a wide variety of goods, etc. But I think that such a thing needs to be regulated as a utility.
I.e. I think the internet marketplace is a "weak natural monopoly". Weak because there don't need to be strong barriers to entry, and "natural monopoly", because it's difficult for small sellers to subscribe to multiple markets.
(Note that I'm not sure that there aren't strong barriers to entry. Amazon lost money for over a decade before it started turning a profit. Just that they aren't required for this to be true.)
Why do you think financial results are what determines whether it is a monopoly or not? To me it's a combination of what proportion of the market it controls and how difficult it is for someone else to enter that market.
Consider, suppose Apple didn't make any money off their app store. Would that mean that Apple didn't have monopoly control over the applications available in their app store ? Monopoly is an enabler of high profits, but it neither requires nor ensures that. (And it's not the only enabler.)
“ because it's difficult for small sellers to subscribe to multiple markets.”
You keep saying these things that by looking at the market are obviously untrue. Again, there are tons, simply scads, of competitors in the internet marketplace.
Amazon lost money for years because it made the conscious decision to sacrifice its profits for growth, not because it couldn’t figure out a way to turn a profit—it’s weird to me that you have such strong opinions about this without being informed about basic facts of which any shareholder was made aware in quarterlies.
The barriers to entry are so very low that you can spin up a free storefront with less investment than it takes to open a physical storefront, something that should be pretty obvious to almost anybody by now.
This does not cotradict Ch Hi. Yes, Amazon did sacrifice the short term profits for growth. But why was growing so important? Because Jeff Bezos and the other Venture Capitalists realized that once you are big enough the network effect gives you kind of monopoly and that a monopoly is highly profitable once you have them. And as long as the VC believes that you will be highly profitable in the future, they give you money to grow, to run on low margins to case off competitors or just to buy competitors that could pose a risk in the future as facebook did with Instagram or WhatsApp.
This game is just a little more complex than just getting high prices from the customers.
There are countless competing online storefronts of all sizes, so it seems very hard to call Amazon's storefront a monopoly. To be fair, there are anticompetitive features in their ability to leverage their control over the distribution channel between the buyer and the seller, but that's far from being a monopoly.
I encourage you to read Matt Stoller on Amazon's role in price setting for the entire market.
Amazon has monopoly pricing power by virtue of it's relationships with other vendors that use it's platform and the market place power that it wields. He explains it in detail.
To be blunt: if Amazon has monopoly pricing power, then why do its financial results indicate that it is demonstrably terrible at using this power to goose profits? It has a net profit margin of ~2.4% and a net return on book equity of ~9.4%.
That is fascinating, and beyond my knowledge base. Monopolies can afford to operate at a loss? The point that Matt made in his piece is that Amazon sets prices for most goods, even those not sold on their platform. You should read him, it seems you're well informed already.
Nobody but a state with political and military power can afford to operate at a loss over the medium term. And even states can't 'afford' it in the long term.
Does this mean that Amazon sets prices lower than they would have been or higher? If lower, then that's an odd way to extract a Monopoly rent; it sounds more like Amazon driving down prices through competition. If they are setting prices higher, then why can't others undercut them?
Profit is more than one thing. Amazon's declared, taxable profits are.low (hence the annoying fact that it was little taxes) because it reinvests a lot of the money it makes into growth, and governments don't tax investment because the like growth. But if you don't think monopolies are good , maybe you shouldn't encourage unlimited growth.
It's what they used to call a natural monopoly. Having one central provider flows from the structure of the business. Amazon has built an amazing fulfillment empire, but it also runs a marketplace where competes with its sellers. It's like the NYSE operating mutual funds or packaging ETFs. Like the railroads, Amazon controls an outsized chunk of the online marketplace and uses its position as one might expect.
The railroads were controlled the structure of commerce in the US. Their tariffs enforced an industrial north and agricultural south. Railroads were as despised as cable companies or ISPs. Regulation helped a bit, but only a bit. Then the government built the interstate highway system and industry was dramatically restructured.
The last big antitrust case involved Microsoft. When IBM got sick of antitrust fights, they decided to outsource the operating system for their PCs. This was like throwing a monopoly bouquet at a wedding and Bill Gates was the bridesmaid who jumped highest and snatched the prize. His plan was to leverage this operating system monopoly into an internet monopoly, and the scheme was working before the Clinton administration sued. The reason I am writing this on Substack and not some Microsoft comment board is because of an antitrust lawsuit.
Railroads tried to cartelize transportation. Microsoft supposedly tried to turn their dominance of personal computer operating systems into a monopoly on browser software. Exactly what product or service are Amazon monopolizing?
They run the dominant online marketplace. There are competitors like eBay and Shopify, but unless you can build your own store and fulfillment system at scale, you either have to stay small or accept that Amazon can put you out of business in a heartbeat. They can delist you without so much as a word of explanation and there is no clear process for finding out what happened let alone getting reinstated. They can simply start selling their own set of products modeled on yours and undercut you on price and deprecate your listings. Even if you are a big company with lots of lawyers and an established brand, Amazon will allow other vendors to sell counterfeit versions of your products for extended periods and your brand will take the knocks if those products are inferior.
I do see some competitors out there. Shopify is the most visible for smaller outfits, but there are also specialty groups like Goldbelly for food items. There are definite counterforces, but Amazon has a huge market presence and lot of resources. A formal antitrust case may not be necessary, but a serious threat of one would make a difference.
It was a simple question. Can you give a simple answer?
It sort of sounds like you mean to say that Amazon provides a service for small retailers that no one else can provide. Not clear what aspect cannot be duplicated. Maybe the “at scale” aspect?
Or maybe you are just talking about network effects? I guess that would mean they are monopolizing the customers.
If an artist makes art that people will pay more for, do we call them monopolists? How much more do they get to charge before they should face an antitrust suit?
I guess what I am saying is, nothing is stopping anyone from providing an Amazon service for people who have been rejected by Amazon or who just hate Amazon. But you could say that about Microsoft, too. MacOS and Linux exist, but are they enough?
So what's the solution, make them a public utility? Did the suit against M$ solve that problem?
I am talking about network effects. Amazon does monopolize customers by providing a central place to start searching for goods. Have you heard of The Street of the Carpet Sellers? That's about what economists call central place theory. Good luck selling carpets if you don't have a shop on that street. Amazon owns that street. They have the critical mass of user reviews. In many ways, Amazon is the new Yellow Pages. If you want to reach customers, you have to deal with Amazon. Ben Thompson goes on about this over at Stratechery.
Sure, nothing is stopping you from XXX, but that's not the way it works in real life. No one made you buy telephone service from AT&T in its monopoly days. No one makes you shop at Walmart though Walmart pushed out every other grocery store for 50 miles. No one makes you buy tortillas from Gruma, but unless you live in a Mexican neighborhood, that means a long drive or mail order. There is such thing as market power. If there are only a handful of art galleries and they only sell art from a handful of artists, they aren't stopping you from buying art from someone else, but they can make you work hard to do so and they can use their market power to stifle new galleries.
One solution is to break up Amazon into a sales company, a network services company and a marketplace and to regulate that marketplace to make sure it stays competitive. Another solution is to require Amazon to offer set terms and due process for vendors. Yet another is to require Amazon to unbundle its sales and fulfillment support services and advertising. How about requiring Amazon to open its database so that others can develop competing search engines without adversarial tactics? These kinds of remedies have worked in past antitrust cases. There is no reason similar remedies couldn't work for Amazon.
Microsoft was a good example. Their intention was to place their idiosyncratic browser between users and the internet. I knew friends working at Microsoft, and they were given explicit instructions not to look at industry standards when they implemented browser components. The idea was that their implementation would become the industry standard. Since they controlled the dominant operating system, they could leverage that to control access to the internet.
Yes, people could install alternate browsers, at least they could at the time, but who was going to even know that this was a possibility? What was going to stop Microsoft from sabotaging them by providing its own browser with a better network API? By the early 2000s, more and more websites were being written to Microsoft's non-standard specifications for HTML and Javascript. Their strategy was working, and we would have a very different internet today without that antitrust suit.
The government lawsuit put Microsoft under the spotlight. Depending on where you lived, your new system would ask you to choose a default browser with Microsoft's Explorer as just one of several options. There was a renewed push to enforce web standards. Microsoft invested in Apple so it plausibly claim that it had a competitor. This created space for companies like Google, Facebook, Netflix and others.
Antitrust has worked very well over the years. The Standard Oil case lowered fuel prices and gave the US better strategic options thanks to competition in that area. One of many IBM cases led to competing platforms and compatible peripherals and software. The Xerox case led to more widespread innovation in copying technology. The Kodak case opened its C1 (?) film processing technology. There's a long list. The last thing dominant companies want is innovation, and they often have the power to crush it. Antitrust is one of the few counter-mechanisms.
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.
I think part of Scott's point that this does not address is that certain niches are vastly more valuable than others. So Bezos1 takes the "online market" idea, and leaves Bezos2 with something far less valuable. He's almost as capable as Bezos1, but is worth a tiny fraction of Bezos1, even if he works harder and also has great ideas.
Sure, but each later Bezos’ ‘next-best option’ which they’d counterfactually be giving up is whatever they’re actually doing in the real world. If Bezos2 got removed from the rest of the workforce to found Amazon instead of Bezos1, the cost would be something less than or equal to Bezos2’s actual lifetime output, since each later Bezos would only change jobs if it benefited someone. And Bezos2’s lifetime salary feels negligible compared to $200 billion.
... which would seem to imply Bezos1's marginal productivity is equal to the productivity of the marginal, worst-paid Bezos. This analysis is hard to run in practice, though, since people are *partially* fungible in really complex ways.
This is especially true if Bezos 2 was Travis Kalanick and he made an online store instead of Uber. If I remember right, ride sharing has lowered drunk driving deaths by something like 30% for young people, and every year that innovation is delayed, many thousands of people die. Or maybe it's Elon Musk. He's moved the timetable for electric cars up at least a decade. How much is that decade of lower emissions worth?
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")
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.
> I'd also note that most of the time "getting there first" itself requires investment or effort; e.g. oil exploration is not costless!
Correct! This is explicitly addressed by the Norwegian system, and why they specifically subsidize R&D and investment, in order to ensure a return on investment and effort. The insight here is not to make monopoly the natural carrot we give to private interests as the inducement for development.
> The problem with this kind of argument is that it only works if you refuse to apply it to people's natural talents. Your intelligence or conscientiousness, at least most of them, are not returns for effort or investment either.
It's true that it's not fair that some people are smarter, stronger, and more agreeable than others, but the fact that a policy doesn't solve literally everything doesn't mean it doesn't improve the status quo. I don't see how raising this point is a persuasive argument for what I see as inefficient natural resource policy.
I guess you're accusing me of hypocrisy. I personally find it perfectly consistent to draw a sharp line at internal personal characteristics that are difficult to quantify, and lean on the well established economic literature on the subject, and the empirical results from the Norwegian results which speak for themselves.
I don't think they're the same category of thing at all, when we're talking about internal characteristics, rather than domination of natural resources or monopolization of the market (artificially or naturally) through first mover advantages -- that's much more of a concern for me than the fact that individuals are born with different natural proclivities. I think you've mistaken one of many justifications for my chosen policies as the sole and primary motivating force.
But if we want to bite your bullet anyway, aren't you just making a case for progressive taxation here? You're right we can quantify unearned advantages to people who are taller, more attractive, etc, and they certainly didn't do any work to achieve that. There are a million other such things, some known, some not known, that surely work that way. And the conclusion to what to do about that seems to just be ... progressive taxation, or some flavor of it.
As a matter of practical policy, if we tax monopoly power to ensure equal access and opportunity to the bounties of nature for all people, we can provide the basis for a more just society *and* efficient society without having to go full Harrison Bergeron, which seems to be what you're implying the natural conclusion of my principles is.
Someone being more intelligent then someone else is not a private tax on others. The nature of rent-seeking as zero-sum taking is central to the ethical case for Georgism.
If you want to argue that someone deciding to use their intelligence for their own benefit instead of working for you constitutes stealing from you, you are free to make that argument of course.
Yes, a baron on the Rhine charging people tolls for using a river is structurally identical to someone deciding not to work for you. There is no difference between these two scenarios. Good job.
To be clear I'm not 100% sure if this argument is perfectly applicable to Amazon specifically, but this is the kind of argument I think Scott is making so I wanted to point it out. It would fit in the case of a company that relies on a large war chest of patents (and Amazon certainly owned the 1-click checkout patent for ages). There's a case to be made that large networks with strong lock-in and sticky network effects are monopolistic in nature and should be tackled with these kinds of tools, but my own personal theory / understanding of that is admittedly undercooked at the moment.
The thing I mostly look for is: has one company eliminated its competition because they're just *so dang good* or because others are effectively forbidden from even *trying* to compete with them, through natural or artificial means?
My guess is that Amazon has taken advantage of more traditional economies of scale compared to other other modern tech giants. Like, it's just really hard to run a postal service, and once one of a certain size exists, it's impossible to compete with as a new entrant in the market. Probably why a national postal service was so important to the framers, now that I think about it.
"Network effects" in general are overestimated as one of the roots of big tech monopolies, probably because it makes them sound natural, rather than the inevitable consequence of modern IP policy. If network effects really did matter so much, we'd all still by using Myspace. Cory Doctorow at the EFF has written at length about it.
I think people underestimate the impact of Facebook being started at Harvard. It is almost a meme at this point that half the point of going to Harvard is to network with the kind of people who get themselves into Harvard. Zuckerburg made that work for him in many ways.
Second, Facebook really was better than MySpace. You had responsive and well designed pages (no autoplaying videos on someone's page...) and all sorts of better features than MySpace.
Finally, and probably the nail in the coffin: MySpace missed the take-off of smartphones. Just like Google+ did, but in the other direction. Google+ was, iirc, better than Facebook, but they were too late and the network effects were too strong at that point.
Except Amazon didn't discover online retail. It wasn't even the first mover. Nor does it have any kind of exclusive right over online retail. (Except patents which might be a good area for reform.) While I think there's serious problems with Amazon I don't think it's at all analogous to something like land rents or an oil field.
To be clear I'm not sure the analogy fits with the specific case of Amazon myself either (see the other parallel replies), but I think this is the general structure of the argument Scott is making.
I'm undecided on the issue of lock-in (AWS is notorious for that) and network effects as it relates to the question of monopoly / dampening of competition.
Lars, in my experience the average person is convinced that building and running something like AMZ is utterly trivial, and that they could get easily do it if they just worked hard for a week or so.
There's a fundamental disconnect between people like me (and some others here) who see the kinds of people CAPABLE of creating billion-dollar enterprises as fundamentally rare and unusual, and most people who seem to imagine that anyone can do it (which is much of the tone of Scott's second half argument).
I'm not sure how you resolve this, especially since people have extremely strong opinions about this based on essentially zero knowledge of anything relevant to the issue; what you are seeing is some sort of poll as to "beliefs regarding human nature", not any sort of reasoned, evidence based analysis of just how many potential billionaires are out there ready to create companies should one of the current giants fail.
For example in the case of AMZ, did they succeed because they were "so much better" or because of various nefarious nastiness like one-click patents? I'd say "so much better than the alternative", but it's hard to *prove* that (especially when you're arguing with a kid who wasn't even born when AMZ was founded, and has no clue how frustrating and incompetent retail was in the early 1990s...)
Yeah. Maybe taking Amazon off the table clarifies things a bit. How about digital distribution of Video Games? This seems like a thing that wasn't invented by anyone in particular, and Steam wasn't "first", they were just the first to establish a tight market niche.
I got so tired of people pitching their Steam competitor startups to me I wrote a blog post about all the reasons they were going to utterly fail:
I said, the only way you can ever do this is if you have TRUCKLOADS of money and just dump it into user and developer acquisition.
...which is exactly what Epic Games did a few years later. They've carved out a niche, but they've yet to give Steam a real run for their money. But realistically, only EGS could do it, because the network effects are that tough to overcome. Every other would-be Steam competitor I've seen (and I've seen so many I've lost count) has failed before they even started. (GOG was already established by this time FWIW, and they've remained tiny).
But if Steam hadn't made Steam, would someone else have? And would it have been as good?
My answer is "probably" (but not a 100% certain yes).
I think a lot of these debates hinge on the particular example you pick, which can distract us from the underlying ideas.
Of course the other way to look at it is "what's the business"? Should Coke care about Pepsi, or about "share of throat"?
Steam is in the business of games, and maybe the winner/only serious competitor there if you care only about a particular type of game, but if the space is "entertainment in the 21st C" then they are in competition with tiktok and Netflix, both of whom are doing a lot better.
Perhaps the Steam space is just as large as it gets, and there are multiple alternatives (like Apple Arcade) that are just not interested in EXACTLY the same space as Steam.
So I don't know. Is your argument that Steam is the winner because they were first, rather than because they are better than anyone else? I don't know enough of the space to comment.
The one thing I will say is that video games seem to be extremely dysfunctional as a business community, presumably because so many people enter it based on passion rather than business sense (see, eg, the history of basically everyone ever associated with Id). So they're kinda the worst case opposite version of the AMZ problem!
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I'd say a better example is Intel, who very definitely sat on their laurels (driven by massively incompetent management) for fifteen years, and we're now seeing that play out.
As Adam Smith said, "There is a great deal of ruin in a company", so it will take time for the denouement, but I don't see a turnaround ahead of them. Or IBM as an earlier example, ruined in the same way.
And MS as the rare example where the right person (and those are so rare) really could right the ship. Still to be seen whether Satya is the Tim Cook or the Louis Gerstner of MS...
Intel is also interesting because, before Apple achieved their miracle, everyone in the know would have told you that "a modern CPU is built upon so many patents that no-one can possibly compete with Intel; the best achievable is weak parity by the existing companies". And yet that was not true.
Monopolies were not the barrier they were believed to be... at least not in the US, in a space where the law and the system mostly worked the way it's meant to and politics did not weigh down the scales in any particular direction.
As someone who *has* gotten a (small) business up and running, this times 10. It is unbelievably difficult to succeed, which is why something like 90% of new businesses don't. There are whole classes of problems to be solved that the naive don't even realize exist. Succeeding at the Amazon level requires throwing natural 7s like 100 times in a row, a huge bucket of luck and decision-making that is almost supernatural in its ability to be right over and over again.
For what it's worth I've gotten several small businesses up and running too and very much agree, which is why I think society should reward the effort and the the taking risks and the investment and the being right, but not so much the huge buckets of luck.
"There's a fundamental disconnect between people like me (and some others here) who see the kinds of people CAPABLE of creating billion-dollar enterprises as fundamentally rare and unusual, and most people who seem to imagine that anyone can do it (which is much of the tone of Scott's second half argument). "
There is a broad range of intermediate possibilities. Perhaps one person in a thousand could do it, perhaps one in a million. In the usa alone, that would yield somewhere between 300,000 and 300 such possible people. But at any given time, I doubt that there are 300 unoccupied potential billion dollar niches for new corporations - so potential founders could be quite rare, yet _also_ plentiful enough to saturate their possible niches.
OTOH, the fact that future billionaires often first moved to America does suggest that billionaire-size niches are limited and more plentiful in America than elsewhere
OTOH, that doesn't guarantee that billionaire niches are naturally more plentiful in America; it could also be the case that our markets are more billionaire niche creation friendly thanks to current policy conditions and so changing those conditions could destroy the billionaire niches without capturing the windfall (deadweight loss)
To use a trivial example, Europe really wishes that Alphabet/Apple/Microsoft/Meta/Amazon were headquartered there.
What is the value of having billionaires or billion dollar sized enterprises for the society as a whole? Wouldn't it be better to have 100 medium sized companies occupying the same field? This way there would be real natural competition, the profits would be distributed wider in the society and no single business has the power and money to influence legislation in their favor.
> There's a fundamental disconnect between people like me (and some others here) who see the kinds of people CAPABLE of creating billion-dollar enterprises as fundamentally rare and unusual, and most people who seem to imagine that anyone can do it...
One would think that once the resource is tapped and the profits start to flow, it would be possible to find someone to help with the details. Like scaling the business up, introducing relevant processes and so on.
But from what you wrote, it looks as if you believe that some people are somehow predisposed for this whole scaling up business and they must be matched with the opportunity via prospecting instead of labor market.
I have strong opinions about this actually. Maybe I'll expand it elsewhere. But basically Amazon is a monopoly not due to lock-in or network effects (neither of which exist as much as critics want it to) but because of blatant anti-competitive behavior being used as a way to extract rents from things other than value creation. Amazon Basics alone should be triggered anti-trust in my opinion.
It's actually an example of bundling a video service and a delivery loyalty club that's run below cost to drive out competition while being subsidized by a successful web services company. But largely you're correct. This is part of the argument.
I'm rather convinced that network effects are a large part of Amazon's success, but it network effects among the suppliers rather than network effects among the customers.
If you want to buy a book by a particular author, a particular vitamin, a pair of socks, and a keto-friendly snack, where else would you go? What if you don't have that list when you start, just the book in mind, but since you're there, you might as well order enough to get free shipping? I note that in India where WalMart had a head start, Amazon is having a tough time competing. I suspect that it's because WalMart is carrying a better selection of merchandise for that market, or perhaps has a better delivery system. Both of which are facilitated by being the first-mover (in that market).
This goes even further on the supplier side: We produce a special innovative food product so it's still quite a small niche. We have our own online shop, but there are so many people out there were online shopping means Amazon as people say 'to google' if they mean searching the web' generically. And for everyone else, finding something special is easiest on Amazon with it's vast amount of products and vendors. So we have little choice but to also sell through Amazon too. I can tell you it's not only quite expensive, but also complicated to use the back-end and real ban support. They can just afford not to care about my opinion because of their market share.
So one of their business models is selling customers to vendors and manufacturers not only by their regular fees, but also by nudging you into payed ads.
Technically no, but Amazon has such a decisive strategic advantage they may as well be described that way. It's not illegal to compete with Amazon, but in practice its basically impossible. Even a revolutionary retail technology that is potentially and eventually disruptive to Amazons business model is just going to be bought out by Amazon (or copied) long before any Amazon executive comes close to losing sleep.
And all of this has snowballed from having a slightly better website than its competitors 25 years ago. The brilliant people who built Amazon would have otherwise worked at Amazon's competitor.
Wait, "practically impossible"? I can only imagine you're thinking of Amazon's core business, and they have competitors now, whether you think of their core business as online retail or simply retail - the foremost among them being Wal-Mart. Despite having a fifth or sixth of Amazon's online market share, they are doing quite well and, more importantly, poised to jump on any sustained missteps
Shopify is an increasingly good competitor. I don’t use Amazon retail and these days I tend to buy things direct from niche brands and the service is as good and cheap as Amazon, and I know money goes to the brand to develop better products.
Bezos however, would not have worked at Amazon's competitors. We know that for sure. And quite possibly lots of other Amazon employees wouldn't either - they'd have preferred to do stuff in another industry than retail, or they'd have done their own thing, or they'd have joined a competitor and just been average because their boss didn't believe in their ideas or maybe a lot of them didn't have ideas and just executed well on what Bezos wanted, etc etc etc.
What field or fields do you think Amazon has locked down such that no one else can compete?
Walmart may not be your favorite alternative, but they have a very strong online presence and a complete logistics network.
It would be very difficult for another competitor to break into online retail sales right now, but I think you very much underestimate how hard it was for Amazon to break into that spot as well! The first 10-15 years of Amazon were certainly not an example of easy money from a first mover.
>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.
Given that those are both natural resources derived from land collectively owned by the people, is that really comparable with the value created in getting stuff to people more quickly and conveniently? There's probably an argument to be made but it'll require a lot of abstraction.
Mostly pointing out the structure of the argument that Scott is making here, undecided about whether it applies specifically to Amazon. The real test is whether Amazon (and Bezos) gets such a return because they're *SO DANG GOOD* or because others are effectively forbidden from competing with them, whether that's by natural or artificial means.
"Natural" means, when speaking about resources, usually refers to the resource's own scarcity, but there's a case to be made about natural lock-in effects and first mover advantages in Amazon's case (perhaps). "Artificial" usually means government regulation. A good example would be my Narcolepsy medication, which is a tightly regulated drug because it's also abused as a street drug. So the government in its infinite wisdom grants a monopoly to one company to manufacture it, and the list price is like $60K a year (in practice this is insurance fiction, but in a fair market it would be muuuuch cheaper).
>The real test is whether Amazon (and Bezos) gets such a return because they're *SO DANG GOOD* or because others are effectively forbidden from competing with them, whether that's by natural or artificial means.
Amazon has a lot of fairly successful competitors in their main sectors - in online retail you've got Walmart/Jet.com, Target, eBay, AliExpress, Shopify, etc., and in cloud computing there's Google Cloud and Azure.
None of them are quite as successful as Amazon but I don't think that's a consequence of them being forbidden from competing effectively, that plus personal experience makes me lean towards a combination of getting there first and the services just being better (on the retail side at least; AWS products can be pretty frustrating to deal with but I haven't worked with the competing products, they may just be worse).
Yeah the real test of a standard monopoly is, if this company just sits on its laurels for like a decade, is it still mostly fine and unthreatened. I think that's clearly not Amazon.
There's a more nuanced argument that Amazon gets a little monopoly power, as a treat, by virtue of sticky network effects and first-mover advantage, and so long as they put in a modicum of effort, their moat stays full of alligators, but everybody else has a much harder time, and it's always Amazon's game to lose. I guess it's a question about barriers to entry and if society should do anything to lower them or not, and if so, how much.
I don't know much about oil exploration and development, but I have direct experience with mineral exploration and if its anything like that, it's extremely costly and risky. Much exploration is done by dedicated exploration companies that frequently go broke and cost investors all their capital(or they hit something big and win big). The land may belong to the people, but the resources aren't just sitting there waiting to be produced.
So the Norwegian insight in particular acknowledges three things that makes it hard to fit into the the standard model of either capitalist / socialist thought with regards to mineral rights:
1) Scarce natural resources are prone to private monopolization, which has bad consequences
2) State ownership & management of natural resources (read: naive nationalization) leads to stagnation, underinvestment, and the flight of competence from the sector
3) Natural resource exploration usually has huge up front capital costs and large risks, but also huge potential windfall profits
The Norwegian model is to tax the monopoly and subsidize the exploration/development risk. Based on the results of the last century, it seems to work pretty well.
Here's an idea I have, let's call it gradual socialism, open to hear criticisms:
Have ownership degrade with time. It could mean something like: the company is completely owned by shareholders during the first 10 years of existence. Then every year the government gets 2.5% of the company, until after 50 years it becomes a government owned company. Of course we would need some checks to avoid government mismanagement.
Another milder possibility is have the transfer of ownership happen only when the company pays dividends. So, as long as the company is reinvesting the profits, they remain private. Whenever profits go to investors, the government gets a little bit of the company. I don't know how to calculate how much would be transfered in this scenario.
Or if you prefer have the transference be to a union, that would slowly become a worker's cooperative.
This addresses the problem at hand, of disincentiving rent seeking, while not disincentiving investment too much. And of course the numbers could be adjusted if investment is too penalized.
Could you perhaps first point to a large consumer-serving function that the government does very well, as a confidence booster? Let's see...the Post Office? Amtrak? The DMV (at the state level)? VA hospitals? Medicare? Project Artemis?
Your examples seem to be drawn from a specific region where half the population take it as an article of faith that it is impossible for organisations not built on the profit motive to effectively serve the public.
The thing is, without a profit motive, and competition, it is extremely difficult to say what is 'effective' and what 'serves the public'. We have very good theoretical models and empirical evidence for this. Theories of value, information and incentives, and evidence from every country that has ever tried to provide private goods without a market mechanism. (Spoiler alert, they failed miserably)
And so...? Why would the faith of the consumers be necessary for the organization to do a good job? That sounds more like a religion than a corporation (or government). I don't see how I need to have faith that Microsoft makes a good operating system for Windows 11 to work.
On the other hand, if one dwells in a region where people *do* take it as an article of faith that whatever government does it does well, then of course they will probably be at least partially blind to its failures, in the same way that the faithful of any religion are blind to its logical contradictions or practical failures.
So I would say, as is very often the case, it's skepticism that is the better guarantor of accurate evaluation.
I don't understand why your argument doesn't apply in both directions. If it's an important ideological marker of community membership that government does a bad job of running stuff, then government organisations won't get as many good opportunities, it'll struggle to get good talent to staff the opportunities it has, and when it does do a good job it won't be acknowledged, and will be reliably underfunded.
And that's leaving aside the most nefarious versions where being right about this topic is so important that people will deliberately try to sabotage any successful government run organisation.
Any kind of strong culture that government is bad, or that socialism is good will distort the ability of a government run organisation to succeed. To take examples only from a region that has an unusual approach to this topic (as your earlier post seemed to) is a great way to end up with poor conclusions.
Mostly because the fact that you can make an argument the English syntax of which scans doesn't mean it makes any empirical sense at all, and none of those you present here do. Nor can I think of any that aren't equally strained.
For example, the idea that if half the country thinks government does a poor job means they will sturggle to get good talent fails the test of common sense. The Federal government doesn't employ half the adult workforce in the US, it employs about 1.5% of it. The idea that it would "struggle" to find talent for its 2 million employees when it "only" has the 80 million who aren't skeptical about its success to pick from is just silly.
For that matter, people generally pick jobs based on how much money it pays, and their interest in their particular job -- perceptions of how well the whole organization is doing in random other fields have little effect. Why would they? If I'm a aero/astro engineer and decide to work for SpaceX, I'm going to do it because (1) the money is good, and (2) the problems I'll be working on are interesting. I might very well think Elon Musk is kind of a blowhard and FSD for the Tesla the biggest scam ever, but that isn't going to stop me -- not unless I'm some kind of diehard ideologue, and in that case it's not likely I'm an engineer in the first place.
And how exactly would people who distrust the government "sabotage" what it does? Someone is so passionate about making the point that government doesn't work well that, rather than, say, waiting for events to prove him right, he...puts his own career on hold, goes into government service, spend years climbing to a position of trust and influence -- and *then* craftily sabotages what government does? This is spy-thriller stuff, real people don't behave that way.
As I said, belief that the faith of the citizenry (or consumers) that the an organization is good is key to it actually doing good belongs in a church, as far as I am concerned, and I don't think it has much application outside of faith-healing and Ponzi schemes. If I hire a plumber, I may believe he'll do a good job, or I may be deeply skeptical -- and neither thing affects the factual outcome of whether he fixes the drains. The strength of my faith doesn't change the octane rating of the gas I buy, doesn't change whether my phone battery lasts 2 years or 6 months, doesn't affect whether FedEx reliably delivers my packages or loses it 20% of the time.
Not familiar with the USA-specific details. But in the UK, there were a lot of national industries and services privatised in the 1980s-1990s, and the general sense among large chunks of the population is that they work rather less well now they're privatised and were better when nationalised. Royal Mail are doing pretty well, but privatised rail, electricity, gas are a disaster. And of course we've doggedly held on to the NHS which, at least until COVID, was still delivering world-class, free healthcare.
My experience with both Amtrak and the Post office has been very positive over the years. Problems with Amtrak cross country for me were delays due to freight having priority. Medicare? Just fine. And then there's TVA. Also does a good job. Not so thrilled with the airlines. And since we're on the subject of Amazon, PO has never lost my packages. Can't say the same for Amazon.
Good for you. There has to be at least one good story out there, so I guess you're it. On the other hand, I have never taken an Amtrak train without it being 50% late (i.e. on one-hour trip it will be 30 min late, and on a 2-day trip it will be 24 hours late).
More interestingly, if we depart the realm of deueling anecdata, we have the difficult facts to explain that ever since it became possible (in ~1980 if memory serves) for private firms to compete with the Post Office, they have exploded in size and reach, and the USPS has lost huge amounts of money. If people generally thought the USPS was doing a fine job, why are they paying premium prices to use UPS or FedEx instead?
And the same can be said about the trains: who actually takes trains? Hardly anybody, even when the time it takes (including TSA and airport-parking time) is comparable to the time of flying, and cheaper, and faster than driving. Plus there's the view! Et cetera. Sounds great. And yet...outside of the Acela/NE Corridor, just about nobody is willing to take the train, even over the modest distances that are successful in Europe. For that matter, having taken trains in both Europe and the US, it's not hard to see why. I would quite happily take an SNCF or Bundesbahn train -- which will be almost always on time, speedy, efficient, safe, and well-run -- but you'd have to pay me to endure Amtrak, which as far as I can tell must have some secret upper (two-digit) IQ cutoff for hiring.
There are plenty of stories from at least all over Europe, that people regretting privatization of former municipal services like water supply, hospitals, local transport etc. First it looked like success, they saved a lot of money so they could keep the prices stable and still make profits, but after several years it came out that they were just under-investing and the infrastructure was starting to erode. So the people had the choice to subsidize the necessary investments or accept much higher consumer prices. This is an example were you only realize how good it was when you are shown otherwise.
Is Europe not generally filled with democracies? If a majority of people regretted those privatizations, why are they not voting to re-nationalize the industries in question?
Well, they all call it democracies, but it doesn't always work to the extent it should. If there is no one in the election that has this agenda, you can't vote for it, as referendums are hard to get and usually not legally binding.
Many municipalities are doing so or trying to do so, but at high losses as usually the only way is to buy it back, what does not feel fair and you still have to be able to afford it.
Hmm, well, I believe the more parsimonious explanation is that while there may well be stories all over Europe of people regretting privatization, there isn't actually a solid majority of people who think that way in any country. Else the laws would change, at least somewhere. I haven't noticed Europeans being reluctant to express themselves or politically incompetent, and we're not talking Russian politics where you might "fall" out of a window if you annoy the powers that be with your talk of reform.
>Of course we would need some checks to avoid government mismanagement.
Therein lies the rub. There were several such experiments in the past century in Russia and China, and they turned out terrible because they were inevitably mismanaged.
>Another milder possibility is have the transfer of ownership happen only when the company pays dividends. So, as long as the company is reinvesting the profits, they remain private. Whenever profits go to investors, the government gets a little bit of the company.
> and they turned out terrible because they were inevitably mismanaged.
Lots of privately owned enterprises are mismanaged and that's OK because they get replaced by well managed alternatives as long as the barriers to entry are low. I quite like the idea of degrading ownership, and the possibility that it might lead to giants ultimately becoming poorly managed and opening up the niche for new competitors actually seems like a feature rather than a bug.
Disagree, having competent, well-run companies slowly get taken over by the government just so they would be worse run to encourage new competition would be awful for consumers.
Having competent well run companies become so large as to get significant political power and create barriers to entry is also bad for consumers. Where the balance lies is a tricky question. Besides, having worked in a few large private organisations, the idea that government owned organisations are necessarily run worse doesn't seem obviously true to me.
Yeah but here's an idea - use what political power you have to block other people from abusing their political power. Don't jump to abusing it yourself
A great idea here might be to actually prohibit government from picking winners and losers rather than accelerating the rate of their picking winners and losers.
The same case could be made with natural monopolies which have been privatized in the past. All over Europe lots of things have been privatized during the neoliberal agenda of the 90s. There is almost no sector which turned out to work better than before. The one exception being telecommunication services, and this is only due to strong anti-monopoly work being put in and technological advances which made it possible to untangle the physical line from the service sold over those physical connections.
Considering that dozens of countries have made that experiment for a few decades now; and that it failed in every single one of them, I wonder what the lesson we learn from this could be ;-)
So basically then if US now < Europe of today < Europe in the 70s, we should have some data which confirms this decades-long backwards slide into poverty, poor health outcomes, economic stagnation, and despair in both Europe and America, right? We should be able to compare say 70s era Europe and see on some objective measure that all of its services are far superior. Lives should be shorter, the trains run far behind time, wealth and standards of living lower, etc. Right?
This already exists, only it's called capitalism. The returns we're seeing are to innovation, not to ownership of capital. As the ideas and models get older, the returns reduce.
That's interesting. The linked page talks a bit about how controversial they were, but doesn't give much information on exactly what people were upset about. Do you have more information?
It had a crushing effects on small business-owners, and caused giant protests.
You need to understand that the Social Democratic party had a very odd view on corporations. It could stand the large ones, because those they felt that they could handle, through lawfare and indirect pressure. But they _hated_ small businesses. Post-war politics deliberately gave large corporations preferential treatment, and large corporations could (and did) handle the situation by restructuring their ownership and moving it abroad (which in turn hurt taxes), but small companies were brutally victimized. But since a _lot_ of people run small businesses, or know people who do, it was fairly easy to organize against. Then came the devastation of the 90's economic crisis, they were abolished, and since then only the lunatic fringe has talked about reinstating them.
It's not rocket science to realize that crushing businesses won't be a good thing for the economy.
Jeff Bezos only has billions of dollars because he owns a large portion of a company that's worth billions of dollars. If he doesn't actually own it, but is instead leasing it from the government (which I think is a fair way to look at this in the long run), then his incentives change. He can't sell it, because no one will buy a short term and diminishing product. His incentive becomes to wring it out for everything he can while he still controls it. Instead of making a company that will provide maximum long term value (and in the process raise the value of his stake in the company), he will pay himself as much of the profit as he can. This will cripple the company, so that in 50 years, the government will get a worthless hull, stripped of all value.
In fact, the best way to game this system would likely be to start killing off your own company after about 15-20 years and starting a new company in the same field that you can out-compete. If you set the seeds of failure well enough, you can hand the government a frustrating and incompetent organization right around the time your new-and-improved company is going into full swing.
Worst of all, this helps no one and is incredibly inefficient.
That would probably kill long term capital accumulation and would leave the firm undercapitalized by the time it is received by the government:
Shareholders would push management to pay out as much as soon as possible, revenue would not be reinvested. Even with the addition of "if dividents paid" it could be concentrated into the first couple of divident paying years, after which they may just close the company altogether.
It also does not solve the principal-agent problem better than older versions of socialism.
To "solve" socialism, I think this principal-agent alignment should be worked on, to have a solution that is approximately equal to the market solution. (which is not perfect either, but is much better for private goods than government solutions)
Instead of government owing in the long run why not distribute 2.5% of shares to all citizens directly?
Or what if the conversion were not to government control or citizen control but to employees as in a mandatory ESOP?
The state ownership was only supposed to be transitional phase to worker ownership.
I'm not a socialist nor a Marxist. Marx got so many things wrong, I am not sure why anyone would want to advocate for transition to "socialism". But I am also not a capitalist, worshipping neither the unbridled control of the means of production nor the parasitic rent seekers.
It would seem better to trace a better a theoretical framework from Rerum Novarem and the social and economic justice encyclicals coupled with Henry George's insights (before liberation crackpots started co-opting Progress and Poverty).
There has only been one successful worker led revolution: that was Solidarnosc. The theoretical underpinnings of the unionist movement were quite sophisticated.
If shareholders had 2.5% of their shares forcibly taken away every year and given to employees, then nobody would bother investing because in the long run they will own nothing. Wanting startup capital to fund innovation while also wanting the funders to keep nothing in the long run is fundamentally incompatible, it's wanting to have your cake and eat it too. If this kind of confiscatory policy is implemented it would serve to socialize existing businesses (the merit of which is also questionable - do worker owned businesses generally perform better? If not, what is the merit?), but also immediately put the brakes on any future investment.
Now, Amazon actually *voluntarily* distributes some shares to employees as part of their annual compensation, which won't ever turn the company into a fully worker owned coop, but does make the workers somewhat invested in the long term well being of the company. Interestingly, 1) some employees who are compensated with shares sell them immediately, with the logic that their financial wellbeing is already sufficiently tied to the company by virtue of their continued employment, and 2) warehouse workers lost the stock compensation when the starting wage was raised to $15/hr. These both suggest workers actually prefer a stable income rather than ownership in the company, which makes the government forcing them to be paid in ownership with the goal of eventually turning all businesses into worker coops even more questionable - do workers even *want* to be paid entirely in ownership such that they eventually end up taking on all the risks as well? To answer that we could imagine that today, workers take their paycheck and immediately convert most of their discretionary income into shares of the company they work for, regardless of how well it's performing. That seems like an exceedingly poor financial strategy, most people would rather diversify.
I wasn't advocating for mandatory ESOP conversion. I was suggesting it as alternative to proposal to state ownership conversion post.
I'm not a state socialist.
The average life span of SP500 company is down to 18 years! (In the 1950s I think it was 60 years).
If companies end up out of business (or delisted) in 20 years, then 40 year conversion to ESOP would hardly make a difference.
Would a 2.5% of valuation bonus to employees each year make a difference to capital formation?
It is hard to tell what the stock market is actually doing anymore. The market is a valuation machine but is it really a start up capital accumulation machine for reinvestment in future innovations? When companies are buying back stock?
Sure it's probably better than the state seizing all enterprises, but why propose it when it's still worse than what we already have, i.e. mostly just letting the market do its thing?
But letting the market do it's thing: that isn't so great if what the market is is just legalized gambling.
The success of generally raising the standard of living has been in spite of capitalism. That capitalism is better than state socialism may not be saying much. That both are better that anarcho-libertarianism is saying a lot.
That we seem to be stuck with three choices Is a doggone shame. The unbridled capitalist, the state socialist and the libertarian anarchist. All three failures.
We already have the far and away best solution - let the company earn money, and then tax it and use the funds for public spending. This isn't rocket science - we don't need to reinvent a worse wheel.
I think in the end this is the right idea. The power to tax is plenary.
The question then is one of political will to figure out what to tax and how much.
A good land value tax to start. No one made the land.
And then excessive returns from capital: usury.
And finally income from whatever source even including labor which is excessive. What is excessive: well we could start at more than 3 standard deviations from per capital income.
This was briefly done in Sweden under the name of "löntagarfonder". It was an absolute disaster - unsurprisingly, no-one is going to take risk and work their ass off to start a company that will just be confiscated by the government (or in this case. by the unions), even if slowly. Corporations reacted in the utterly predictable and rational way, by fleeing the country. It was a part of the massive economic malaise of the 1980s that lead to the severe economic crisis of the 90's.
As many commenters point out, this disincentives long term investment, so we would need some adjustments to set the incentives right:
1) we want to prevent monopolies, especially not by companies that are too big as they can defend their monopoly unfairly by subsidising from another field, buying emerging compeditors before they get dangerous or even by corruption or influencing legislation.
We could counter this, if we allow only a certain market share beeing in the hand of one set of investors. And this only kicks in for big companies e.g. worth more than 100,000 $. So a small company can have a monopoly. Companies also can grow big, but they'll not crush their competitors, because as soon as they dominate the market they have to give shares to the state or some other form of public ownership.
2) we want to encourage entrepreneurs, not building of family fortunes ever growing. So I would propose to introduce a high inheritance tax of e.g. 50% for fortunes bigger than 100,000 $ but it does not have to be payed in actual money but the state also accepts shares. So the company can work on like before but a company working well over generations will end up in public ownership.
> to explore and invest, you can just subsidize those directly
We have that here in Europe. Companies can apply for subsidies from the European Union when they do innovative work. Inside such companies we tend to be rather cynical about the value of those subsidies.
For starters, the subsidies mostly go to large established corporations, because those are the ones that can handle the administrative bureaucracy needed to qualify for those grants. People running small startup companies mostly aren't even aware that those subsidies exist, and even if they did, they have too many other things on their hands to make time for filling out the million forms needed to qualify. So it's mostly a free bonus for companies which should already be large and self-sufficient enough to bankroll their own research projects without taxpayer help.
And of course there's a lot of grift, with companies doing pointless proof-of-concept projects just to grab the subsidies, while the *actually* innovative and speculative ideas don't qualify for subsidies because it's too hard to convince the government bureaucrat of their value.
You described the situation in Europe but it's also the case up in Canada with the SR&ED program. It ends up a mix of keeping broken businesses alive (those whose research hasn't and won't go anywhere) and and subsidizing shareholders of successful ones (because we don't have to raise as much outside funding and get diluted when the government is paying for 1/3 of applicable salaries).
To be clear, this is not a general argument for "subsidies good."
The situation I'm talking about specifically is in industries prone to monopolization, where the barriers to entry are so naturally high that only extremely capital-intensive efforts are able to get people to engage in the business, and without them you don't get the exploration, and, once success has been achieved, absent severance taxes the companies achieve massive windfall profits based on limited access granted either by nature of by regulation.
I think we have good evidence that Amazon doesn't count as "discovering" a "naturally profitable" niche, because Amazon needed lots of very expensive investment in warehouse automation and many other system to build their niche, and their reward for all of that was a still fairly low profit margin on that core business. A different tax policy that was less friendly to investment could have prevented that complex warehouse automation machine from forming.
By contrast, search engines to appear to be "naturally profitable" niches since Google was massively profitable from very early in its existence without much work after the "core idea" that gave them first mover advantage.
How does this analysis apply to businesses like Apple, which are clearly not monopolies (too small a market share of the global smartphone market) but rather some combination of ultra-strong brand stacked on top of internal-to-the-brand monopoly markets (30% fee to access the app store)?
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?
It does seem intuitively correct to me, though: most progress is about being on the shoulders of giants and a slow progression of collective knowledge, and individuals serve more to jump the process forward and affect its trajectory (e.g. which of multiple solutions to a given problem becomes widespread seems to often to just depend on historical quirks), more than unlocking technologies through unique esoteric insights.
The time when one invention corresponded to a product ended, I don't know, 100 years ago, around the time that single inventors ended and industrial labs took over.
Amateurs think that "one single discovery" corresponds to WiFi or flatscreens or the iPhone. This is absolute nonsense. In the modern world it's about tying together a vast network of inventions, and the extent to which single inventions are duplicated is absolutely uninteresting, since the critical resource is not the isolated inventions, it's all the pieces required to tie them together. Which has technical elements, yes, but also personal elements, business elements, political elements, etc.
That's irrelevant as well, the *network* itself, considered as a single entity, is an artifact that evolves piece-wise and independently in parallel, in a way that plausibly doesn't depend on personally-unique ingenuity.
To take the example I'm most knowledgeable about, the iPhone didn't spring from the mind of Apple's engineers or business execs fully formed. Smartphones trace back to the PDAs of the 1990s, a long lineage of smartish phones follow, most notably the blackberries. Every single idea that the iPhone uses but was originally developed by those predecessors is an unfairness as well as a market inefficiency, they are information gone unrewarded, pieces of the puzzle solved for Apple's benefit but met with ingratitude. Android was originally intended for digital cameras but Google bought the startup in 2005 and by 2006 they were already taking about a "handset alliance".
The iPhone, considered as a network of ideas and artifacts as components, wasn't original, plenty of similar networks preceded it, the components and all the ways they can be brought together were fairly obvious to those who thought about it (1960s scifi, at least), what made it the first successful?
The single biggest idea that made the iPhone the iPhone is, I humbly think, probably the app store, and it was, wait for it, not an original idea, and was refused at first by none other than Jobs himself, so not only did Apple hit luck by chance, they didn't even recognize the luck they hit in the face. Add in all the countless other effects : computers in 2007 hitting *just* the right point in the cost-mobility-power consumption-performance curve (as well as a myriad of other factors), the rise of social media just a 3-5 years before making a good killer app for the new, very inferior still, computing platform, etc. It would be preposterous to suggest that all of this was due to Jobs or his engineers or even the entirety of Apple, they probably didn't even recognize it was happening as it was happening.
The iPhone launched without an app store and was still very successful before that.
Reality is, smartphones before iPhone looked and worked quite differently. Apple contributed plenty of ideas there. I think this thread would be a lot stronger if people built their arguments around companies that run infrastructure in the ground rather than companies like Amazon and Apple which are widely regarded as being hotbeds of innovation and effort.
To add insult to injury: the Apple appstore wasn't even the first of its kind. There were dozens out there already. I even wrote my diploma thesis on how dependencies could be managed in those app stores to avoid installing them twice before the iPhone was even announced. The iPhone is simply a better executed version of the Openmoko platform. Even the phone design is strikingly similar. Apple simply happened to have the resources (due to booming iPod sales) and confidence to execute it. There isn't a single original idea build into the iPhone 1; and if we are being serious here, the first version wasn't even usable. It became a functional device with version 3 only. But it rode on the wave of the iPod and was a lifestyle product which people wanted to have to flex with out, so it became successful despite all its shortcomings.
The iPhone was introduced in January 2007 and released in June 2007. The first Openmoko device released in July 2007, but the “consumer launch” was really half a year later.
This was “kinetic scrolling” on the Openmoko device:
And no: I didn't insinuate that Apple "stole" from that platform. Nor did I insinuate that Openmoko was as well executed UI wise.
But a smooth UI, while important for usability, on its own is literally just that: life style. You couldn't even copy&paste on that supposed "smart" phone.
Apple engaged in innovation when it comes to creating a keyboard on a touchscreen that's useable without a stylus. Ideas such as making the clickable area of letters you are likely to type next bigger while letting the visible area of the letter stay the same aren't very intuitive.
Providing haptic feedback that people don't notice consciously but that makes it more clear that one presses a button makes a phone easier to use.
There are likely lots of other ideas that went into the iPhone that were new and nonobvious.
The fact that to launch the iPhone without an app store was a conscious decision and it might have been a good decision by Jobs as it made the first iPhone a lot more straightforward to use (even when it reduced choices).
"How revolutionary is X" is not a metric that matters. What matters is solving the bottlenecks that prevent a new technology from being viable.
The thing that's new with the iPhone was that it was entirely centered on a touchscreen that's used with the fingers and without a stylus.
Apple made the bet that this is how you are supposed to build a phone and managed to work through the bottlenecks that prevented that approach from working.
"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 don't know how to TEST it, but there are a number of examples of the same thing getting independently discovered:
*) Edison and Swan for light bulbs.
*) Bell and Gray for the telephone
*) The Wright Brothers and Santos-Dumont for flight
*) There are several credible inventors of the microprocessor (including some folks working on a classified implementation for the F-14 aircraft).
*) Newton and Liebniz for calculus
*) Writing seems to have been invented independently multiple times (but also NOT invented in some places/times ...)
But there was actually nothing "discovered" here per se, was there? There was just fantastically good execution and management. Jobs didn't really invent anything as far as I know, he just built a trillion dollar company because he was so good at management, essentially, right? If we waited long enough would another person have come along and built Apple? I doubt it. Without him Apple didn't find another Jobs, it just failed.
Freedom: "But there was actually nothing "discovered" here per se, was there?"
Pepe wrote, "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 responded to that.
To what "here" has nothing been discovered are you referring?
Ah. I don't consider Amazon to have been invented or discovered. Selling things via a catalog was quite old. And lots of other companies tried to sell things over the internet. Without Amazon we'd still have those.
Would they have been as SUCCESSFUL???? That is a separate question. One could make a good argument that the answer is, "no." Logistics is difficult and non-sexy. Sears couldn't pull this off (on the internet). Wal-mart is awesome at logistics but pretty late to the party.
Inventions often are "in the air." But a particular good implementation most certainly does not have to be.
Are there any that are not design patents? Although in the U.S. designers are called "inventors" this to me does not seem to be true invention in the normal use of the word. He may have been a great designer, and no doubt design contributed to Apple's success, but I think his management was more important.
There are also examples of stuff remaining weirdly uninvented for many years after it could have been invented. Stirrups, horse collars that didn't choike the horse, the wheel in the Americas (they had toys with wheels but no tools with them), etc. It seems like the cases where something waited aroumd amother century or two waiting to be invented are examples of what happens with the Bezos or Jobs or whomever doesn't show up.
The best example of this is the compound bow. The bow has been around for 10,000 years before someone thought of putting pulleys on the limbs to significantly increase power generation.
There are good reasons not to do that. Many native tribes to this day don't use them and are better off without it. The problem wasn't that the compound bow would have been too difficult to invent; but that it has serious short comings which weren't balanced with actual advantages back then. They became useful due to other advancements in weapons technology.
They didn't use wheels outside of toys in Pre-Columbian Americas because they didn't have a draft animal large enough to pull carts. The larger animal domesticated was the lama, which is very small and weak compared to the horse, and was used in the Andeans mountains. It can't be mounted or pull a cart, especially in the mountains.
Wheelbarrows and dollies are extremely useful, especially in the mountains -- also carts can be pulled by, y'know, *people*; this is very handy if you are trying to move something too heavy to be carried by that same amount of people. Large stone blocks maybe?
Wheelbarrows and wagons are useful even with only human power. You can tell because all kinds of worksites now with only muscle power are using wheelbarrows.
Today a wheelbarrow seems obvious, like a bicycle, but for this technology to take 1,000 years to spread from China to Europe shows that, like for the bicycle, there are hidden complexities that prevented it to be invented easily.
If the Europeans didn't have the wheelbarrow before the 12th century, it seems plausible that the Mayas, Aztecs and Incas just didn't get the idea.
As for the hand carts, I agree with you, it's a mystery why they didn't use them...
Stirrups aren't as simple as they seem. Well, the stirrup itself is simple, but it's only useful in combination with a good saddle tree. The saddle tree is the part of the saddle that fits properly over the horse's spine to keep the saddle in place and to distribute the rider's weight. Without it, as soon as you put your weight on the stirrup, the saddle would slide off and you'd be lying on the ground if you're lucky, or dragged behind a bolting horse if you're not. Or even if you manage to avoid that, you'll be creating unpleasant friction and pressure points which will irritate the horse and could even cause permanent injuries.
Inventing a good saddle tree required some nontrivial wood- and leatherworking techniques, and was probably a process of incremental improvement with long feedback cycles. Once a sufficiently sturdy and comfortable (for the horse) saddle tree existed, probably the stirrup was invented later that same week.
This is a bit easier to see with software, where the underlying technical foundations are so consistent and shared.
For example, CompuServe and AOL existed as large shared networks in the 1990s, Encarta existed in 1995, the web existed since 1991, but it wasn't until 2001 that Wikipedia was born. It relied on no new technology - wikis had been around for ages by that point - and could have been created at any point in the previous 10 years. But it took Jimmy Wales and Larry Sanger to have the idea and actually sit down to create it.
And seeing as we're talking about Amazon, AWS could probably have been started much earlier. Google had drastically more advanced cloud tech than Amazon years before AWS was born. One reason AWS is in the lead now is because for a very long time Google's chief execs (mostly Urs Hölzle) blocked attempts at an AWS-style cloud product on the grounds that it was an uninteresting low margin business! So for a long time there was this unmet need for a product that hadn't been "invented" (or had, but wasn't on sale).
That's actually not true. Before 2001 the internet lacked the critical mass for wikipedia to become useful. Wikis have actual draw backs, whereas their advantages only become apparent when the amount of users surpasses a certain point.
Also, Wikipedia only became feasible once server costs, bandwidth, storage space, etc, became cheap enough for a nonprofit to run a project at that scale.
That's an extremely vague assertion for a statement as strong as "not actually true". I could equally argue that the level of critical mass for a wiki encyclopedia existed long before then - AOL alone had more than 10 million users and couldn't keep up with demand it was growing so fast. Wikipedia never needed even a fraction of that number of people taking part to become a well known phenomenon.
Your counterargument only makes sense if we assume that all those 10 million users were potential Wikipedia contributors. Which they were clearly not.
Wikipedia came about when the combination "number of people browsing the web, but ignoring news groups", "costs for servers and storage" and "people with a vision" was just right. The vision alone didn't change the world.
I don't want to diminish the amount of work that went into setting up what eventually became Wikipedia. But a lot of such projects popped up around this time. I myself maintained several of them. It simply became feasible around that time; and that's why people with a vision could do it.
I draw a distinction between "could have been invented and wasn't" which would include horse collars and stirrups and "was invented but no one could see the point other than as a toy" which includes the wheel in the Americas and the steam engine in classical Greece.
The latter usually has a story around it. The former tends not to because how can you explain how nobody noticed a possibility.
Then we have things that we invented or *almost* invented and then forgotten. Calculus is an example of this.
The Wright Brothers' plane (when demonstrated in France) was much more maneuverable than anything else, including Santos-Dumont. However, they never didn't really manage to make a big successful business out of their invention. Aircraft production today is dominated by totally different corporations than those founded prior WW1.
Edison's competition with all the other light bulbs and electricity companies contributed to consumer value from light bulbs, and general overall electrification. The first iteration of light bulb and means to provide electricity to power it would have been unimpressive to us. (Edison was a proponent of DC.)
Or, let's take cars. Ford Model T wasn't the first car. Ford wasn't even first to use assembly line (which go back to Marc Isambard Brunel) nor first to use it for making cars (that was Oldsmobile). Ford was the first one who could make the assembly line car production work and immensely profitable at scale. Billionaires are not made by inventions but success at industrial production of value to consumers.
The idea that you could let inventors be paid only for their labor and that progress would occur regardless of the specific individual was the explicit theory of Soviet Marxism and was put into practice in the Soviet Union and other Communist states. It did not work out. And while I'm not sure this is the last word, "The Soviets had this as official doctrine for almost a century" seems like it's at least gesturing towards being a huge empirical experiment.
There are plenty of inventions that didn’t happen, or at least not until too late.
China didn’t have the wheelbarrow (at least not the nice stable 3-point one you push from behind).
If you row like a water bug swims, instead of all pulling at once, you go faster. Nobody ever does this.
The compound bow wasn’t invented until 1966.
I hear the Aztecs didn’t even have wheeled transport or hauling at all.
Somebody in North America discovered how to work bronze, and spread nice bronze artifacts all over the place, but by the time Columbus arrived, the art had been lost.
Sometimes, we just don’t invent the thing at all — or the “some other inventor” is hundreds of years later, or in another civilization.
Many of these examples simply do not analogize to modern day innovations, whether it be due to material conditions (Aztecs did not live in a place that would have made wheeled transport useful enough early on to then invest into the sorts of roads wheeled transport demands in order to be effective) or using alternative versions (the traditional Chinese wheelbarrow has the wheel in the middle of the platform, which is less stable when set down, but easier to carry very large loads with thanks to a balance weight distribution relative to ground contact area), but most importantly because modern innovations take place in a vastly different informational environment, and many of the low-hanging fruit have already been picked.
I suspect virtually all of those there's some other obstacle other than just a lack of an inventor with the Spark of Genius to come up with the idea - either a missing technological prerequisite or some aspect of the context of their situation where the invention is less helpful.
For the first (missing technological prerequisite): compound bows are made of fiberglass - the concept of a pulley wasn't hard, but a material that could take that much stress and not break is a pretty recent development. Also "expensive, complex bow" might be good for an archery contest, but less good for the historically common usages of bows: equipping an army or a peasant hunting for dinner.
For the second (wrong context), it seems Aztecs didn't use wheeled transport much because the geography was wrong (they lived on a giant lake surrounded by mountains: neither is a good place to use a wheel), and because the Americas lacked beasts of burden, like oxen and horses, which were a big driver of wheeled transport.
I'd also take "nobody ever rowed a boat this way" with a huge grain of salt: we often have less knowledge about how people used to do things than we think. How would we know if people used to row boats that way? A big problem is that people tended to not write books about "obvious, daily life" things. (Or at least not ones that survive to today)
Yes, bows with pulleys could have been around forever, and if you count catapults they have been. I wonder why nobody invented the velocipede in Ancient Egypt for that matter.
TIL you can make a compound bow out of wood: but isn't the limiting factor of a bow the strength of its limbs? If I understand the physics, a pulley doesn't add power to the bow, it just makes it easier to draw.
And easier to draw is an advantage, but I also suspect even wooden compound bows are a lot harder to mass produce to make an army of them. It's possible in the past 4000 years of using pulleys and bows nobody ever thought to combine them... but it seems more likely that somebody did and it turned out to not be a good idea.
I've got some experience making bows and one important principle you need to follow is to minimise the mass at the tips of the limbs, otherwise the bow wastes a lot of energy propelling itself and not the arrow. Metal pulleys would be very heavy, so I'm sceptical you those kind of compounds would outperform normal self bows.
There are videos on YouTube where not only are tribes in Africa presented with compound bows, but where their hunters also demonstrate how those bows are cool for trick shooters, but actually inferior when hunting ...
I shoot a recurve, but also have a compound bow. My recurve is 55 lbs, which is hunting weight but by no means comparable to the 100 lbs war bows used in the middle ages (which took years of training to be able to shoot). Nevertheless, the range of the compound is so much farther than my recurve, that the hunting advantage is obvious. There is a reason most hunters use compound bows these days and why traditional bows are viewed as a specialist pursuit for masochists (even though I personally prefer them for aesthetic reasons).
Well, you should see those tribes hunt. Nobody cares about the better range when hunting for rabbits. What they do care about is how fast they can acquire their target and shoot after wandering around for minutes or hours searching for something to shoot at.
"There is a reason most hunters use compound bows these days and why traditional bows are viewed as a specialist pursuit for masochists (even though I personally prefer them for aesthetic reasons)."
You mean "people hunting for sports". Because I don't know of a single hunter tribe, still living a traditional live, which would have adopted them. And it's not for a lack of knowing about them. Granted: I'm no expert and such tribes could exist. I've just never heard about those.
The excuses for the Aztecs I've heard before, and have always rung hollow to me. Didn't they build really big pyramids out of stone? Even on the side of a mountain or near a lake, I'd much rather have the wheel than not, if I had to build one of those. They moved a lot of stone, without wheels; I don't see how we wouldn't consider that a huge hundred-dollar bill left on the table.
> If you row like a water bug swims, instead of all pulling at once, you go faster. Nobody ever does this.
There *has* to be something missing from this story. Are you saying that a rowing team which would adopt this technique, would easily beat its rivals -- turning a mediocre team into a national champion team, or a national champion team into Olympic Gold -- and they just ... don't?
People know about this technique (after all, *you* know about it) and they just leave the hundred-dollar bill on the table without bothering to stretch out their hand and grab it?
I am not an expert in this; I heard it in a lecture long ago. I think you’d need different oars and it requires more fine coordination?
But yes, it seems like there are often lots of hundred-dollar bills lying on tables, technology-wise, that people don’t take, and to assert otherwise involves making a lot of unlikely-sounding excuses.
Has that technique ever been demonstrated in practice? Or did some mathematician or physicist just calculate that it would work in theory, given a bunch of simplifying assumptions such as assuming finer coordination than any team of real-world humans will ever be capable of?
If a large number of smart and greedy people have walked past the table without picking up the $100 bill, and your evidence for the bill’s existence is a lecture you heard once but can’t remember the details of, I’m going to go with "the bill doesn’t actually exist" as my default assumption..
"But yes, it seems like there are often lots of hundred-dollar bills lying on tables, technology-wise, that people don’t take, and to assert otherwise involves making a lot of unlikely-sounding excuses."
My (limited) experience with obvious technological improvements that people don't take in a competitive environment are that the improvements often aren't. Frequently because of implementation details or path dependencies.
One example of this is designing chips with asynchronous logic. Everyone agrees that the chips would be either faster or use less power. The catch is that getting them to actually WORK is much harder because we have so much accumulated knowledge and tooling to debug clocked logic. So almost no one actually does this in practice.
I tend to be skeptical about low-hanging fruit in a competitive environment. Occasionally you will find some, but often the benefits are less than expected and often non-existent when everything else is considered.
I tried it (in my horse rotator) and the problem is that the oars clash. The reason the vikings in my imagination row in unison is because there are too many oars along the side of the boat for them to go out of sync; they will simply tangle. But I'm just an idle ponderer so I welcome your input on this - how are you even imagining out of sync rowing? Is the boat just awesomely long, giving each set enough room to wag back and forth?
Think about it. Air and water resistance vary with the cube of velocity. So you want a more constant velocity. If all of the rows go at once followed by a long delay then you have a large peak of velocity followed by a decay down to some final velocity. The midpoint is the average speed.
This ripple (peak speed minus trough speed) is proportional to the time between strokes and the strength of strokes. If every oar goes independently then (for 6 oars operated in pairs) it would be 1/3 the strength and 1/3 the delay between strokes. (If you could actually do 1 oar a time it would be 1/6 and 1/6. (It seems like the wiggle from this would outweigh the benefits)
It seems like this might force your boat to be longer or perhaps you could find some low-loss energy storage method that allowed simultaneous rowing but the oars moved sequentially....
I agree skepticism is a natural reaction here, but a word of caution in using professional competitions as a evidence: in most sports rules have become fossilized over the centuries, to ensure I suppose that the winners get there by human factors -- training, strength, et cetera -- and not by technological invention.
Examples abound: it's well known recumbent bikes (particularly with windshields) can go faster than standard bicycles, and use human power more efficient, but you will absolutely never see one in the Tour de France. Certified "Ironman" triathlons ban drafting (even off team-mate) in the cycling leg, even though drafting is a major strategy in regular road racing and would be a considerable advantage over such a long course. Sailboat and motor-car racing have very strict rules, which typically ban any significant technological innovations, e.g. you can't use electric motors in a drag race in part because they would always win. The international body that governs swimming banned "low drag" technical swimsuits as soon as they were invented. Et cetera.
So I would guess the rules for international competition in rowing are likewise fossilized, and any significant departure from the way it's done now would be prohibited.
But your point still stands at least partially, in that you'd expect to see some brilliant innovation in rowing in various unofficial competitions, just like you see recumbent bikes and electric cars in unofficial competitions, and technical suits in non-FINA events.
Indeed that's a plausible answer to my question of why this technique isn't used if it is known to be objectively better. Maybe an even more relevant example in swimming is the underwater dolphin kick, which broke world records when people started using it and which led to the introduction of rules on how long you are allowed to stay underwater after the start.
But still, if the answer is "people agree it's faster but the standard rules for competition rowing forbid it", then it doesn't really fit in a list of inventions like the stirrup and the compound bow, for which the (very debatable) claim is that they could have been introduced centuries earlier, but nobody thought of them even though the necessary preconditions were already in place.
The original claim was just "nobody ever does this", like it's a hundred-dollar bill just lying there on the table and nobody bothers to walk up and grab it. If it's actually a case of "people tried it and it works, but it's not allowed by standard competition rules", that's a very different matter, and less relevant for the current topic of discussion.
It would be relevant to deciding whether the reason we seem to need Bezos types is that they think up the invention, or whether what they actually do is grab an existing unused efficiency and break the rules (or other factors) preventing its use. Which might help decide whether any particular Bezos type person was just lucky and another will come along any minute if he fails, or if each Bezos type is a once in a thousand years chance for humanity to advance.
Yes, I generally agree with you, but I would still suggest a little caution. It's possible for things to get fossilized on a culture-wide basis, sort of a autologous version of the FINA rule-making, and sometimes you do need some kind of visionary to break This Is How We've Always Done It.
I'm reminded of Henry Ford supposedly saying that if he'd *asked* people what they wanted, they'd have said "faster horses." Sometimes the market, and people, just lack imagination. Consider Tesla: one would have thought naively that they could never have succeeded without a network of dealerships, which they could never have built up in a short enough time to avoid burning up all Elon Musk's cash -- and maybe this is one of the best reasons why it took so long for anyone to even imagine inventing a whole new car and a new way of buying them.
But it turned out there wasn't any technical limitation stopping it from being done another way (at least not after the Web became ubiquitous), it just took someone visionary who said screw all the voices of experience who say no can do, I'm going to make it work anyway.
As I said, I would generally agree with you that if it were possible to do better, in almost any random area well within the current scope of technology, than the reasonable default assumption is someone would have done it. Humans are inquisitive, energetic, and greedy. But...not *always*. There's enough contingency to keep things interesting.
Seems to be a lot of interest in this point, so I’ll record what I know in case anybody wants to research further.
There’s an insect that swims on water and has many legs, where the legs don’t all stroke at once, but the stroke starts at the front and propagates back. I’ve seen it many times in creeks on the east coast of the US, around Maryland, but can’t seem to find it on Google.
The lecture was at St. John’s College in Annapolis, MD, one of the Friday lectures, sometime from 2001-2005. The topic was inventions that the ancients could have invented, but didn’t. The lecturer described this hypothetical method of rowing, the compound bow, and at least one other which I don’t remember.
It seemed reasonable to me because of having seen the water bug in action myself. The librarians at the St. John’s College library would be able to supply more details about the lecture; they keep good records.
It sounds a little speculative. The first objection that comes to my mind is that insects act in a regime of much lower Reynolds number than human rowers, and we already know the best propulsive method varies radically with Reynolds number -- this is why bacteria use corkscrewing flagella instead of an oar or swimming motion.
The other version of this is that sometimes the idea is all that's needed. Sequoyeh didn't know how to read or write in any language, but had the idea of phonetic languages explained to him, and he invented a phonetic writing system for Cherokee. Presumably someone with the right insight for this 5000 years earlier could have done the same thing, but nobody with the right insight/opportunity managed it anywhere close to there. (There were writing systems in South and Central America, but they weren't phonetic and they didn't reach nearly that far north.)
Another classic example: Left and right shoes. Presumably, they could have been invented soon after the invention of shoes, but they weren't.
Also, we have no idea how much "obvious" stuff we're failing to see, but I'm willing to bet future people will be sneering at us, not that the bet can be judged.
Looks like they actually were invented many times throughout history: https://hsm.stackexchange.com/a/13734. I'm hardly an expert on footwear, but it seems unlikely to me that this was a case of "this is a great idea just waiting for a visionary to imagine it".
Instead, I would guess that there's a balance between the type of shoe you're making, the material you're making it out of, and how sophisticated your ability to make them is. If the shoe is simple or soft enough, there's not enough advantage to bother making them asymmetrical.
>If you row like a water bug swims, instead of all pulling at once, you go faster. Nobody ever does this.
Assuming it is so (I really have no idea), I'd wager you go faster *for a given amount of rowers*. But the number of rowers you can fit on a boat is much greater if they row all at once, so that the rows are parrallels, rather than like a water bug, which would require considerable space between rowers to avoid hitting each other's rows.
My recollection is that anthropologists believe fire was discovered once. Some isolated people group lost the ability to make fire a long time ago, and never rediscovered on their own how to make it again.
Lots of things that seem obvious in retrospect, aren't.
At the same time, there are instances of parallel development (calculus, maybe pyramids?).
In short, I don't think we can know which inventions would have been invented counterfactually with any kind of certainty.
I don't think this is correct, at least as far as ancient fire starting technology is concerned. For example, Asian tribes used the fire saw, while Native Americans used the hand drill or the bow drill. Lest you think the boomerang is another good example, wiki says: "Although traditionally thought of as Australian, boomerangs have been found also in ancient Europe, Egypt, and North America."
Innovations on better fire-starting mechanisms (or better suited to your new environment) is much easier than inventing man-made fire from scratch.
Given how long fire has been with us, and given that there is at least once instance of people losing the ability to make fire, it seems more plausible to me that man-made fire was not invented multiple times in different places.
As I understand it, the current thinking is that human harnessing of fire came in three stages: opportunistic use and redirection of natural fires, maintaining long-term hearth fires originally kindled with brands or embers from natural fires (similar in operation to, and possibly ancestral to Zoroastrian fire temples), and finally techniques for deliberate fire-starting. It could have been the first or second stage that's thought to have occurred only once (the second stage feels more likely to me, since opportunistic use in inherently situational) rather than the third.
Your position is not unreasonable, but I do think the third stage is most likely the unique event. I think this for a few reasons:
1. I don't thinks humans could have successfully migrated to colder climates without the ability to deliberately make fires.
2. The relationship between friction and fires does not strike me as obvious, and not likely something that would be asily replicated. However once this relationship was understood, finding better ways to create that friction seems reasonable.
People underestimate what it actually means that ancient people weren't less intelligent than we were, but less knowledgeable about the world and technologies. But they had a LOT of time at their hands. That's why a lot of stuff certainly has been invented over and over again as people had to adapt to their environment.
I've read through a lot of comments about why certain things weren't invented in culture X. People seem to not understand that those things didn't exist for a reason. The most obvious example being the compound bow, which is very nice for archery competitions, but inferior in actual day to day use to people who actually use bows to survive to this day. The same goes for the wheel in an environment, where no infrastructure existed to make use of it, or where the geography made it outright useless.
That we see the connection now, given that we grew up in a society with that knowledge, does not mean that our ancestors would have made that connection.
I think it is quite obvious how much of a creative leap (or an extraordinary coincidence if discovered accidentally) it had to have been for them to start fire with friction.
There is a big jump from friction that creates heat and a usable coal. If you've ever tried to make a hand drill fire, you can appreciate the difference.
How do they know they made their first fires themselves rather than using a tree that had been struck by lightning or something? Starting a fire is a lot more nonobvious and difficult than keeping one going.
I don't think so, but i don't think this is important.
And as we have no chance to find out what inventions were not made or used by now because of the way our society and economy works. Who knows what people in the future see what could have been invented by now.
In the context of this discussion, his implies that
1) the inventors are the people that get rich from application of the inventions
2) the inventions would not have been made if you coudn't get rich from them
which i think both is not necessarily true.
What we can do not to miss any fist or second inventors, are giving everyone the chance to develop, publish and test their new ideas without too many obstacles like access to funding and workshops. Most real inventors are intrinsically motivated not by getting rich, but they fave to have the resources (and be it only time) to work on it and here it starts were the prospect of getting rich is important to get the funding. So its not the inventor that needs the hope to get rich, but the investors that usually are well of already and are a completely different kind of person.
Of cause the big things happen when the inventor also has the economic talent and resouces themselves. Examples include Edison, Robert Bosch or Arthur Fischer (https://en.wikipedia.org/wiki/Artur_Fischer). But if we wait for these types to appear, chances are high that we miss many inventions. It is important also to use the ideas of all other people even if they lack the resources and the marketing talent to convince some VC to invest.
"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.
I disagree. I can’t imagine a way for Northrop to get to fail early and often. That takes nearly messianic levels of leadership ability and salesmanship.
While I 100% agree with BZC here, I also think it's noting that "fail early, fail often" is a lot easier when the capital stock of the company is a bunch of code rather than $BIGNUM rocket engines, parts, infrastructure and fuel. The cost of failure really is much higher in aerospace, it just turns out that Musk (correctly) determined that making spaceflight sexy and running it like a startup in spite of the capital losses risked by failure paid dividends greater than the costs. All the other private spaceflight initiatives appear to be both slower and more in the vein of pure vanity projects (Virgin Galactic, Blue Origin) or else poster children for the feather-bedding, slow, plodding, overpromise-and-under-deliver spaceflight industrial complex (Boeing,, Northrop Grumman).
There were earlier attempts. Beal Aerospace tried to drive costs down by making expendable vehicles light & cheap using composites & plastic, but the tech wasn't mature enough and the then-eyepopping $250M check from its founder turned out to still be far too small.
Back in the Space Race, when time was actually considered an important cost, national aerospace agencies were willing to fail occasionally and made much more progress as a result. The monetary cost of taking a mission form a 90% chance of success to a 99% chance of success is often larger than the cost of launching 2 of them, but NASA became unwilling to suffer the PR hit of rockets blowing up (perhaps correctly - the irrationality could lie with congress or the public rather than NASA leadership and still explain the results)
I agree - it's very hard to imagine spaceflight stays public-only forever: even if we take a fairly dismal view on spaceflight and don't assume that things like astroid mining will eventually be a very profitable business, it seems like it's already a profitable economic niche from things government contracts alone.
It may be the case that this is above-average acceleration: maybe Bezos invented Amazon 2 years earlier than Bezos Prime, but Musk invented SpaceX a decade before someone else would have invented SpaceY, but private-space-flight is an incredibly obvious (if difficult) economic niche.
"If Musk hadn't started SpaceX, Blue Origin or Northrop Grumman or someone else would have filled that natural niche."
Blue Origin was started BEFORE SpaceX (year 2000 vs 2002) so Blue Origin doesn't seem like a good example of a SpaceX replacement. Northrop Grumman is even older.
As nearly as I can tell, almost everyone believed that re-usable rockets could not be made to work economically. Now ... it is clear that disposable rockets are tough to make competitive with a rival who doesn't throw out his rocket after one use. But until SpaceX made it work it was almost heretical. No, I don't know why ... re-use of the expensive thing seems pretty obvious ...
Lol, what "natural niche"? Sure someone has to be the "most successful" but the reality is if Musk wasn't here, SpaceX wouldn't be here either and those other companies would be just like they are now but shittier because they would have less competition.
There's no real reason to believe they'd be shitter. It's just as plausible that whatever subsidies or contracts SpaceX has received might have gone to them instead, allowing them sufficient funding to improve in possible quite substantial ways. Quality of product/service is only one element of a company's success - the ability to acquire funding is huge and largely unrelated to actual market-oriented quality early on in a company's life, with present financial institutions and investment practices being what they are - capacity for monetization (that is, theoretical profitability if the product quality is good), charisma/persuasiveness, and plain old luck all factor into it as well.
But the companies named in this thread's OP ("Blue Origin", "Northrop Grumman") *were* there before SpaceX, Northrop Grumman long before. They had far more funding than SpaceX did and they were free to compete for the same subsidies and contracts that SpaceX won.
Of course it's plausible that if SpaceX hadn't been around, another company would have won the contracts it did—someone had to win them. But private companies had been given aerospace contracts for many years without any resultant improvement in the cost of spaceflight. Part of the problem was the "cost plus" system of contracting, where the contractors were free to pass along any unexpected costs to their clients with no accountability—but without a competitor to prove that a fixed-cost model could work, and work much better, I believe the fixed-cost experiment would have failed and the government would have returned to cost-plus.
In short, it's your second step, "allowing them sufficient funding to improve in possible quite substantial ways", that I find implausible. The incumbents for decades had all the government funding to themselves, profiting handsomely from it, but not improving, which goes to show that funding isn't the only ingredient in the recipe for improvement.
I don't think date of founding affects my point. SpaceX outcompeted Blue Origin despite being founded later. There were several online stores before Amazon; Amazon was just more successful. If SpaceX hadn't existed, maybe Blue Origin would have been able to do more of what SpaceX did, without SpaceX eating their lunch.
The re-usable rockets example is a great point, and makes me think Musk/SpaceX advanced things significantly. But still, if SpaceX hadn't existed, maybe it would have taken 10, 20 years for someone else to do something similar? Not forever.
Rocketry and space in general needs a big upfront capital investment. Musk was willing to make that, and to make it in an industry regarded as unprofitable. So basically you need someone else who is rich enough and willing to do it. Bezos has, Richard Branson kind of has. So its not unreasonable to think someone else would have done similar within a few years anyway.
The development cost of the Falcon 1, SpaceX's first orbital rocket, was about $100M. That's a lot of money, but I notice that Virgin Galactic (founded 18 years ago) and Blue Origin (founded 22 years ago) have each spent many times more than that without reaching orbit. There's more going on here than just being able to pay big up-front capex.
Virgin Galactic spawned Virgin Orbit, which has launched satellites into orbit. But both Virgin and Blue took a detour into the suborbital tourism business, which costsl ~$100M on its own and doesn't run entirely in parallel with orbital launch.
Also, neither of them hired Gwynne Shotwell, and there were some other questionable decisions along the way. $100M gets you a seat at the table, it doesn't guarantee success.
A lot of it hinges on what if call industry inertia. If the industry is built on the idea that everything has to go perfectly the first time and the only way to get reusability to work is to fail early and often, then that road block could stick around for a while.
SpaceX would be completely bankrupt without government contracts (and they are not cheap in that regard), they were so behind on their launch schedules that a lot of private customers jumped ship. And reusable rockets are still not the great success everyone claims. They are not as cheap as promised, the savings are generally not that much when compared to the whole costs of a launch and satellite operation, and it lowers productivity (because you have to keep your rocket engineers on a paycheck, but they build fewer rocket stages because of lower demand thanks to refurbished rockets). SpaceX is - despite the few successes - not the great shining example of a profitable private space company.
Honestly it's completely absurd that people are still running with this line now. 2013 wants its talking points back.
SpaceX is *selling* their launches for $60M. That's building in a massive profit margin to pay back their engineering work on reusability; their costs on a Falcon 9 launch are probably more like $30M. The best available competitors are still over $100M, IIRC.
SpaceX is probably the leading space power in the world right now, on its own, beating out every other space company and every other *country*. They are the shining example if anything ever was.
It's not clear that SpaceX is profitable. The rocket industry in general is small and hard to make much money from. SpaceX have captured most of that market, but it does not seem to be growing by much. SpaceX do launch a lot, but the majority of their launches are for Starlink, which is an internal project. Indeed, Starlink is where the potential profits lie, not in rockets. As for leading space power, by the numbers it is China (if you separate the US and SpaceX as individual powers). The US with SpaceX is still number one, but SpaceX does not beat China by itself.
To be honest its all a bit moot: the vast majority of Musk's wealth comes from Tesla, not SpaceX.
"By the numbers" depends on which number you look at. In the last four quarters China beats SpaceX in number of orbital launches, but SpaceX launches put up more than twice as much mass with nearly an order of magnitude more independent satellites. Imagine SpaceX retires the Falcon 9 but resumes launching Falcon 1, and does so twice as often. Would it be beating China, then? If not, then it's beating China now. China is improving fast enough that I'll expect them to pass SpaceX if Starship doesn't work out, though.
SpaceX almost certainly has grossly negative cash flow right now when you count Starship R&D and Starlink buildout, despite marginal profit margins on each Falcon launch. That could be a problem for them later, depending on what happens with the business cycle and how well those investments turn out. But that brings us back to Bezos, in a way - the first time I heard the "they're not *really* making a profit, they're just dumping all their revenue back into the business" argument was 25 years ago with respect to Amazon, and in hindsight I probably shouldn't have paid attention to it back then.
It's certain that the Falcon 9 line, as of now, is massively profitable on a marginal basis (probably something like 100% margin). This can't tell you much about profitability on a whole-company basis, because we don't know fixed costs, full R&D costs, etc.
Indeed, it would be surprising if SpaceX were profitable on a whole-company basis at this point, because they're currently plowing every bit of money they can find into Starship R&D, and raising more money as they can. But this is kind of a distortion of what we mean by "profitable". The service that SpaceX provides to outsiders is generating revenue massively over its costs; the fact that they're using that money internally on other projects, rather than keeping it in a bank account or returning a dividend, doesn't change the fact that they are "profitable" in a colloquial sense.
Re: China, I'm pretty sure SpaceX is ahead of them by many metrics, at least. For instance, in 2Q 2022 SpaceX launched about 4X what China did (in terms of mass), and in fact about double what *the entire rest of the world* did. https://twitter.com/SciGuySpace/status/1557083663120072705
And, re: Tesla, it's true that most of Musk's paper net worth is Tesla stock; however, this is honestly kind of silly. It's driven by (kindly) large-scale very speculative demand, or (unkindly) a bubble. Tesla is subject to this happening, because it's a publicly traded stock; SpaceX isn't. But that isn't a commentary on the actual objective relative worth of the two companies.
>But still, if SpaceX hadn't existed, maybe it would have taken 10, 20 years for someone else to do something similar?
Or maybe 100, 200 years, if everyone knows that if they make the reusable rocket finally *work*, lion's share of all the profits will be distributed to those who didn't make it work, but maybe could have made it work later?
There's an awful lot hiding in the phrase "just more successful." In context it reads like you're saying they got lucky. In practice, it reads like really intelligent people spending countless hours working on a tough problem and coming up with a novel solution. At the very least the catalyst of "bring a bunch of really intelligent people together and incentivize them to work wholly on [particular goal/challenge]" would be necessary to make it work. That takes money and vision, neither of which are a given in any particular field.
> As nearly as I can tell, almost everyone believed that re-usable rockets could not be made to work economically
People have absolutely believed that reusable rockets could be made to work economically *someday* - Musk's bet was just that "someday" was actually "today". The idea that if not for Musk, nobody would ever have tried reusable rockets just seems absurd.
(Or rather, tried reusable rockets *again*. If you Endeavor to remember you may Discover that Musk was not the first to Challenge the Enterprise of reusable rockets... atlantiscolumbia)
"(Or rather, tried reusable rockets *again*. If you Endeavor to remember you may Discover that Musk was not the first to Challenge the Enterprise of reusable rockets... atlantiscolumbia)"
Many Thanks! I kept reading comment after comment in this thread and was wondering how everyone had forgotten about the shuttle...
Agreed. I was just citing it as a precedent on attempting reusable space vehicles. As you said, it wound up failing to improve the economics of space flight. ( I vaguely recall that when all was said and done, the full cost of each shuttle launch wound up in the hundreds of millions of dollars - in the same ballpark as a Saturn V launch. )
I think you're discounting how hard rocket science is in your analysis (I mean, it's the one thing that you can't say isn't rocket science). Musk's team was really inspired on the business, engineering and science. When you look at how Northrup and Blue Origin have attempted to compete with them it really comes out clear. Those guys said that what SpaceX did could not be done, until they did it.
Those companies are older than SpaceX. There is no "natural niche". The only reason they're doing anything noteworthy today is because SpaceX proved this was all economically possible which made investments by those companies feasible. I dont think things would have stayed underdeveloped forever but SpaceX absolutely moved things along in a huge way.
I think you underestimate how hard the early days of SpaceX were and how much Musk's vision and leadership were crucial. Read Eric Berger's book _Liftoff!_, about the Falcon 1: even before they tried to make their rockets reusable, they'd taken on an incredible challenge by founding a rocket startup. Before SpaceX, there were three types of rocket company:
- big government contractors like Northrop Grumman, high on cost-plus contracts;
- hobby businesses like Blue Origin;
- failures.
"Successful rocket startup" didn't exist as a category before SpaceX, and even since then, no company has got to orbit as quickly as them. Yes, SpaceX succeeded through an enormous amount of work by extremely talented engineers. But without Musk's vision, intense focus and ability to recognise and inspire talent, those engineers would never have been gathered together in one place and enabled/forced to do such high-impact work. Seriously, read the book.
I don't think anyone knowledgeable in this field agrees with this.
There were many other failed companies as evidence .. Andrew Biel's co, Blue Origin, Virgin Galactic ... SpaceX succeeded where many others failed.
NOW there are many private space companies, *but they are offshoots of the SpaceX example* (and often founded by former SpaceXers). Firefly, Relativity, RocketLab. These companies all have copied various examples set by SpaceX.
I'm quite familiar with the list of private spaceflight companies. It's a long list of companies that have all failed to demonstrate a semi-reusable orbital launch system, even though some of them were trying long before Elon Musk got into that business.
And the reason they all failed, is that none of them were run by billionaires (well, except for Andy Beal but he was trying something different and he wimped out anyway). Building a reusable of semi-reusable orbital launch system requires hundreds of millions of dollars, spent over a decade or more during which you will have many spectacular failures, and during which almost every respected expert in the aerospace will tell all your potential investors or patrons that what you are doing is stupid and can't work and wouldn't have a viable market even if it did work.
Now that SpaceX has actually *done it*, the respected experts are changing their tune, and the investors are following suit.
But Northrop Grumman was never going to "fill that natural niche", because Northrop Grumman is run by a committee which will follow expert opinion and pre-SpaceX expert opinion was that the niche didn't exist. Blue Origin has been around for twenty-two years and still hasn't managed even an expendable orbital launch system. And the rest, could never have afforded it.
Building the first reusable orbital launch system, in the world created by the godawful "space race" of the 1960s, requires a person capable of writing checks for hundreds of millions of dollars without asking permission. Because the people you would have to ask for permission, will have been told by the experts that this was a stupid idea that you should never be allowed to waste the taxpayers/investors/whoever's money on.
I was there. This is how it was. The options were Elon Musk, or some other billionaire, or *maybe* a tight group of hundred-millionaire venture capitalists with a common vision. Or being stuck on Earth watching a handful of designated Space Hero Astronauts flying propaganda missions at exorbitant public expense.
I think it may be important to realize the Musk was NOT a billionaire when he founded SpaceX. Estimates of his share of the PayPal sale seem to hover around $180M. Some of the $180M went into Tesla (which was also not profitable ...) and Musk was pretty close to bankruptcy just before SpaceX had its first successful Falcon-1 (not 9!) launch which resulted in enough NASA money to survive.
So a mere hundred millionaire who is/was willing to bet EVERYTHING pulled this off. I'm not convinced that "some other billionaire" would have made this work. Musk did the equivalent of burning his boats with the money he poured into SpaceX compared to how much he had at the time. More sane billionaires would have bailed earlier ...
For the record, Elon was a low-hundred-millionaire when he founded SpaceX (& heavily invested in starting Tesla at the same time). He didn't become a billionaire until 2012.
Of course, I'm sure some other investors helped over time; still, the man is quite capital-efficient, compared to the competition 😁
And Falcon 1 wasn't a reusable orbital launch vehicle. In order to develop a reusable orbital launch vehicle, Elon had to invest a hundred million or so dollars developing a minimum viable product that would put him in a position to invest billions of dollars while laughing off the experts telling him to just stick to launching satellites and stop wasting money on those stupid droneship-landing experiments that kept failing.
If he'd been capped at or taxed into oblivion at say half a billion, lest we ever have any unsightly billionaires in our economy, SpaceX would just be another small launch provider.
That's the part Scott and so many others miss. It isn't "lone genius has a clever idea, hires a bunch of people to Make It So under his management, and collects his billions". It's an iterative process, with each step increasing revenues, increasing costs, and increasing benefits. The no-billionaires version means SpaceX exists, but it never built anything bigger than the Falcon 5. Tesla exists, and produces a few thousand Roadsters a year. Amazon exists, and sells books. Apple exists, and sells Macintosh desktop computers.
This is a very important point , and to expand on a bit, I think most people fail to understand that very rich people don't think the same way as the rest of us do about money. For us, it's a consumption good. Oh yay! I can not owe the bank money, I can eat Wagyu steak every night, ski St. Moritz. For the very rich, money represents the power to do things, to call their visions into life -- and they wouldn't *be* wealthy unless they were stuffed with visions, unless they had an unholy drive to see something new brought to life. So without the ability to accumulate enormous capital, you are shutting off some very creative people from toying around with trying to create entire new industries, or ways of doing things -- stuff that no committee, and no government agency responsive to the Conventional Wisdom and the wishes of the political majority, could even think about. What is the value of that?
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.
walmart has spent what 20 billion trying to replicate amazon and they have a knockoff version that isn't horrible. no other company has come close, because most companies don't have 20 billion laying around to try. not sure if this is an argument for amazon being special or an argument they need to be regulated out of existence
Was gonna say the same thing. I know it’s kinda beside the point to this post, but from a usability perspective Amazon definitely wins in recommendations but isn’t that much better / more intuitive to me. And Walmart is catching up heavily to Amazon in e-commerce as some evidence it’s not really quite true (will presumably catch up and surpass within 5-10’years)
Again: kinda beside the point of the post. No one else did create it per se. But I’d argue that’s more because economics to scale is hard to hit in this space, and really only Amazon & Walmart can conceivably compete (and Walmart is catching up)
Because they started with books, Amazon's website has taken over library catalogs. As a library catalog, Amazon's website really sucks. Now all library catalogs feel they have to imitate Amazon because that's what people are used to, so now they suck too.
I agree. I will sometimes type in the name of a specific (albeit obscure) book and have to click through multiple pages in order to find that book listed on the site. This is after checking "Book" for the category!
I am frankly astonished that Amazon has been so unassailable for so long with such a poor UI and search functionality. However, given the recent news about Bed Bath and Beyond crippling itself because it minimized search friction and streamlined offerings -- not understanding that its customers preferred the "treasure hunt" of expending effort to find what they wanted -- I wonder whether a similar dynamic doesn't apply to Amazon.
> ...recent news about Bed Bath and Beyond crippling itself because it minimized search friction and streamlined offerings -- not understanding that its customers preferred the "treasure hunt" of expending effort to find what they wanted...
Where is the best place to read about this? I found two recent articles but wasn't entirely able to connect their contents to your interpretation.
This is very got but not so obvious point in the economics of scale, Thank you for that.
I've seen this pattern before but didn't connect to economics of scale: when there is one big successful company in the market the others and the newcommers tend to imitate it because it obviously worked. But perhaps the secret to success was something completely different than the UI they imitate. This way there is a standard established, the people get used to it and soon will expect it not because it is the best, but simply because it was the choice of the first successful company.
If people have the choice between good service and good UI of cause they learn to deal with the bad UI and the next generation of customers get used to that bad UI so much, that learning something else seems like a considerable effort especially if you have low reason to expect it to be better once you are used to it.
Yea, Amazon and Bezos aren't rich so much because they were first, but because they have remained dominant in that field over a long period of time.
I think this is actually a significant problem w/ Scott's last argument - the founders of Friendster and Myspace aren't infamously super-rich, because unlike Zuck, they were not able to keep their thing going strong, in the face of competition, over a long period of time. Getting in first is a huge advantage - but then competition comes in and challenges you. If you don't rise to that challenge, you may walk away with some I-did-it-first money, but the competition will wind up getting the big pot. If you consistently whoop the competition, it's either because you're providing better value, or because you're shrewder at business (this latter part is something the left can perhaps legit complain about, but it's a hard thing to correct accurately). To the extent you're providing better value than all the other competitors who come along over the years, you should reap proportionate rewards. So it is w/ amazon - no one else has 2 day shipping afaik. This accords w/ a general statement about profit margins and competition - low competition should naturally lead to high profit margins, because you're apparently doing something so hard or risky that hardly anyone else can manage to pull it off (this argument falls apart completely when you have low competition because you're exploiting regulation, e.g. IP laws, or when you have a true monopoly).
Speaking of monopolies, they're the big exception to all this - true monopolies can win forever against any competition despite having a mediocre product. FB has a true monopoly because of network effects (a social network has no value unless everyone is on it, so it's hard for there to be two dominant social networks in the same space, winner takes all), but I dont think any of the other big tech companies have that. Amazon has a lot of competitors, they just haven't made themselves as attractive to customers as amazon has. And FB faces the Thielian issue of serial monopoly, where the true monopoly gets free cash for a long time but eventually gets beat out by a new monopoly in an adjacent, but different space (e.g. snapchat or tiktok).
They became dominant because of their early success. They had a slightly better website than their competitors 20 something years ago, and its all snowballed from there. Yeah, it took a lot of work from a lot of brilliant people, but Amazon were only able to hire said people because of their early success. If they didn't, these people would have worked somewhere else.
Facebook is a terrible example of a monopolist, practically the textbook example of why so many arguments about tech monopolies are wrong. They are SO not monopolists that they had to buy Instagram and WhatsApp just to stay relevant, and now there's Tiktok which they can't/won't buy and so they've just given up on social networking completely. Hence the Metaverse stuff. Presumably Zuck got tired of the social networking rat race in which people are constantly hopping between technically uninteresting networks that have slightly but crucially different takes on what exact social idioms people want this year.
This even proves that (monolithic) social networks are kind of a natural monopoly. If there is no space for Facebook, Instagram, WhatsApp, Tiktok and Snapchat, to live well along each other, but if it is always an existential question to dominate or to give up. Perhaps the market of social networks doesn't have to be like this and could be organized differently with working competition when there would be federation and no user lock in. But the reactions of facebook you described, proof that at least facebook sees this as a monopoly market.
How does a thriving marketplace of competitors prove it's a natural monopoly? Quite the opposite I'm afraid. Facebook kept buying its competitors exactly because social networking turned out to be the opposite of a natural monopoly - it's very easy for people to switch between networks and they often do.
"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."
Also, Sears started with a successful mail order business. You can't put your catalog on the internet????? For Sears, the answer was, "no, we can't."
Sears started with a successful mail order business *and its own ISP*. And then instead of Prodigy becoming their new mail order storefront, they tried to increase revenues by charging $0.25 (in early 1990s dollars, even!) per *email*.
Yeah. Sears *could* have become Amazon (in some other universe ...). Sears/Prodigy could have become AOL. Sony should have been the one to invent the iPod ...
IBM figuring out that it needed to do a personal computer is kinda an outlier of an successful entrenched player realizing that the game was changing and they needed to change with it.
I agree with your point, but I'd add an additional point:
Is AMZ's website good? No, OMG no, it is TERRIBLE. It was amazing in 2000, it was dated in 2010, it's embarrassing in 2020.
Some examples:
- try to order anything technical, like a hard drive. The categories it offers to clarify your search are insane. In 2022, would you like to buy hard drive between 81 and 120GB? Well, then, AMZ is your site!
- have you ever tried to buy anything by color (clothes? soft furnishings?) or by size (furniture?). It's endless frustration.
It's simple. AMZ is not interested in applying ML technology to their site. They SHOULD be weighing and photographing (from multiple angles) EVERYTHING they sell, so that searches by color/size/weight are trivial. They should be learning natural clusters of objects (like hard drives) so that ways to clarify your search are based on constantly evolving criteria, not what some human thought were a good set of categories somewhere around 2007.
So it's certainly FEASIBLE for someone to disrupt AMZ, for example by creating a vastly superior shopping engine (think Google vs Alta Vista) and selling it to someone with the capital to do the retail part (possibly an existing retailer like Target, possibly an unexpected competitor like Facebook). But that hasn't happened. Yet. Why? Because the kinds of people who can make these sorts of huge changes, who have all the elements concentrated in one person (or perhaps two close friends), both the technical skills and the rest of the business-side package, are very very very rare.
'the rest of the business-side package' is doing an egregious amount of heavy lifting in your claim there, because a not insignificant part of said package is 'sufficient wealth and/or connections to wealthy individuals to get the business off the ground and overcome significant barriers to entry due to network effects, a situation in which they're comfortable risking failure if they try, and enough interest to think making the attempt would be worth it, over the multiple years it would take to even get a real test of viability'. And sure, people with all those things are rare, but that's in part because of how concentrated wealth is. Honestly for all we know maybe someone *is* already trying, and it'll just be another few years til we see results, or maybe Bezos will do something financially shady to sabotage or consume that nascent business. It's impossible to say - which means any claim that it's just because Bezos is personally exceptional is itself an exceptional claim.
Amazon's website is also awful from a usability perspective (though less bad since Bezos relinquished personal control over every pixel on the front page). I don't go there because I expect a pleasant user experience, I go there because I expect that I'll (eventually) be able to find any random item I want at a reasonable price.
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?
Jobs died, and Apple has continued to be profitable and successful, but it seems clear that it will probably never again achieve the innovation and insight of its glory days.
And the "if all workers quit" argument is kind of weak, because it assumes like, all workers _worldwide_ quit. If all _current employees_ quit, there would be chaos for a few weeks, and then all the positions would be filled from the millions of people whose job opportunities are generally much worse than those at amazon, generally people from less affluent countries.
I'm willing to bet that even given these stipulations, the loss in value for the "workers quit" case is orders of magnitude greater than that for the "Bezos quits" case. And it's relative value that we're talking about.
All workers quitting would pretty much necessarily be a political boycott. If Bezos were to quit as part of a political boycott, the numbers change again.
That's an odd argument to make, because it's definitely true that 1.6 million people all quitting is more important than one person quitting, but that doesn't lead to the kind of conclusion you seem to think. Those 1.6 million people make a *lot* more money than Jeff Bezos does, collectively. They are already valued at many multiples of what Jeff is valued. One for one, almost every other employee in the company can quit any time and nobody beyond their closest coworkers would even notice. Jeff quitting is major international news.
My friends and I have run into this question so often we have a name for it: the left foot problem. How much of a sprinter's speed is the left foot responsible for? If you cut it off, he can barely walk, so in some sense 90+%. But if you cut off the right foot, or the head, you get similarly huge drop-offs.
You can try to square this by giving every remove-it-and-we-can't-operate part an equal share, but then this turns into a gerrymandering game. What's the smallest part you can (cut off, unionize) that's critical enough to threaten the whole system? A toe wouldn't do it, but half a foot might. Just bezos wouldn't do it, but ten properly chosen execs at the top might.
Some folks in our indefinite politics chat are still trying to derive a fair distribution based on how much slower you run if you cut it off, but I came down on "pay market value."
I think not quite, JT makes this problem more interesting than attributing value to a set of agents: if you consider "brain and feet" they would get 0.5 each, but if you decide to think of brain, left foot and right foot, brain gets less credit.
I do not know of a framework that generalized Shapley Values to such case. (And would love to hear if there is something)
It’s true one executive could quit and then be replaced, but the same is true of workers.
If all executives quit, and weren’t replaced, the company would cease to exist just as surely as if all the workers quit. There might be exceptions to this, like small worker’s co-ops, but without authoritative decision makers any reasonable-sized company would collapse.
This is fair. So seeing as the initial discussion was about distribution of profits, a better argument would be to 1) bucket groups of employees/execs by total remuneration then 2) measure the effect of losing say 100M/y of warehouse staff vs. ~100M/y of execs. Interestingly, because of externalities, the relative effect might shift quite a lot depending on the size of the bucket - e.g. thousands of warehouse staff would probably have a greater effect on the national warehouse-staff employment market than a few execs would have on the large-corp-exec market.
I don't think "all the workers combined are generating more value than Bezos" is a surprising result, and I think it's already priced in to the salaries.
How much does Bezos make? A quick google says Bezos makes ~1.6 million dollars a year, total compensation. Alternatively, if we divide his total net worth ~150 billion over 30 years of being CEO, we could also say he's made about 5 billion a year, historically: if you think that is a more fair "income".
How much do Amazon warehouse workers make as a whole? Google tells me that Amazon has ~1.5 million employees worldwide. Not all of those are warehouse workers: apparently Amazon has 185 of those globally, and "more than 1,500 full-time employees" is what their docs say (https://www.aboutamazon.com/workplace/facilities), and Glassdoor says ~$40K is an average annual salary. 40K * 1500 * 185 is $11 Billion.
In other words, $11 Billion for warehouse workers, which is more than double the high-ball estimate for Bezos's annual "earnings", and 7000 times his actual total compensation.
So, yeah, firing 11 Billion dollars worth of employees, unsurprisingly would do more damage than firing a single 2 Million dollar employee. The sleight of hand is, of course, to treat the value of the individual workers collectively, but compare their salaries individually.
Thanks for doing the maths! I think my comment to SS covers a more nuanced take. But I do absolutely count the rise in his net worth held as Amazon stock as income for these purposes (otherwise any argument about billionaires is worthless, because how many billionaires got there on salary alone?). So we're comparing $5B with $11B, which are the same order-of-magnitude. I still suspect the difference in effect would be orders of magnitude apart.
I gave the $5 Billion for the sake of having an upper bound, but it is a pretty extreme figure to actually use: it's 100% of his net worth, which includes, among other things, founding two other companies, and all other investments that he's made.
But more importantly, I *don't* think counting stock appreciation is relevant here: we're talking about how much he's worth to Amazon as reflected in how much they compensate him. If they pay him a million dollars worth of stock in 1998, then the price increases 100x by 2020... yes, he has 100 million dollars of net worth, but Amazon didn't value him at a hundred million, they valued him at one million.
In essence, the other 99 million dollars came from other people who thought that stock was worth 100x more than what it used to be worth, not from Amazon.
> we're talking about how much he's worth to Amazon as reflected in how much they compensate him
That's not how I read it - all that Scott talks about the proportion of the total value of Amazon that Bezos owns. He consistently talks about Bezos' net worth, not some imaginary number which is "that part of his net worth which is due to his salary rather than his stock holdings".
I guess I'm just not sure how you can make any useful comparisons between Bezos and warehouse workers if you include stock appreciation.
If the argument you want to make is "the government should try to stop people from making significant money from the stock market", well, that's a whole different conversation and I'm not sure where the warehouse workers in Amazon distribution centers come into it.
If, on the other hand, you want to have an apples-to-apples comparison of how much Amazon compensates its CEO vis-a-vis its warehouse workers, it seems you have to talk about how much Amazon actually pays, and not factor in three decades of extreme stock appreciation. That's not the framing of Scotts whole argument, but it was the framing of this comment chain, as I understood it.
That's part of the issue here - amount of the value you can destroy is a proxy for how much you can negotiate for. Amount you can destroy legally is maybe a better proxy. Armies certainly can negotiate for a lot more value than they can create, especially if we're discounting "creating value" by providing for defense.
> if Jeff Bezos were to stop doing any work now, then Amazon's share price might drop a bit...but it would otherwise continue to function and produce value
This argument assumes that the only thing Bezos brings to the table is his work, but that's not true. What Bezos brings to the table is also the capital the owns. "Taking his ball and going home" for Bezos would be to deprive Amazon of that capital.
I don't know how that would work in the context of abstract stock ownership, but certainly we could imagine a 19th century capitalist burning their own factory to the ground (just the factory, not the workers).
The problem is that “should Bezos own this much” is exactly the issue being discussed.
To put in another way, there’s no inherent merit in owning something. If Bezos could give away everything at no cost to the company or society, then that would be a strong reason to say Bezos shouldn’t have that stuff to begin with. I don’t think anyone really agrees with that, though.
The ability for him to quit with the business being able to continue is of extreme value that he engineered.
All parts of a business ceasing to function (you just picked employees but you could have said all of their vans suddenly cease working and need a 1 to 1 replacement) will make the business stop earning money. But all of those things working together Bezos can take a lot of credit for.
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.
Yes. There is a very important role for government - Step 1. Create the fair and transparent rule based system that curtails use of power and allows markets to function. Step 2. Don't try to game it afterwards.
"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."
"Television" and "computer" were both arguably invented in the UK (Logie Baird's TV in 1926; the first stored-program computer was the Manchester Baby, and the first commercially-available general-purpose digital computer was the Ferranti Mark 1).
The computer was co-invented in a lot of countries. Google for Zuse, and why Germany claims the invention of the (digital) computer for itself ;-)
Carl's list is highly debatable anyways. Attributing the plane to the US for example is a gross oversimplification of what actually happened.
Edit (the following statement is non-sense. I only leave it here, so that the following thread still makes sense to future readers): Even more grotesque is the idea of Carl to attribute Nylon to the US only. I mean: it's literally in the name "New York London => nylon" ...
> Google for Zuse, and why Germany claims the invention of the (digital) computer for itself ;-)
You're right, I should have mentioned Zuse. But if we're going to allow partial credit, the first design for a digital programmable computer was Babbage's Analytical Engine in the 1830s :-)
> Even more grotesque is the idea of Carl to attribute Nylon to the US only. I mean: it's literally in the name "New York London => nylon" ...
Oh come on. Nylon 66 was invented by Wallace Carothers at Du Pont in 1935, as part of a long-standing research project in polymers. The name has absolutely nothing to do with either New York or London, I can't imagine why you think it might.
It's certainly not the worst idea I've ever heard of, even though it comes with its own challenges. Not the least of it being that making an invention and successfully commercializing it not being the same thing. Nobel prizes often acknowledging achievements only decades later being another issue.
And regardless of the metric chosen: the US will likely come out on top, due to it being an economic powerhouse. And rightfully so, I'm not disputing that.
However: I'd argue that there would be little to learn here, as an experiment with a sample size of one is of little use. I'd argue for example that the US was as least as innovative in the 40th, 50th and 60th; despite having had various issues back then and also having had a wide variety of fiscal policies back then as well as a much stronger antitrust law enforcement than today.
Per-capita the USA is fifteenth, behind noted innovation powerhouses like the Faroe Islands and Saint Lucia (and also the UK, Denmark, Germany, Sweden etc): https://en.m.wikipedia.org/wiki/List_of_countries_by_Nobel_laureates_per_capita Restricting to scientific prizes only bumps them up to twelfth. Where a laureate was born in one country, has citizenship in another, and is resident in a third, that's counted for all three countries; it would be interesting to see a table ranked by country of birth only.
No, they're not. I'm not straining at weird little precursors, I'm choosing the people and places that made the invention broadly successful. For both the TV and computer, that was the US. It's the same reason I credit antibiotics to the Brits, although some Germans had been using a few compounds in a few cases earlier. Fleming and penicillin were the first widespread clear success.
You clearly did, as demonstrated by attributing planes to the US, even though they were made broadly successful by WW1 before the US ever decided to take part in it ;-)
Logie Baird's TV is a weird precursor, sure. But I think the Ferranti Mark 1 is a good argument that a lot of innovations that happened in the USA would have happened elsewhere without the USA. Univac won thanks to the USA's larger internal market and some boneheaded decisions by the British government - without that, Ferranti (or some later imitator) could well have won.
Also HTTP was invented by a Brit, but he did it when working for the CERN. Now: do we attribute that to Britain, or to whatever entity one wants to attribute CERN to ;-)
Those lists are pretty pointless as they remove too much context to learn anything from them ...
True, but Carl did specify "twentieth century"; that excludes everything on your list apart from the hovercraft, which has alas not lived up to early predictions that it would change the world.
(I took a hovercraft ferry across the English Channel once. It was awesome.)
Initially, sure, but it's now surpassed it. I'd argue that "open-source software" was the more fundamental innovation, and that's American (RMS at MIT).
Thank you for taking the time to read and reply. In my view, the USA has strayed far from a market-based economy in the last fifty years, and the government has been increasingly responsible for stifling creativity through growing and contorted forms of regulation and taxation. I also do not see an easy comparison between a resource-rich, highly homogeneous country the population of New York City and one 35 times its size. That graphic doesn’t do a great job in my view of defining its measurements, and despite all that the US still ranks as high, which I find remarkable given its size and relative complexity.
I’m not convinced there are that much greater intra-country network effects vs inter-country between like-minded individuals and companies. The USA is a huge and diverse place and while interstate commerce works very well, we also work very well with many other countries.
I'm guessing you've never tried to sell a good or service across an international border :-) Look at the chaos being caused by Brexit to see how damaging it can be to leave a shared customs/regulatory area, and by implication how beneficial it can be to be part of one. But you're right that varying laws, taxes etc between States blunt the US's potential advantage here compared to a completely uniform internal market.
> 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.
To what extent is that "America creates more innovation", and to what extent is it "ambitious and innovative people move to America because they know they can get greater rewards there, but if America hadn't existed they would have founded companies at home"? Surely a bit of both - many innovative American companies were founded by immigrants, but there are beneficial network effects from having lots of innovative people in one place.
And I'd say that probably the biggest reason that they moved to America is its unique geographic advantage. While Europe and Asia were endlessly mired in wars between more-or-less equal in power neighbours, USA was able to pick and choose its wars for about as long as it existed, and so never lost one.
What time period are we talking about? AIUI the USA overtook its European rivals in the second half of the 19th century; the only big European war in that period was the Franco-Prussian war in 1870-71. It's a much stronger argument for why the Industrial Revolution started in the UK, though! The obvious reasons for why the USA drew ahead are immense natural resources, "free" land, a large internal market, and disproportionately attracting entrepreneurial and ambitious people from other countries. But there are some more interesting proposed theories, like "labour was scarce in the C19 USA, so it was more worthwhile to invest in automation there than it was in Europe, where skilled workers were more available." There's a great post about it in this month's Works in Progress: https://www.worksinprogress.co/issue/the-decline-and-fall-of-britain/
> and so never lost one.
Not in the relevant period, but the Vietnam War is the obvious counterexample. I'd also argue that the US failed to achieve its war aims in the War of 1812.
Well, my understanding is that USA became the clear leader in the aftermath of WW1, and WW2 sealed the deal for the global hegemony. As for the arguably failed adventures like Vietnam or Afghanistan, they weren't really wars in the historical sense. Team World Police's modus operandi is basically trying to convert foreign societies to its values without even bothering to annex them, then eventually becoming bored and giving up. Maybe it's fair to call those defeats, but not the kind which can significantly hurt the homeland, which is evidenced by America's continued appetite for them.
Was it mainly due to innovations, or the size? My understanding was that 19th century American universities were second-tier, but I guess it's possible that faster improvements were happening independently of academia.
To make sure I have this right, your claim is "the innovations that happened in America would have eventually happened somewhere else" - is that right?
Well, they did happen somewhere else. A lot of the inventions people in the US claim for themselves are claimed for their own country in many other countries. Those "who invented what" lists are often pretty arbitrary. "Who invented what" often hinges on the definition of what exactly counts as the actual invention, and what only lead up to it.
Just look into the history of the invention of planes, computers, electrical light, fission, transistors and lots of other revolutionary things which shaped the 20th century.
Perhaps! Some of them surely would have (and indeed many were independently created elsewhere but beaten in the market by the American version, as noamik notes). My actual stronger claim is "some of them would have happened in other places at roughly the same time if America wasn't hoovering up talent". But America's talent-hoovering must have had *some* net beneficial effect, because having lots of innovative people together in one place makes it easier to be innovative - it's easier to meet co-founders, easier to find skilled employees, easier to get funding, etc.
I feel as if the main advantage of the US is the availability of free capital. So the question Scott poses is actually the truly important one: "How much return of investment is necessary to not stifle innovation, and at what point does the creation of monopolies hurts innovation more, than the expected return of investment helps society?"
The 1950s for example saw high taxes at the margins in the US, but still had the US dominate innovation and production. So it seems to me as if the claim that taxing those earning would stifle innovation immediately isn't substantiated by actual historic evidence. However: what we have seen in that historic precedent was that gap between rich and poor was closing back then, and has been opening up since.
Speed matters. If one country consistently brings innovation and discovery to market effectively then cumulatively it will race ahead of others. Arguably the English empire was highly successful at this (along with imperialism) and punched well above its weight per capita until world war 2 drained its talent and population.
And money: we spent all our money in WW2, then pissed our Marshall Plan money up the wall trying to hang on to the remnants of Empire rather than rebuilding our industrial base.
Worse than that. The UK spent the capital of the entire Victorian era during WW2, and gave away 50 years worth of technical advantage via the Tizard Mission - https://en.wikipedia.org/wiki/Tizard_Mission
That's not obvious to me. It's easier to capture a large share of the surplus generated by your innovation in America than elsewhere, but you'd still be incentivized to create the innovation if your captured share is enough to compensate you for the costs and risks incurred. As a toy example, suppose you're an inventor in Kafiristan, and you have a great idea for a new product. Wonderful! Except the government will take 99.99% of the producer surplus, leaving you merely comfortably well-off. But if you can get to the US and develop your product there, your investors will merely take 99% of the producer surplus, leaving you rich beyond the dreams of avarice. Clearly it's a good idea for you to move to the US, even though the total amount of innovation generated is the same. Now, clearly this is not the only effect in play; network effects make it easier to develop and market your product in the US than in Kafiristan. My point is, you have to consider both effects. But I might be misunderstanding you: are you saying that "innovator captures more of the surplus" is *caused by* "more innovation happens in the US"? If so, what's the mechanism? The causality in the other direction is clear, but I don't see why it would work that way round.
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.
i agree with this, except that rich and powerful people often harness the law to minimize their actual risk, e.g. declaring bankruptcy and stuff. I think this is true in theory but less true in practice
I suppose my perspective comes from the business owners that I know personally. Even declaring bankruptcy wouldn't save most of their loss - it would be devastating in a way that wouldn't apply to the employees, although losing a job is devastating in its own way. Might I inquire as to what you mean by "harness"? Are they doing something illegal to make bankruptcy laws work better for them?
no, i don't mean doing anything illegal, i just mean doing what _is_ legal, which is a lot easier for someone who can afford to hire a decent lawyer, than it is for a typical working class person.
I didn't really mean to minimize the dificulties of declaring bankruptcy, but it is one of the govt provided mechanisms by which the risk equation is altered from whatever it might look like in theory.
Purely anecdotal but the amount of emotion, time, outside work sacrifices, etc that get put into a startup outsize the personal financial risk. Add on the responsibility of handling others investment money, and, yeah, no amount of legal or illegal tricks to get out of a failed businesses financial responsibilities comes even remotely close to balancing the pain and loss of the failure. Personally the finances are the smallest loss (even when they were for me all of my saving plus some debt), seeing something you put everything into fail, feeling like you let down investors who believed in you, etc are by far the biggest losses. Which is all to say those "risks" exist regardless of your wealth and, unless you're a psychopath, can be just as brutal.
This might be true of businesses with a smaller difference in wealth between the owner and employees. But if Amazon were to tank then yes Bezos would lose billions of notional dollars, and still be a very rich man. Many (most?) of his employers would face losing their livelihoods, their homes, their healthcare, etc., and in the glut of fellow workers suddenly looking for a new job I don't think it would be as easy to get new employment as maybe you think. "Risk" is difficult to measure on a dollar scale.
This is true today. For a large part of Amazon's existence, it would not have been. If you play around with the results, don't be surprised if you lose the process.
If you start/own a business and it tanks, the worst case scenario is that you - gasp - have to get a job, like all of those dirty peasants you used to employ. Reduced to their level! The horror!
I think a lot of small businesses have every penny of their owner's money invested in them, so that when the business goes down, the owner is out his life's savings, too. I don't think this is so true with startups, but for pizza parlors, independent coffee shops, beauty salons, and the like, I think it is very often the case.
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.
There's an argument to be made that having that larger variety of options may be preferable from multiple perspectives - not only in a market competition sense, but because companies with the size and scale of Amazon tend to result in a few specific companies and/or individuals having disproportional influence on the market/politics/etc. And that's before acknowledging the possibility that the may be accumulating value to themselves (and/or their customers) without actually generating value per se by outsourcing the costs (such as the effects AirBnB has anecdotally had on housing affordability).
"internet business X wouldn't exist without this *particular* founder"
That there *are* massive, successful companies in basically every niche of internet services - search, storage, car rentals, home rentals, retail, CRMs, vacation planning, social networking etc etc etc - says otherwise. If these critical founding events are as rare as you say, the growth of the web would not have been as explosive as it's been. It seems more likely that all of these products were *guaranteed* to exist as soon as we had the internet and that founders are a relatively minor factor.
more important since ~2005 is access to capital - i.e. VCs racing to find every new internet concept and fund them with 100M each to "just build the network, don't worry about profit".
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.
That is true. But also what is the solution? There are some very reasonable things such as cap political donations, which a lot of countries do. You can also take steps to reduce lobbying. But that still leaves the private power billionaires have. The solution people give is to give more power to government. But then you are just concentrating power in a different place. I'm not sure I trust politicians more than billionaires. I certainly trust Bill Gates more than Biden.
The fear people have is technofeudalism. A new social structure where a small class have all the power and use that power to perpetuate themselves in power. While that might be a plausible fear, it's not what's happening. Many billionaires are self made (meaning didn't inherited most of their wealth). We rarely have fortunes doing back many generations as we had in feudalism. Meaning, billionaires are not using their power to perpetuate their family in power.
I think all of these fears could be dealt with a large inheritance tax. Which is not politically feasible. But let billionaires enjoy their meritocracly earned money and take it all from heirs who did nothing. Or a small wealth tax, which would be small enough for a productive investor to keep their wealth, while a baseline investor to slowly lose it.
Mostly agree with what you say, just a few points:
1) Why don't you trust politicians? This means you don't trust in democracy. Do You think it's fundamentally wrong, or it just doesn't work at the moment? If it is corruption, lobbying and other interests that make then to make bad policies, the real cause is too much power concentration in the private economy again.
2) That most of the current tech billionaires worked their way up, there is many other people that have been rich for generations, the fortune just got divided by heritage and they learned more to hide their real worth. This old money is for sure also invested in the current tech giants, and the power and information concentrations are adding very powerful tools to the already powerful.
My conclusions are:
- we need to fix democracy, that politicians act in the interest of all citizens again.
- we have to avoid any concentrations of power. Any position of power has to prove its benefits for society and needs some effective mechanisms to control it. This doesn't have to be the government.
Amazon isn't a natural monopoly though. There's no reason why "selling stuff online" should have become as monopolised (in the US) as it did, it's just that Amazon apparently managed to be that much better at it than everyone else.
Well they managed to become dominant. This does not mean it's only about better serving the customer, there are also other factors like luck, access to capital, the right time...
Just the fact that they managed to dominate the market some 10 years ago, doesn't mean that it serves the society today to have a player that is so hard to compete with just because of the economy of scale and because people are used to it.
I agree, that it's not an natural monopoly so even more it's important to restore a working market with competition. When there emerges a monopoly were it isn't naturally, yes, somebody did a good job in growing a company and yes some competitors were probably sleeping. But still this is one of the main failure modes of a market economy ans we should take care that equal competition is restored again.
> 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.
Removing COVID vaccine patents always seemed populism for me. Pharmaceutical companies did an amazing job creating vaccines very quickly. And took a large risk as well, as many vaccines did not pan out. We need to keep incentives so that good behavior is rewarded. Otherwise next pandemic there would be way fewer vaccines and they would probably take longer to be produced modulo technlogical changes. On top of that vaccine production was not capped by patents, but by materials. And as Bill Gates said, opening patents would create many bad copies who could do more harm than good.
Correct me if I'm wrong, but didn't a huge amount of public funding go into the MRNA vaccines?
> And took a large risk as well, as many vaccines did not pan out.
Wasn't this the whole point of operation warp speed? Eat the risk for the companies by footing the bill publicly, pay a huge amount for the vaccines so that the companies can afford to have a bunch of duds, because we need the progress NAOW?
But, funding wasn't just in operation warp speed, but a bunch of the underlying basic research, too?
"didn't a huge amount of public funding go into the MRNA vaccines?"
Sure. And pharmaceutical companies also invested a lot. Was the public funding a strong enough incentive? I don't know, but if it were so, governments should have put the patents in the deal for receiving such funds and not changed the rules of the game in the middle.
"But, funding wasn't just in operation warp speed, but a bunch of the underlying basic research, too?"
These arguments are true, but don't prove too much. It was never an argument of "Big Pharma did everything therefore they deserve everything". That's a straw man.
The argument is companies invested with the expectation of patents. Patents were part of the incentives. Would they have done the same without that expectation? I don't think anyone knows, but predictability is a great part of a good incentive structure, so don't change the rules of the game in the middle
I guess we just have to agree to disagree on this particular one. I think you could use the same line of reasoning to justify the paywalling of publicly funded research by journals like Elsevier.
I think if we operate on the principle that the person who pays for something should be considered an owner of it, then publicly funded research and something like operation warp speed should at the very least get a share in dividends derived from those patents, if not have them invalidated entirely.
"I think you could use the same line of reasoning to justify the paywalling of publicly funded research by journals like Elsevier."
I all in favor of changing the rules moving forward. I'm all in favor of creating new journals with a different incentive structure that would make Elsevier and cia obsolete. Which is already happening slowly.
The Oxford group wanted to donate the patents, but Bill Gates convinced them to let AZ have a monopoly. And yet this is the vaccine that did get transferred to India, not the MRNA vaccines. Maybe if one or the other group released their patents it would have been faster, but I doubt it. It looks like the public statements by Bill Gates linked above were correct.
It's not clear what Gates's private argument was. If the deal was that AZ got a monopoly in rich countries in return for advising India, that sounds win-win. But it's not clear what happened.
They created vaccines quickly because they were given massive guaranteed orders backed by the taxpayer. This is not a victory for the free market. If governments had left people to buy their own vaccines those patents would be largely worthless because COVID vaccines are a terrible value proposition without the underlying mass hysteria driving demand.
This is part of where I think looking at this through the framing Scott uses goes awry. You can start with a brilliant idea, execute it well, but as some point, it's likely your ideas will be poor or benefit yourself at the expense of others. Once you get super rich, you're cut off from most people and have a reward system that gives you flattering feedback even when your ideas are terrible. The worst case scenario are authoritarians, but I think there are studies showing business leaders tend to make worse decisions as they're in the role longer. Not to mention the pressure from both ego and investors to pursue monopolies, monopsonies, and other strategies to curtain competition, which very large companies often succeed in.
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.
AWS really wasn't a novel idea at all, it was just a productization of what other tech firms already had and in fact were far ahead with. The idea was simply - hey, we can sell this.
Trust me, I was at Google at the time. It was very frustrating to constantly hear Google exec's get asked by employees, "we have great cloud tech here, why don't we sell it" and be told no, because, the reasoning went, it's core competitive advantage and we can always make more money by doing some generic business + putting ads on it, than other companies can, so why would we sell capacity and tooling?
But isn't this exactly the whole thing behind 'ideas are easy, execution is hard'? It's exactly why innovation is not as inevitable as Scott makes it out to be.
AIUI, AWS as a product was a direct result of Amazon's retail success. They would get hammered by so much traffic on Black Friday that they needed to invest in a ton of infrastructure that would then sit idle for the rest of the year; what started as just squeezing a few extra bucks out of stuff they had lying around anyway turned into the juggernaut we see today.
That's a bit of an urban legend I'm afraid. It's not actually true. AWS was started because Bezos saw the value in well engineered datacenter infrastructure and, crucially, that they could sell it to the mass market.
Think about it - the Black Friday explanation makes no sense. Do AWS customers get turned off on Black Friday / Christmas to free up the capacity that Amazon itself suddenly needs? No, of course not. That would be a mad way to run a business. AWS capacity doesn't compete with amazon.com usage and in fact the process of porting amazon.com to AWS took a long time.
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.
If the company is publicly traded, isn't it almost always up for auction? There's a reason that Amazon doesn't get sold to someone else every year, the $1.3 trillion price tag. If you're looking to sell the rights to run the company for far less than that, what you're actually doing is selling the rights to loot the company for a year. If I had control of a $1.3 trillion dollar company for a year, I would sell off their best assets (to myself or friends maybe) for cheap or liquidate for a nice chunk of cash and pay myself huge sums - then the next guy buys it.
Jacob was talking auctioning the right to use the monopoly Amazon currently fills with your own company. So you wouldn't get a company handed over that you could loot. And amazon would have to pay every year to keep it's monopoly so the government would extract the monopoly surplus profits.
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?
Why just innovation? If we're designing (and presumably implementing via legal means) socially optimal strategies for rewarding success, why just innovative success, and not, say, plumbing success or short-order cooking success? Why set government-mandated wages for certain kinds of private-sector labor but not others?
If you manage to achieve the socially optimal strategy for plumbing, that is presumably a one time thing until innovation makes it possible to again do better plumbing. Though successfully achieving a socially more optimal strategy for plumbing would surely count as an innovation were it not happening before‽
We already have a set of strategies for rewarding success, implemented via legal means:
- Intellectual property law: If you invent something you can patent it, and then the courts and the police will help you collect license fees for some period of time. The size of this reward can be increased or decreased by adjusting the duration and scope of patents.
- Private property law: If you start a business that does something innovative and useful, and then that business makes lots of money, then the courts and the police will help you keep most of it. If you make too much money then maybe the antitrust people will come along and take it away. The size of this reward can be increased or decreased by adjusting tax rates and the scope of antitrust law.
- Regulatory law: If you start a business that does something innovative, you will often find yourself in a position to influence the regulatory environment faced by both yourself and future competitors. You can use this power to crush competition and make more money than the people trying to copy your innovative idea. The size of this reward can be increased or decreased by adjusting the power of regulatory agencies or by adjusting how responsive to industry influence they are.
Note that #1 works well for legible innovations, which would otherwise be easily copied, while #2 works well for illegible innovations that are difficult to copy.
Monopolistic power usually does not function as a reward for innovation: The easiest way to become a monopoly is to have lots of money, not to be first. #3 sometimes has a similar problem where regulators are influenced by whichever firm is politically well-connected rather than first (e.g. Kalshi vs PredictIt). If PredictIt were a real company rather than primarily an academic exercise, perhaps they would have anticipated the threat and done a better job of hiring the well-connected lobbyists who now work for Kalshi.
Hire entrepreneurs. Offer the lowest compensation rate that gets you enough people who meet your quality standards. Not getting enough good quality applicants? Offer higher pay. Suspect you're into diminishing returns from having too many entrepreneurs? Raise your quality standards.
In a capitalist country like we have, this policy wouldn't work since the best entrepreneurs would prefer a chance at outsized returns to capital ownership. In a capitalist country with very high taxes on returns to capital, or in an honest-to-god market socialist economy (i.e. where firms are either co-ops or publicly owned) it should work ... in the absence of emigration. But really the best entrepreneurs would tend to relocate to the more lucrative capitalist countries.
Considering competition between nations, the optimal strategy for a polity may be to pay the most successful entrepreneurs a heckuva lot, as we do.
>But really the best entrepreneurs would tend to relocate to the more lucrative capitalist countries.
This is why, if pressed, socialists tend to admit that socialism would have to (somehow) be global to work. Socialist nations just wouldn't be able to compete with capitalist ones.
Which is a crazy thing to admit, because it means they are willing to stifle growth significantly in order to try to equalize the profits. The conclusion seems to me that they would rather live at the standard of living of the middle class in 1880 than the lower classes in the 1980s (or pick you date), despite the later date having significantly better outcomes on any absolute metric you can name (live longer, better food, better housing, better and more abundant clothing, etc.).
Worse, actually, because doing so in the 1st world relegates the 3rd world to far lower standards of living as well, but they started at far less. If Socialists were splitting the produce of a less productive older society across the whole world, then the average would in fact be far far less than they expect from a 1st world perspective.
Well, I'm not a socialist, but I can point out something obvious they're missing: there's an equal-and-opposite migration option! Just as a low-tax capitalist countries can in practice siphon off the would-be entrepreneurs from other countries, perhaps market socialist (and high-tax capitalist) countries could in theory try to siphon off the working classes of other countries via mass migration. If I may put the idea poetically by stealing the words on the Statue of Liberty: "Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore."
Mass emigration from low-tax capitalist countries would induce a labor shortage and thereby undercut their ability to direct most of the social surplus to the wealthy. Capitalist countries would basically have two options: retain their migratory freedom and pro-market convictions and start directing more of the social surplus to labor instead of the entrepreneurs, or lock down their poor.
Of course I must comment on the obvious: There aren't any market socialist countries. If there were, they probably wouldn't be politically willing to promote mass immigration. If they were willing, they'd have to be able to offer a better quality of life than the poor had available in the rich capitalist countries, meaning they'd have to be a rich country themselves, which seems unlikely at best. If they were able, it would be logistically quite difficult to pull off. Though I said at the start it was an equal-and-opposite migration option, in reality poaching a tiny number of entrepreneurs is easier, so the low-tax capitalist countries' strategy on this matter is more effective.
I wonder. I suppose (early stage) entrepreneurs would have to tend toward the risk neutral or actively risk seeking side of the spectrum — on the other hand, each individual entrepreneur undoubtedly takes on concentration risk, whereas an entity taking on multiple such risks would experience lower variance, assuming those risks are not perfectly correlated. Is there enough difference to go on here? Or, assuming they're risk seeking, can we even charge them now for the promise of lower (or even negative!) taxes in the future and increase uptake? Are there policies we can take to increase the pool of people with appropriate risk preferences (so basically changing the risk preferences of a population)? There are also, of course, innovations coming from existing companies, which have different risk preferences, so most likely require different policies.
Elsewhere in the thread someone else also mentions non-competes, and how that interacted with the establishment of Intel. Would that be a positive overall? I suppose successful entrepreneurs would benefit from believing in themselves, but does that translate to getting greater benefits from reducing friction for the leaving employees than the harm from the obviously missed chance of rewards for Shockley, or more generally, the original entrepreneur?
Entrepreneurs, by definition, don't work for wages and can't be hired. They can only be encouraged, or stifled.
Saying "you'll never be allowed to make it big as an entrepreneur; have you seen the tax code? Come work for Genericorp and manage our XYZ division, make it massively profitable for us", counts as stifling.
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.
A good observation. Entrepreneurs are doing an EV calculation in their head when they start a company; 1/X chance of being a unicorn, * (my shares %). If we tax billionaires then we decrease the EV of all startup founders by reducing the expected benefits of winning big.
The second-order effects might end up being weird though; if there's no incentive to 10x your company size to go from a $1B payout to $10B, does that mean there's room for 10 more successful companies for each eschewed-$10B company, and so the likelihood of a smaller (but still life-changing) payout goes up? That could be a net positive outcome for entrepreneurs.
Money beyond a certain point is no longer valuable as money; it's valuable as status and power. It's not clear to me that somebody in a system where rewards cap out at $10 million would be less interested in starting a new venture than in one where it caps out around $200 billion.
If Steve Jobs wouldn't have ever another penny coming back to Apple, I suspect he'd still have been there because that was his first and only true love. Zuck didn't know he'd get rich. Musk didn't form SpaceX to get rich…
You’re making some unstated assumptions. I’m pretty sure that if you limit the upside and leave the downside where it is, you will cause people to change their behavior.
And how likely is it? The US government is known for socializing the downside, not the upside.
Money is always only valuable as status and power; nobody likes green papers or debased metal disks for their own sake.
SpaceX is an interesting counterexample, though, if you think there's no upper bound on power as an incentive. $10M from Zip2 would have been enough for Musk to retire young and party; it would not have been enough to try to electrify the auto industry or enable cities on Mars.
I agree. Also I now wonder: given that our moral intuitions often stem from hunter-gatherer adaptations: How do hunter-gatherers split the meat in case clearly just one of them killed the animal? Do they split it between everybody who tried? Or let him keep it? Intuitively we want the system to be stable over years, in particular not to lead to tensions and wasting energy on internal fights...
He's talking about "fairness" and "deservedness". I'm puzzled that many people seem to think this piece is talking about something else. What did *you* think OP was talking about?
Or maybe you're saying that if two entrepreneurs are equally talented and skilled, and start pretty much the same business, the guy who starts his company one year earlier and ends up with 90% market share does in fact deserve 90 times more money than the one-year-later guy who ends up with 1% market share.
As for branching into new products, it's not like no other entrepreneur would have thought "well we're selling books... but why not try selling other stuff?" or "well we build a couple of datacenters... why not rent out computers in our datacenters?" These are obvious things to do, and frankly Amazon AWS is expensive and shitty — I have little doubt DigitalOcean earns far less money, but their product is clearly superior IMO. And heck, it's not hard to imagine an online store that is better than Amazon, although I am impressed with their fast deliveries.
Well, yes, I’m saying that in a market environment, the firm with 90% market share is entitled to that market share. That’s really not the point of my post though, which is about deservedness and distribution within a firm. I’m saying that a founder/original investors, are entitled to a certain level (which is open to discussion) of potential return on the money that they risked. That’s typically different than the average employee of the firm, who is not putting in a financial stake (this doesn’t include employees who themselves are being paid in equity rather than cash up front). I’m turn, there’s a more watered down version that pertains to taxation and how that applies to people working for more profitable businesses/endeavors vs less profitable ones.
I was suggesting that there’s some optimal balance to be found for what founding investors receive and non-equity employees receive. That’s the central distribution question, to me, in market economies. I don’t believe the original post took risk into account of deservedness - I think it is a component, but not the entirety. If the number you feel should be assigned to the risk premium is less than 1% or even 0, then that’s that. I personally think it should be higher, and moreover, that it’s a relevant part of the conversation.
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."
Much easier to punish Bezos than to deal with inflation, central banking, mass immigration of low skill labor and laws favoring Wall Street over Main Street.
Not terribly relevant to this discussion, but Denmark does, in fact, tax (some) unrealized capital gains. Mutual fund unrealized capital gains are one such example in Denmark (though, strangely, not unrealized capital gains in individual stocks ...). This implies an upper limit on how difficult it can be to tax unrealized capital gains.
I only know about this because the subject came up in a discussion thread on a personal finance site I visit.
My *guess* is that they don't remit for losses, but that losses can be carried forward an applied against future gains. But that is a guess.
It does lead to strange behavior, though, where Danish investors are dis-incentivized to use well diversified mutual funds because individual stocks don't have this bad tax property. There *are* ways to bundle a lot of stocks together to get around this, but I don't know if this is common in Denmark (it was tried in the US around the 2000s and wasn't popular ... but the US doesn't have this tax behavior).
Good point. I actually don't care about theoretically potential worth, whart counts is real income and even more: real power that comes from the absolute size of the company he owns and additionally from the almost monopoly he controlls.
So let's just tax realised capital gains quite high. Or even cap it at a certain point so there is incentive to build stable lasting enterprises. Bezos could get 1 million $ per year as personal passive income for the rest of his life, but would profit less from looting or selling the company.
The question of power is harder, the main point is to have strong regulatory bodies that can't be influenced too easy and to have proper and enforced anti trust laws taking care that no singe company can get too big and preventing monopolies where ever possible.
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?"
Both are public policy questions. Public policy determines how much plumbers as well as entrepreneurs pay.
In fact, to go one step further, I believe they should be treated exactly the same. Entrepreneurs who make $100k a year should be taxed at exactly the same marginal rates as plumbers who make $100k a year. And entrepreneurs who make $10 million or $10 billion a year should be taxed the same as plumbers who make $10 million or $10 billion year.
Now, where there is disagreement, is about what these rates should be. I happen to believe the marginal rates should be very high as you go up the income ladder, although I get that not everyone feels the same.
I agree that taxation in general is a public policy question, and that reasonable people can differ as to appropriate marginal tax rates. But what Scott seems to be considering a public policy question is "fairness of compensation" measured in terms of value provided by labor--i.e., effective wage-setting by government fiat for each occupation. I don't think that makes sense for plumbers, entrepreneurs or anyone else.
Fair point. Here is why I think it makes sense. For people, like me, who believe that those earning huge amounts of money should be charged very high marginal rates, I think it's reasonable for people to ask why we think these rates makes sense. And for people to push back because they believe these rates are unfair or bad for society. I think it's important to respond to both of these complaints, which I think Scott does a reasonable job of doing.
The usual argument for progressive taxation--which I basically agree with--is that the marginal utility function of income (and everything else) decreases, making a fixed-percentage tax on the billionth dollar earned *much* less onerous than the same percentage tax on the thousandth dollar earned. Hence the percentage income tax rate on dollars earned above one billion should be *much* higher to make the burden "equal" in marginal utility terms. Not only is that argument more persuasive than the "income as payment for value to society" argument, but it avoids the latter argument's drawback of opening the door to general wage-fixing as public policy, and thus to general government micromanagement of the economy.
I'm certainly partly with you ICouldBeWrong. Much of my support for progressive taxation is based on the utilitarian belief that society as a whole is better off with some redistribution through taxes because the value of a million dollars spread across a wide range of "ordinary people" is more than the value of that same million dollars to Bill, Elon, Jeff, etc.
But not all. I also believe in progressive taxation on a fairness basis. I think Warren's "you didn't build that" speech is roughly correct. I think the outsized rewards that Bill, Elon,Jeff reap (as well as Steph and LeBron, Adele and Beyonce, Tom & Nicole, Warren and Schwartzman, Gurley and Meeker, etc) is partly a function of their skills, work ethics, and savvy but mostly the result of a "winner take most" system that rewards the folks at the top of the pyramid in ways that are completely out of proportion with their skills, work ethic, brains, etc.
Having said that, I agree with you that I don't want government (or anyone else) in the business of trying to calculate who deserves what. I agree that the question is practically unanswerable, and it would be enormously wasteful (and divisive) to try. So my answer is just to have a progressive taxation system that treats all outsize winners the same regardless of their field.
But my ideal progressive taxation plan would be much closer to the one that we had in the U.S. from the 1940s-1970s with top rates between 70-94%. I not only believe those rates would be better for society and fairer, but I believe they would have zero impact on making society as a whole less productive.
"So my answer is just to have a progressive taxation system that treats all outsize winners the same regardless of their field."
While I would probably ultimately stick with the philosophy above, I could definitely be tempted me by a system with even higher taxation rates on folks working in finance. While I I think all the folks I named above earn outsized rewards, I do think they contribute a lot to society in their respective fields. I think that is less true for folks in fields like finance and real estate, where I think more of the financial gains come from rent seeking behavior that contributes little to society. So I would be tempted by a system that offered less incentive for the best/brightest/hardest working to enter those fields, although I'm not sure that could be done in a way that doesn't have negative side effects.
I will go one step further than that, and say that everyone should be taxed the same dollar amount, like a "membership fee" for being part of the country. For the US right now that amount would need to be about $24K a year to cover Federal government expenditures.
Of course people who didn't earn substantially more than this would leave the country; since these people tend to be net-negative the country would overall improve.
Heh Melvin. A step too far for me. You would have gotten along great with Margaret Thatcher in the 90's, but I don't think a poll tax is the way to go.
And I suspect that you wouldn't find a country where everyone who currently makes less than $50k a year emigrates quite the paradise you're expecting.
That seems to me to be an argument for limiting the public influence of billionaires, not for gating billionaire-ship based on arbitrary measures of value provided to the public.
> 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?
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.
My uneducated assumption is that family wealth probably plays a very big role (statistically) in how much equity a founder has at IPO. Those entrepreneurs who start with significant wealth can keep higher stakes, don't have to seek dilutative funding. So that circles around nicely again to your point about inheritance taxes. Point well made.
And how do you measure 'improve society'? Many here think that the mere fact of building a giant corporation and dominating one or several markets prove that they improved society. I see such power concentrations as a worsening of society. If there were valuable benefits for society on the way getting there is totally unrelated. This can have happened and if so should be rewarded, but not more than other improvements to society that didn't fit in an lucrative business case.
Power concentrations do cause problems, and not all companies get rich by improving society. Figuring how to handle these problems in a complicated industrial society is hard. However, most companies do improve society because creating what people want that they couldn't get before, or creating something more efficiently than elsewhere, is an important service.
Thanks for the link, but it wasn't news for me, and I'm not against business or industry in general. But it has to be judged by the value it provides to society and I think size and profit margins are a poor metric. I see that very kind of industrial plant needs a certain size to work economically and with technological development progressing this size gets bigger all the time. But there is no intrinsic value in having corporations several orders of magnitude bigger than that or spanning many unrelated fields of the economy.
There are also too many ways to optimize a business for profits that are actually hurting the environment or the society that profits and especially big profits are no sign of value production.
Adding in that living now in the developed world what we need to improve life is not more stuff or services but less stress. So economic growth is key to a certain point but when all physical needs are more than filled, there is not much to win by more growth. Now we have to think what we want and what is next instead just following the path that was right for the last 200 years.
I understand that the current consensus among the polsci types (or whoever it is that studies these things) is that an inheritance tax is notoriously unpopular and basically political poison. I suppose it can't hurt to keep trying to build support for it though, and maybe we'll eventually figure out an implementation that works well and isn't going to be repealed come the next few elections. Break down the unpalatability from both ends, so to speak.
Its a moral problem and an engineering problem , because we are not pursuing growth and innovation as ends in themselves. There's profit in slavery but we don't want it.
In the big picture, yes. As always, stating my opinion accurately would have taken so many words that few people would have read the comment, and would probably have generated more confusion than it cleared up. But I'll try to explain more in this sub-comment:
The social utility of a policy is non-linear in any numeric evaluation of its morality. There will be local maxima and minima. Suppose that we believe the most-just distribution of wealth generated by start-ups is X, and the free-market distribution, which produces a much higher total but less-evenly distributed social utility, is Y. We probably can't split the difference by using the distribution (X+Y)/2, because that high total utility is generated by the free market, which is a *machine*. The output of a machine doesn't change linearly as you move its internal parts around. The market is a more-flexible than a car, but markets still break down outside their operating parameters.
There are a number of well-known possible general economic systems, including barter tribalism, monarchy, military empires, feudalism, and free-market-type systems. Each of these has social operating parameters outside of which it breaks down. My earlier comment presumed that we already used our moral sense to choose the general economic family of free-market systems, because they seem more able to provide peoples' needs and desires. Once we've committed to that general type of system, the answer to the engineering question gives us bounds on the operating parameters. There might be ways to make trade-offs in some other part of the machine that will allow us to adjust founder-profits downwards if our morality inclines us to do so. But Scott's approach was to simply ignore the machine's operating parameters, an approach which, if used regularly, would certainly break the machine.
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.
Fairness is a metaphysical concept, not an empirical one. This implies that the meaning of "fairness" is a cultural construct. This means that to endorse the idea that the government should promote "fairness", you must renounce multiculturalism, which forbids the government from promoting any one culture above another.
I have my own preferred definition of "fairness", which is important to me; and I also value multi-culturalism. But logically, when it comes to politics, you've got to pick one or the other.
Not that the government already doing something is relevant to whether the government *should* do that thing, but... what fraction of the law decides what's fair, without regard either to what's pragmatic, or to providing incentives in order to do some social engineering? There are some: the civil rights amendment, for instance. But criminal law and contract law are driven by pragmatics, and tax law is driven by social engineering. And the Civil Rights Amendment certainly requires the renunciation of multi-culturalism, since just about every culture in history before 1960, and probably most cultures today, would consider some part of it morally reprehensible.
First, I think in a democracy the government has no choice but to try to incorporate some approximate sense of "average acceptable fairness" into it's policies. If people are going to vote, part of what they will vote on is their concept of what is fair. It's very important to humans on an emotional level, very ingrained in us, and I don't think you can take it out. Most policies affect different groups of people in different ways that are going to trigger some segment of voter's to think "that's not fair", and you have to account for that in representative government.
Second, yes, there are different conceptions of fairness, but why should that mean we just throw the whole concept out? It's just another thing that requires compromise, and shifts overtime with the will of the people, similar to human rights (which is deeply embedded in concepts of "fairness"). To forbid the government in dealing with the idea of what is fair would be to remove some human rights protections that have been hard won over the last centuries. You could argue they are entirely separate concepts I suppose, but I wouldn't find that very convincing. Fairness is intimately tied to rights.
Ultimately people are messy, emotions matter a whole lot, and you have to deal with them whether you want to or not. There's no useful conclusion that can be drawn by excluding these emotions, because that's a false world that can never exist and will not satisfy the actual real human beings that live here.
I think that we could go much further in the direction of a computational government in which cultural questions were not set into the legal code, but decided by individual voters.
For instance, our laws could explicitly state that punishments in criminal justice should be calculated so as to maximize social utility, rather than to give the criminals what they "deserve". Social utility would be computed as a function of some set of values, and the numeric weights of those values would be set, and continually updated, by the voters.
I agree that it would be extremely difficult not to embed any conception of fairness into our laws. But I never said we shouldn't embed any conception of fairness into our laws. I said that either we shouldn't embed any conception of fairness into our laws, or we should reject multi-culturalism.
The only radical thing about this claim is its honesty. No one really wants multi-culturalism. Anyone who thinks the entire United States must do things their way regarding gun laws, the legality of abortion, or any other controversial subject, is against multi-culturalism. The democrats and the republicans in the US are two cultures more similar to each other than they are to any non-Western culture. Once they learn to live side-by-side in peace, neither trying to interfere with the other, then they can claim to be capable of some degree of multi-culturalism.
Multi-culturalism doesn't mean eating Cajun food, listening to rap music, and reading books by people with a diversity of skin colors who all attended the best colleges in Boston. It means allowing people to act on different cultural values. That means allowing people to be homophobic, racist, and sexist; allowing government officials to take most of their pay in bribes; allowing nepotism in business and government; endorsing religious censorship, honor killings, and warfare; and many other such things.
The standard trick is to take all *your* cultural values and call them "reason". When Plato invented structural racism, when St. Augustine endorsed torturing heretics, when St. Aquinas endorsed killing them, when the Nazis built death camps, when Mao murdered forty million of his own people, they all called it "reason". It's embarrassing to me as a human that this trick still works. Post-modernists rightly pointed out that other people were using this trick, but they and their political offspring think this discovery gives them the right to deny that they ever use it themselves.
It may be possible, someday, to devise a multi-cultural polity, but it would resemble the world of Snow Crash more than ours today. I think it's a good thing that we abolished slavery, allowed women into the workplace, frown on nepotism and bribery, have enough of a sense of honor that colleges can operate on an honor code, and allow freedom of speech and freedom from religion. Anyone who says any one of those things is good is against multi-culturalism. It's important to understand that, so that people can no longer use the word "multi-culturalism" dishonestly, to conceal their own mono-cultural agenda.
I can see the argument that *Aristotle* invented scientific racism with his infamous declaration that some non-Greek ethnic groups were 'natural slaves', but I don't recall Plato ever saying anything derogatory about ethnic groups.
One of the keys of the polis Plato presents as his Utopia in /Republic/ is the use of a secret breeding program to breed the original founding population into separate races, of workers, soldiers, and rulers, like in /Brave New World/. People were to be told their sex partners were being assigned by lot, but behind the scenes, the philosopher-kings were to choose who had sex with whom.
Plato took maintaining the purity of the master race to be the most-difficult task for the state, because his ontology says that everything in the physical world decays from generation to generation, including humans themselves. (He would have been correct, if not for natural selection.) IIRC he dealt with this problem in book 8. His solution was that he claimed to have discovered the numerological "marriage number", an integer with occult powers such that knowledge of it would enable him to predict before-hand what the offspring from any particular union of man and woman would be like. The fact that he never told anyone what the marriage number was, suggests he meant to keep it secret so that people trying to carry out his scheme would have to appoint him as the first philosopher-king.
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.
The hypothetical competition is likely to be found in the executive offices of the winning company, helping make the idea work. In which case they're already compensated.
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).
I think the phrasing around "inventing Amazon" or "making progress" misses a key point. In most cases, ideas are cheap; execution is the hard part.
Bezos is an extremely good operator, and is extremely smart at business strategy. He picked books because they were the best-suited product class for an online long-tail distribution business (with an existing taxonomy in the ISBN system) -- that was a Very Good Idea. Had he not come along, it seems fairly clear to me that there would be other online retailers in a similar vein; there were others at the time Amazon started. However absent Amazon's outlier execution and performance, there might not be one pseudo-monopoly entity that captured all of the value and re-invested it all back into growing their company. The value he created was not "inventing the one-click buy button", but grinding away for decades to build a massively successful company, which is an incredibly hard thing to do.
There is something to be said for a huge chunk of economic activity being captained by an extremely efficient operator, instead of by 100 smaller, less-efficient and competing companies. However there are also clear monopoly concerns with Aggregators like Amazon.
I think you can make a different argument about the rare companies like SpaceX or perhaps Tesla, where there is a bold idea that is a risky bet, combined with a need to raise eye-watering amounts of capital, which really does mean that there are only a few people (outside of state space agencies) in the world capable of actually bringing that idea to fruition in a given generation.
Given all that I do think there is a middle ground between the Marxist position you put forth, where there is no such thing as an entrepreneur creating value, and the current status quo where entrepreneurs are able to become multi-billionaires.
I think Scott was trying to leave some room for the concept that entrepreneurs do create some value, by bringing forward inventions/innovations. But we shouldn't necessarily just grant them all of the value that they can capture. I don't think you need to implement Marxism to agree with that; you could just do a Warren-style tax on ultra-millionaires, so your net worth over $1B gets taxed at 6% PA.
>I don't think you need to implement Marxism to agree with that; you could just do a Warren-style tax on ultra-millionaires, so your net worth over $1B gets taxed at 6% PA.
That essentially deprives them of control over their company over time by forcing them to sell their shares to pay the taxes, which strikes me as a terrible idea. Why should the people who generated a ton of value for society, by first coming up with a great idea and then nailing the execution, be forced to slowly lose control over their creation?
Setting a minimum of some very high net worth might seem more "fair", but it's actually backwards; you're specifically punishing the people who came up and executed the *best* ideas and generated the *most* value, and creates a disincentive for them to grow the company to provide more value lest their share grows beyond the threshold where their company starts getting taken away from them. This is the kind of policy that could potentially end or at least significantly slow progress for the human race, just to satisfy some surface-level sense of unfairness that some people might have access to a lot more resources than others.
I mostly addressed these points in reply to Erusian’s sibling comment, please take a look there. In short though, I don’t think this picture of “founder control” matches my understanding of how companies appoint CEOs or how founders’ stakes evolve over time. After it became a public company, Bezos wasn’t CEO of Amazon because he controlled the voting shares (he didn’t). It was because he is one of the best CEOs alive.
> This is the kind of policy that could potentially end or at least significantly slow progress for the human race
Personally I think this is extremely overstated. Of all the founders I know (and having founded a startup myself), I have never met anyone who was trying to maximize their income. Frankly these days working for Google or a law firm or Jane Street are far better EV plays than starting a company.
All the founders I know started a company because they were passionate about the cause, or wanted to build something and leave a dent in the universe. Sure, there needs to be a high payoff at the end to compensate for the fact that most companies fail. But $1b vs $10b seems irrelevant to me as motivation. I’ve never met a founder that would say “I would quit my company if it couldn’t get me from $1b to $10b”. I’m sure there are some like that, but I can’t believe they are a majority. I could be wrong! I haven’t talked to any multibillionaires.
What, specifically, is your objection to the existence of multi-billionaires? Why is their existence something you cast as an extreme opposite of Marxism?
Warren's wealth tax plan was so bad and dishonest that it made me think she should not be taken seriously. Even Matt Yglesias admitted it was mostly wrong but he supported it anyway because Yglesias default supports all taxes even if he admits they won't be very effective.
A 6% wealth tax on wealth would end with the government owning 95% of a company after thirty years assuming the company grows at the average rate. A significant number (about half) would end up with the government owning more. If you only want a tax not on total wealth but GAIN in wealth then that is the capital gains tax and it already exists.
Look, I get the instinct here. Progressives want the government to have a lot of money because they want all kinds of new spending programs. And so they're desperately looking for revenue that's politically possible to collect. Billionaires are unpopular and they have a lot of money so it looks like a solution if you don't think about it too hard. But money is not value but a REPRESENTATION of value. And in billionaire's cases the value it represents is the value of owning a company.
If you tax that away to spend it then you're effectively taking away control of companies from the people who have (so far) been best at running them. Either they sell their companies to other people for cash in which case you're selling ownership of American companies in exchange for a welfare state (presumably to foreigners mostly since every other American is also wealth taxed). Or you're having the government directly own the companies and use that ownership to furnish welfare state services. In which case, yes, you've just reinvented Communism with extra steps. Which has issues.
The truth is there isn't any easy source of revenue available from taxing the rich. If you want European style welfare states you need to tax the middle class and Americans aren't willing to support that politically. You could do something like a national VAT or taxing the middle class but that's hard to get done politically. This is because in order to create a broad based welfare state you can't just financially magic it into existence. You need to divert real resources. People need to give up living standards through higher prices and lower growth in order to have smart people work running universal daycare or housing bureaucracy instead of new companies. And that might be a worthwhile trade! But it's not one the American people have, so far, been willing to support.
I’ll just start by noting that I wasn’t making strong object-level advocacy for the Warren plan in that post, more trying to make a meta-level point by giving a non-Marxist example on the spectrum that might still tackle the problem Scott discussed in his post.
Nevertheless, I gave that example because I do think it has some merit, so happy to explore the object level question.
> A 6% wealth tax on wealth would end with the government owning 95% of a company after thirty years
I don’t understand how you get this conclusion. If I own $11B of Amazon shares, my tax bill is $600m per year (just looking at the “6% on >$1B”). If my income is zero (very unlikely) then I have to sell some of my shares on the open market; the government doesn’t “take them from me” or anything like that. The IRS does not accept payment in AMZN.
What’s more likely in practice is that I have lots of net income that can offset that wealth tax. I can leverage the shares to get financing to invest in buying Twitter or whatever my next money-making scheme is. So say I get a 5% dividend then the net outflow is a 1% reduction in my wealth. In practice the wealth of the mega-rich seems to be increasing faster than 5% PA.
Note that if the founder still controlling the company is (perceived to be) great for the company, the shareholders will let the founder keep control while selling shares; Zuckerberg did this. But I think for most multi-billion public companies, it’s very uncommon for founders to hold controlling stakes. By the time you IPO the founder is diluted out of a controlling position, even selecting for billionaire founders. For example Bezos holds something like 10% of Amazon. He is kept on in the job of CEO because he’s great at it, not because he owns a controlling stake. (Indeed if you need a controlling stake to be CEO you are probably (not definitely) a bad CEO.) Another data point; Musk holds something like 15% of Tesla shares. Again, he’s CEO because the board and shareholders believe he’s the best person they can get to do the job.
And I don’t think the inevitable consequence of forcing some share sales to pay a wealth tax is foreigners buying the shares; retail investors buy index funds that buy shares; hedge funds buy shares; pension funds buy shares. There is and would still be plenty of demand for shares in the US if the 500 or so billionaires were taxed substantially more.
Basically I don’t think capitalism collapses if you tax billionaires a lot more. And I think a wealth tax (ideally replacing taxes on things we like, like income) has substantial merits, though also implementation difficulties.
> Look, I get the instinct here. Progressives want the government to have a lot of money because they want all kinds of new spending programs.
This may be one of those things where liberals and conservatives just don’t understand each other.
I don’t think many folks starting place is “we need more government revenue / want to expand the welfare state, let’s come up with a scheme to find more taxes”. It’s more (in my experience) observing that wealth inequality is unjust, and/or a harbinger of societal unrest and revolution, so maybe we should do something about it. (Maybe Warren is in the former camp not the latter, I don’t know.)
I think this aligns with Scott’s inquiry in the OP; it’s not that we should take money from the rich because we need to fund our entitlement programs, it’s that there is (maybe) something unjust about billionaires capturing so much of the value created in their enterprises.
> I don’t understand how you get this conclusion. If I own $11B of Amazon shares, my tax bill is $600m per year (just looking at the “6% on >$1B”). If my income is zero (very unlikely) then I have to sell some of my shares on the open market; the government doesn’t “take them from me” or anything like that. The IRS does not accept payment in AMZN.
Right. So I take 6% of Amazon and sell it on the market. In actuality it would probably be more than 6% because such a large sell off would reduce the price. Who buys them? In your case where the government demands dollars then it would mostly be foreigners who have the advantage of holding shares without the tax. They will sell things to the US to get dollars and use those to buy shares of companies thus encouraging foreign ownership. We will be funding whatever we spend the money on by, in effect, selling ownership of our corporations to foreign countries. And by year thirty I have lost 95% of my ownership in the company.
> What’s more likely in practice is that I have lots of net income that can offset that wealth tax.
The chances of your stock growing every year by more than 6% are extremely low. The wealth tax explicitly does not take into account that your net wealth may have gone down this year. If it did it would be a capital gains tax, not a wealth tax. Further, since it is a constant 6% of whatever the value happens to be, I am losing a roughly constant percentage of my ownership of the company REGARDLESS of how much money that is worth.
If in year 1 the company is worth $100 and I have to pay $6 my percentage is now 94%. If in year 2 the company is worth 200 and my ownership is $194 I have to $11.64 then my percentage is now 91%. And so on. The amount of growth cannot escape this. My net worth might still grow but my percentage of ownership cannot. Plus since the median return is something like 7% and it's inconsistent we would expect about half of companies to have sold off 90+% of their ownership within thirty years.
> Note that if the founder still controlling the company is (perceived to be) great for the company, the shareholders will let the founder keep control while selling shares; Zuckerberg did this.
No. Zuckerberg sold off a different type of share while keeping the shares that gave control for himself. He still controls the majority of Meta's voting stock and, if he sold as he'd be required to under your scheme, would have lost that. Likewise Musk is covered by explicit agreements and covenants. Bezos is the only example where you're right and he's not even the head of Amazon any more. This comment betrays a basic lack of understanding of how shares and corporate governance works.
> Basically I don’t think capitalism collapses if you tax billionaires a lot more. And I think a wealth tax (ideally replacing taxes on things we like, like income) has substantial merits, though also implementation difficulties.
My point is you don't seem to actually have done much research or thought through the implications of your policy. There's a reason why wealth taxes have been abolished nearly everywhere they've been tried and that they only raised significant revenue when extended to the middle class. You don't seem to realize you're proposing the government effectively demand owners of corporations give up ownership of their companies. But you are.
> This may be one of those things where liberals and conservatives just don’t understand each other.
I'm not a conservative. My most consequential political action on a national scale is campaigning to allow felons to vote in a swing state. Successfully, I might add. I think I understand liberals fine.
> I don’t think many folks starting place is “we need more government revenue / want to expand the welfare state, let’s come up with a scheme to find more taxes”. It’s more (in my experience) observing that wealth inequality is unjust, and/or a harbinger of societal unrest and revolution, so maybe we should do something about it. (Maybe Warren is in the former camp not the latter, I don’t know.)
If they're concerned solely with wealth inequality why is the answer taxes that invariably are promised to fund some service or another? Why is it that the taxes are invariably proposed tied to welfare spending? Why is it that wealth inequality suddenly became a talking point just around when the Democrats wanted a massive expansion of the welfare state? Why is it never deficit reduction?
The actions and even the rhetoric of the Democrats do not match your claims. In fact Warren and Biden specifically said they do not consider billionaires immoral and only wants the tax revenue for the welfare benefits it provides. I understand there is a small hyper-progressive group who say things like "Every Billionaire Is A Policy Failure" and pass around mostly bad statistics to justify their worldview. But they're a minority fairly out of step with even the Democratic mainstream. Albeit a wealthy and educated and therefore influential one.
And you have not answered my question: What, specifically, is your objection to the existence of multi-billionaires? Why is their existence something you cast as an extreme opposite of Marxism? Explain it to me.
my objection to the existence of multi billionaires and too big corporations alike is that they concentrate too much power without any checks and balances keeping their actions aligned with public interest. They hinder a real market competition and even have the means to influence legislation in their favor by massive PR campaigns, lobbying or (indirect) bribery.
Okay, so I broadly agree with you. But I think there's two issues with this critique.
Firstly, it overestimates the power of corporations and underestimates the power of government. As has been pointed out, the diffusion of power GENERALLY rather than just corporate power is necessary for an environment of checks and balances. There was no corporate power in the Soviet Union but there was much less diffusion of economic power. The fact the people running the economy were government employees doesn't really matter. What's important is checks and balances that create individual agency and freedom in my view. In economics usually through prosperity.
Secondly, you've moved on from bigness being an issue. Saying there's regulatory capture, monopolistic practices, etc is not the same as saying people are too rich or too big. You could have a world without monopolies or corrupt lobbying that still has big corporations. In fact, reducing the power of billionaires could INCREASE such concentration of power in the hands of other competing power centers which could make the problem worse. This isn't pedantic. The remedies are different. Things like anti-trust and unions vs regulatory agencies and congressional oversight moves power down instead of laterally.
Now, this isn't to say big corporations are a benign influence on society or that there aren't public-private issues. But buried deep in this is the fact that very often the "every billionaire is a policy failure" crowd is actually supporting the increase in centralized power in government hands. Which has often ended very poorly indeed.
Watching our western politics, i attribute many of the political problems to too much influence of corporations and rich elites. This is why I'm generally more concerned about too big and too rich. I still believe in in the possibility of a democratic government acting in the interest of the people, but I'm not talking about what we have now.
The pointing to the failed Communism/Soviet Union often comes across for me as a scarecrow to discredit any kind of improving the work of government or introducing legislation to guide the economy to serve the interest of the people. At one hand adjusting the guard railing of economy is some completely different than having a top down planned economy. On the other taking into account the starting point and al the other circumstances, the soviet economy did do too bad.
I stick with the point that individuals being too rich or corporations being too big will always give them too much power.
So you would attribute our current problems not to, say, Congress or the President but to large corporations? I personally think they're both problems but in different ways.
The point keeps coming up because it gets dismissed too often by people who just find it inconvenient. The Soviet economy did terribly and was based on forced labor and other human rights abuses. Workers on the capitalist side of the Cold War were freer and materially better off than their eastern counterparts. Including workers who started in countries far behind the Soviet Union.
Now, this shouldn't stop us from noting the ways in which we can improve our collective lives. But the attempts to rehabilitate the Soviet Union, invariably from people who have not studied the USSR in depth or lived through it, are a sign to me of intellectual weakness. Of people who prefer not to engage with the complexity that government power is often worse than private power but that private power is not necessarily great either.
"Too much" is, of course, a moral rather than a practical sentiment so I can't agree or disagree.
This seems like an example of the Guilt By Association Fallacy with a bit of Slippery Slope Argument mixed in. It's basically saying "These critiques of capitalism are very similar to Marxist critiques of capitalism, therefore any attempt to find solutions would necessarily mean re-implementing the same disastrous "solutions" the Marxists tried." Maybe those Marxists were like medieval physicians: largely correct in diagnosing the problem, but fatally wrong about the solution. Or maybe they were wrong about both, but still not so absolutely, completely, totally wrong on every particular detail that any ideas remotely associated with Marxist ideas should be immediately dismissed out of hand. (Indeed, if they were literally 100% wrong about everything, then it would be trivially easy to find the correct policies simply by going with the exact opposite of what they suggest.)
>This seems like an example of the Guilt By Association Fallacy with a bit of Slippery Slope Argument mixed in. It's basically saying
It is neither. My contention is: "Your ideas are basically the same as this ideology's idea. They tried to implement economic systems based on those ideas, including this specific one in these ways, and they were disastrous. This is basic empirical evidence against the claim. You then add that experts, now and then, believed it was wrong and it's been abandoned by even most Communists. This is an extremely disproven argument."
You can attack this in various ways. You could show that this specific part of their ideology was right somehow and all the bad things were in other parts. I don't believe that. But that would be an angle of attack. So it's not a fallacy but a fairly coherent argument.
> Maybe those Marxists were like medieval physicians: largely correct in diagnosing the problem, but fatally wrong about the solution.
This is a strange metaphor. Both because medieval physicians were mostly wrong about diagnosing the problem ("that pinching in your belly is due to crabs! You have cancer.") and because you're posing Marxists as the educated experts instead of what they were: people who believed they had invented a "science" (really a pseudo-science) that allowed them to ignore economists and the like. They were more akin to faith healers in my view. Preaching a new religion on the back of its supposed abilities whose promises were never quite kept. (I hope we can agree a large amount of fraud, deceit, and force by a radical minority was involved in establishing and maintaining the totalitarian Soviet Union?)
> Or maybe they were wrong about both, but still not so absolutely, completely, totally wrong on every particular detail that any ideas remotely associated with Marxist ideas should be immediately dismissed out of hand.
I'm not dismissing them out of hand. In fact this is not an ad hominem against Marxists. It's an attack on a particular Marxist idea. One that almost all Marxists have abandoned! Except North Korea and perhaps some Marxists who are not actually running countries. Unless you consider "they were wrong, realized they were wrong, and have mostly moved on" to be an ad hominem. You will notice that most Communist countries these days are still led by trained Marxists who expound Marxist theories but do now have entrepreneurs.
> (Indeed, if they were literally 100% wrong about everything, then it would be trivially easy to find the correct policies simply by going with the exact opposite of what they suggest.)
Point of pedantry but this is only true if options are a binary. Since economics is not usually a binary option this would not be true.
"They were more akin to faith healers in my view. Preaching a new religion on the back of its supposed abilities whose promises were never quite kept. (I hope we can agree a large amount of fraud, deceit, and force by a radical minority was involved in establishing and maintaining the totalitarian Soviet Union?)"
I disagree with the tenets of Marxism, and I think a lot of Marx's ideas were wildly incorrect, but I wouldn't say that it was equivalent to "faith healing." Maybe modern Western communists are akin to religious fanatics; I remember making a thread on here a while back asking if Marxism was deontological, consequentialist, or neither, and the general consensus was that Marxism as written was consequentialist, but present-day Marxist movements are rooted in a sort of fanatical and quasi-religious deontological morality. But Marx himself was hardly the fire and brimstone preacher that people make him out to be. He was a social scientist who had a lot of misguided ideas, and while his methodology certainly wouldn't be considered valid under modern academic standards, I don't think it was just based in blind faith either.
And yes, the Soviet Union was built on deception, intimidation, and violence. But Marx himself was long dead by the time of the USSR's founding. And Orthodox Marxism (which I'd agree is wrong in many ways, and especially wrong when applied to a modern globalized digital economy!) is a rather different beast than Marxism-Leninism and its ideological descendants.
"You will notice that most Communist countries these days are still led by trained Marxists who expound Marxist theories but do now have entrepreneurs."
Sure, but I don't think Scott was saying or even implying that entrepreneurs shouldn't exist at all. He was questioning the precise details of the current system and how fair it was, and he left it an open question, without pushing any particular conclusion beyond "we should acknowledge there are trade-offs here."
> Marx himself was hardly the fire and brimstone preacher that people make him out to be. He was a social scientist who had a lot of misguided ideas, and while his methodology certainly wouldn't be considered valid under modern academic standards, I don't think it was just based in blind faith either.
Marx was very much a fire and brimstone preacher. He also happened to be wrong. Still, he died before the worst abuses of his ideology. Which is more than I can say for some others who stuck to them regardless.
So semi-agreed on Marx. Marx was somewhat ambiguous on his opinion of the petite bourgeois. He famously toyed with the idea that capitalist exploitation might not exist in firms that were small enough everyone knew the owner. He also placed founders pretty firmly as petite bourgeois even when they grew rich. While ultimately he wished to eliminate them he was just... vague on what that meant. He didn't explain exactly where the dividing line was or why there should be one. That left his successors to invent the more stringent Marxist-Leninist version.
Nevertheless, my point that the idea that material progress can't create innovation in the absence of entrepreneurs remains. And that idea is at least present in Marx. If you can point out how Scott's proposals are different I'd be interested to hear it. I understand he doesn't quite get there. But I don't see how that's not the conclusion of this line of thought.
> He was questioning the precise details of the current system and how fair it was, and he left it an open question, without pushing any particular conclusion beyond "we should acknowledge there are trade-offs here."
My point being his framework for analysis is wrong and most closely associated with a disastrous regime. Which might tell you what I think of it. This isn't a pro-status quo argument. I do think we can do better. But I don't think there's many lessons to be learned from Soviet theory that's even been abandoned by most Communists.
"Point of pedantry but this is only true if options are a binary. Since economics is not usually a binary option this would not be true."
Fair, but by the same token, there's an enormous range of possibilities in-between "entrepreneurs should be able to continue drawing a profit from their initial investments in perpetuity" and "entrepreneurs should only get paid for the exact value of the initial labor they put in and not a cent more, like they were under the Soviet model." So Scott questioning the former shouldn't be taken as an endorsement of the latter! (Especially since he really was just *questioning* it! He didn't actually conclude that the former model was unfair or should be changed!)
I'll admit to being a bit casual in my comments. But my frustration is less that the idea is being aired and more that I think rationalists REALLY need to learn more about historical debates on these kinds of things.
My frustration is partly that we're rehashing a fairly disproven idea. Entrepreneurs provide significant value and letting them control what they build is a net benefit to society. Which isn't to say we've found the perfect economic system that cannot be improved. Including potentially changing how entrepreneurship works. But when I see people reinventing Marxism-Leninism or Fascism or whatever without realizing it I get frustrated.
> 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.
Yeah. I don't think many people here realise just how difficult it is to create and sustain successful organisations, or the critical search functions that incentives and competition provide to society.
I actually agree with you--the main contribution of Musk, Page, Bezos, etc is not technological but organizational. (I'd argue Jobs is an exception, in that he had a very singular and unique talent for bringing technology to market.)
But that's not what the article is arguing. It seems to take no issue with great executives making millions/year--instead it focuses on _founders_ who make billions, ostensibly as a reward for their great innovation.
Personally, I think the owners of capital (both founders and investors) should be taxed at higher rates. Specifically I believe capital gains should be taxed at least as high as ordinary income.
The argument against this is that it will "hurt investment," which is not wrong--there will obviously be marginal impacts there. But I would argue that the benefits (stronger welfare/healthcare programs, a more egalitarian society) outweigh the costs.
We're playing in the dark here--no one really knows exactly what the cost/benefit would be, or if we'd cross the hump on the Laffer Curve [1], but IMO we're very far from hitting that point.
There's a very clear distinction between managers and founders--founders are primarily compensated through equity, while managers are primarily compensated through salary.
The former generates compound growth, which is the only real way to get to billions. The latter can get you millions, but not much further.
This is the classic Capital vs. Labor distinction. A hardcore Marxist would say the founder absolutely does not deserve to keep his wealth, beyond what he earns from his labor. I'm no hardcore Marxist, but I think US policy is hardcore anti-Marxist. I'm in favor of balance.
You're under estimating costs (even categories of costs) enormously, and assuming that benefits exist where they very likely do not. Look to the Soviet union, and pre reform China and India for examples of costs when governments become too powerful
Those are both very extreme examples of kleptocratic governments with extremist attitudes towards private wealth.
I look more toward countries like Denmark. Cap gains are taxed at 42% (vs US at 20%). They have some of the lowest inequality and highest happiness levels in the world [1]
Now, those tax rates are pretty darn high for a liberal market economy. I'm not saying the US should go all the way there, but it seems like a few steps in that direction would help quite a bit.
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.
Bezos is arguably the greatest businessman in history. He maybe didn't invent any single product, but he certainly can be credited with inventing the systems that Amazon uses to run it's operations. He famously told all of the employees in the early 2000s to only communicate through APIs, or else they would be fired. The result of this type of communication effort was AWS, which is why Amazon is a trillion dollar company now.
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.
>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.
No, he pays today, but I'm arguing for making zero taxes on company founders. If that had no limit, Bezos would pay zero taxes on any sales of his Amazon stock. I'm saying there's a threshold for where taxes should kick in.
If i buy a company facing bankruptcy and bring it up again to be stable and successful is it mor elike a entrepreneur. On the other hand, if I found a shady startup and convince enough VC to buy me out I get rich without adding value to society.
And if some entrepreneur like Bezos gets his startup running by talent and hard word until it's worth 10 million and then start to inflate the value to 9 billion by PS stunts or government connections because of being a startup celebrity. How would you handle this.
Next scenario: the founder that did most of the creative and hard work gets mobbed out after a certain point when usual management is enough to keep growing fast. Is it OK that the mobbing founder gets most of the reward?
> 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.
The part about Bezos's wealth coming from gambling on Amazon stock is entirely beside the point. It just shifts the question from "why is Bezos rich" to "why is Amazon rich". The claim is that part of Amazon's success is due of a natural monopoly, regardless of who owns Amazon.
You do raise some good points in the rest of your comment.
"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.)
There's a reason there are no libertarian small societies—everybody would die. It's an ideology that only works once society get so large, you can have freeloaders.
We all have to share, and we all succeed only when others give us resources to build on. Your ownership of stuff is 1) a cultural construct, and 2) bounded once you participate in the larger society. So, yeah, it's OK to take stuff from people within the rules of society, and indeed, vital that societies do that.
On the contrary, constraints on political power, a key tenet of libertarianism, are what allowed societies to get wealthy in the first place. When the kings and nobles do not feel free to seize wealth created by others on political excuses is when societies take off. Unfortunately, this also works in reverse!
I was responding to the argument against taxation and other forms of "taking stuff," not limitations on power. Which is something smaller societies also tend to have, and most contemporary theories of political economy emphasize (e.g., every leftist critique of neo-liberalism I'm aware of is concerned about how power is distributed). But you can't constrain political power without taking stuff from people who have enough stuff to move from needs meeting to power projection.
You seem to be ignoring the fact that taking stuff from people is one of the greatest projections of power there is (next to liberty and life). If you can take their stuff, they're not very powerful to start with
If you can't take their stuff, they're probably taking yours.
This is one of the big problems of not having sufficient taxation and other forms to limit extremities of wealth: the rich become so powerful, they can manipulate the system so they're above it and use it to exploit others. Libertarianism (at least in the purist form you seem to be operating in) assumes that you can create rules (or the lack thereof) that ensure people are free from coercion, when that's never possible. The only thing you can do—and thing that every society that's minimized the abuse of power by the elites have done—is create rules (via laws or social norms) to distribute goods and power away from those that accumulate in excess of their need. By doing that, you constrain the ability of people to gather enough power to coerce others. (Or, in your terms, the coercive force becomes the collective rather than the elite.)
So far as I know, there's no "pure" method for this. Every approach a society has flaws, and some groups will be more advantaged. So the question, as I see it is, how can we optimize the outcome for the most people while avoiding an extreme burden placed on anyone? And as a corollary, what does this system need to be reasonably stable?
"The only thing you can do—and thing that every society that's minimized the abuse of power by the elites have done—is create rules (via laws or social norms) to distribute goods and power away from those that accumulate in excess of their need."
So, Marxism? Because that's the ONLY way power can be limited? How's that working out for the countries that tried it?
I don't know why exactly, but corporations don't elicit the slightest infinitesimal fraction of sympathy from me, they rival militaries and states in how utterly "morally unsexy" they are. (Moral Sexiness is the quality of eliciting strong, spontaneous, knee-jerk, gut-level, moral reactions in favor of the morally sexy thing\being, babies and kittens are examples of entities with almost universal moral sexiness.)
Take Bezos' money? Let's roll mate. Pirate Springer and Elsevier? I'm fucking on board. Pirate Netflix? I love doing it just to spite the corporate NPCs, most of what they produce is garbage anyway.
Regardless of what's actually objectively true or moral or useful or consistent, it feels deeply right in my monkey brain and heart to abuse corporations and deprive them of rights.
For starts, I would distinguish between a corporation, and individuals who own stock in a corporation. Bezos’ wealth is mostly of the latter form. In principle, this is no different from grandma whose retirement portfolio is in stocks.
The idea that you can never take stuff from people leads to some weird conclusions.
What if you have a society whose rules are set up to allow massive wealth concentration to literally just 1% of the population, and the other 99% lived in tin shacks with no access to medication and just enough food to survive. Surely it would be right to take the wealth of the 1% to increase the living standards of the rest? Perhaps you disagree with that, in which case I applaud your iron clad belief against theft, but that doesn't seem like a place I want to live.
Whether or not it is okay to take stuff from people depends in my mind entirely on the existing distribution of resources. Every society has its own rules that allow for some amount of inequality, and inequality has its benefits, but its not hard to imagine a society in which it is so skewed that theft is almost a moral obligation.
Think some resource rich countries today which have massive wealth inequality between the resource owners and the civilian population. Those resource owners don't necessarily even have to be good businessmen or have any particular special qualities at all, they just control all the oil/mines/etc. that produce wealth and can afford to create safeguards that protect their continued ownership of the resource. Now a lot of those places are so corrupt that working to redistribute the money might not do any good, but a good case study is Botswana, which has massive diamond wealth but has worked to distribute it to the benefit of their population, which is comparatively rich by African standards, while other African countries have failed do the same with their resource wealth. I think Botswana is on the more morally correct path.
If 99% of the population lives in un-improvable misery, then the appropriate people to blame seem to be the people within that 99% who continue to have children, knowing that they will be born into un-improvable misery.
Sex and kids are probably two of the only things that make life bearable in this hypothetical. And the 1% are the ones with the power to change the situation. But somehow the ones with the power do not have moral responsibility. This is a common attitude... but I find it odious.
Not sure why people keep thinking that Scott reasoning about what is "deserved" implies "people can just go take stuff away" or "this should be the law!" (even though there's no way to reformulate the essay in the form of a law).
I think he's floating one way of thinking about what is deserved or fair *and nothing more than that*. I don't even think Scott has even reached a firm conclusion about fairness, and he's obviously not proposing a public policy.
Whether or not Scott formulated his ideas in terms of actionable policy, there are LOTS of people who immediate go there, e.g., via taxation. Just look at the comments above from 'Sparkling Water, Seriously?' and WaitForMe. So the idea that these thought translates into policy is hardly foreign.
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.
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?
"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?"
I think I can give you a resounding yes to that question. I live in China, where there are two alternatives to Amazon, both run more like Amazon Marketplace than Amazon itself (Taobao and Jingdong). They are both massive, the founders are very wealthy, and they occupy a lot of advertising and mindspace. People talk about them in exactly the same way they talk about Amazon.
So, yeah, there's a natural experiment which gives you a very very clear answer to that question.
Can you show that they would exist today if Bezos hadn't done it first? A lot of Chinese online services, e.g. Baidu and Weibo, were directly replicating the proven success of other services that were already popular or even essential outside the Great Firewall, and benefit from a government enforced monopoly space for them to prosper.
I can't answer your question, because lots of the assumptions are wrong.
1) Bezos didn't do it first. 2) Taobao didn't replicate Amazon (it was a third-party platform from the start).
(And incidentally: 3) Government-enforced monopoly space? Amazon operates in China (see for yourself: z.cn). The US government literally wouldn't allow TikTok to operate in the USA without changing ownership. And China certainly isn't granting monopolies - the two biggest internet companies here compete with each other in very cutthroat ways.)
Add all those up, and we see a rather different story.
The internet arrived and a bunch of entrepreneurs started trying to make money out of it. Bezos was one, and was extremely successful - not because he was the most original, but because he was a good businessman with access to truly eyewatering amounts of capital. (Do you remember the early 2000s, when one of the big think points was, "Will Amazon ever make money?"? He operated at a loss for a decade.) Jack Ma in China was another - he successfully leveraged a gap in the market (his English skills and the need for an international internet commerce platform.)
None of these successes were doing anything technically very amazing. They just saw a gap in the market that the internet could fill, and filled it. In each case, I think yes: if they hadn't done it, someone else would have.
That's not his actual question. His question is - if you take away the incentive system that rewards innovation, would the same thing exist, and the answer to that is just as resounding, and it's No. The natural experiments exist - N. Korea and South Korea, China pre and post 1979, India pre and post 1991
So far as I can tell, you're saying the same thing that I am. If you set up the right system, then internet retail giants will emerge. It doesn't have to be Jeff Bezos. It could be Jack Ma and Taobao, or Flipkart in India.
I completely agree with you that the USA and China today are much more 'right' than North Korea. If you have a system/country that is too messed up, then internet retail will not grow. But if the system is good (USA) or OK (China, India), then you get big internet companies.
Possibly. My point is that allowing entrepreneurs to get rich is a big part of getting the system right. You can't ask the question that Scott is - since someone else would come along and do what Bezos did, so you can tax his wealth, because under the counter factual where you do that, someone else would not come along and do what he did.
Yep, that sounds like it gets clearly to the heart of where we might disagree.
I don't think that raising taxes on very high earners would destroy the incentives to create big businesses.
My reasoning is fairly simple: I don't think the revenue-maximising impulse comes from people at all. Think about the people you know. How many of them are really maximising their money? Taking the highest-paying job over the job they prefer? Selecting the very best savings plan? I honestly don't think I know anyone who does it. So I don't really believe billionaires do it, either.
And yet, I do think that billionaires' money gets maximised better than my money. Why so? Because they have enough money that it's worth hiring a professional to maximise their returns in every way. I don't choose the most economical produce in the supermarket. But if I hired someone to do that for me, I could! For me, that would only be a few hundred dollars' worth per year, so it's not worth hiring someone. For Bezos it is.
What this means is that personal motivation is not, I assume, the most important factor that leads to the rich getting richer. Instead, it's professional support. Raising taxes would not make much difference to the motivations of Bezos or his tax accountant. Therefore I don't think it would seriously impact the way he does business.
My assertion should be falsifiable: if we look at billionaire behaviour and find that they in fact put in less effort in high-tax states, then I'm wrong.
I think your model of the world is flawed. Incentives most certainly work, and your assertion is, in fact, falsified. Look at the Soviet union, pre reform China or pre reform India. It's not so much that 'billionaires don't work hard if taxes are high'. It's that they don't become entrepreneurs at all, or at least at significantly lower rates than otherwise. And what's worse is that the more powerful government is, the more it tries to run the economy, the more likely it is that the kind of people who become entrepreneurs are great not at running companies or innovating, but those who are great at managing government policy in their favour. Once again, look at Russia, India or China for examples. All/most of the billionaires there have only become rich because they actively manipulate government policy, not because they've innovated.
This is exactly right. You can't take away the incentive system under which the innovation exists and then claim that it would happen anyway, it's just someone else that would do it. No. The someone else would also look for better returns to their time. In a system where political power determines who gets to keep wealth (as it was for most of human history), the best returns to time would come from investing in getting political power. And that's very bad for human society, because wealth that comes from political power is zero sum, unlike wealth that comes from capitalism
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.
Then the obvious solution is to tax billionaires extra, but make investments in e.g. startups tax deductible, right? Because we don't want billionaires to buy a 3rd mansion, a 5th yacht, or to turn a stretch of California desert into a golf course. We want their wealth to pay dividends for society, so we incentivize ways that do that and tax the Ozymandian excesses instead.
That's what we do already. Bezos is not taxed on the hundreds of billions in Amazon shares that comprises the vast majority of his net worth, he is taxed when he converts those shares to money to buy yachts with.
Traditionally golf courses in a desert area require massive uses of water for irrigation in an already water stressed climate. Not the optimal use of that land there.
As Sin said above, most of Bezos' wealth is already being put to good societal use.
Also. I understand the urge to want to come up with elaborate schemes that promote "good uses" of billionaire wealth while discouraging "bad uses," but these are almost impossible to get right and susceptible to manipulations. An alternative I like better is to tax consumption rather than income or wealth. That way, industrious billionaires who put most of their wealth to good use get to keep amassing wealth, and profligate billionaires (or children of billionaires) who spend most of their wealth get taxed heavily. (See https://scholar.harvard.edu/files/mankiw/files/how_to_increase_taxes_on_the_rich_amended_feb2020.pdf)
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.
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 don't think that's a better example, because it's a patent situation. It's literally a winner-takes-all game. But Amazon could have a competitor arise at any time.
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.
In my experience (and I've been an Amazon customer since 1997) it was "being better." In the early days, it was a mild *negative* to buy stuff online, compared to just trucking on down to the well-stocked Barnes and Noble and having it in your hand immediately. But Amazon was worth the little extra wait. They had a huge selection. They had actual reader reviews. Their prices were very competitive, often cheaper in my area. Their delivery was as fast as they could make it, and very reliable. And they had phenomenal customer service. If you called them with a problem, the first person who answered the phone was empowered to fully fix it, and would. There was no listen carefully because our options have changed, no check out our FAQ on the website, no um er I don't think we can do that...I guess I could check with my manager. They acted like it was a matter of extreme concern to everyone you talked to that you Joe Customer were fully satisfied, and if that meant sending you a replacement immediately, or taking a return no questions asked, or just generally losing a little money, they'd do it in a flash. They also had some amazing innovations, like Amazon Prime and next-day delivery, that took almost all the sting out of waiting for your stuff.
It hasn't lasted, though. Over the years Amazon has slowly become much more ordinary, and I would not say the experience of doing business with them is still head-and-shoulders above everybody else. Maybe it was something that could only be found in the early aggressive growth phase, when they really did feel they would live or die by the next order, the way start-ups often do -- or maybe Bezos's daily leadership actually is truly essential.
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.
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.
What is the better way of thinking about the difference between people who derive the bulk of their income and wealth from working for wages and people who generally derive the bulk of their income and wealth from ownership of assets?
The whole point of the article is that successful entrepreneurs may not “deserve” all the value captured; e.g. it was not their work that did it in the most meaningful sense.
Here's the thing (you can see this in action in small companies); say you have two people working on a project, one of whom is doing the heavy lifting, the other of whom is directing him to keep things organized.
If the guy doing the lifting doesn't come in, the guy doing the organizing can jump in pretty easily; it's just a question of doing it. If the guy doing the organizing doesn't come in, the guy doing the lifting is going to have a much harder time covering for him.
It's not a setup where each person can only do their job; it's usually a setup where the top guys can do everything if necessary. The high capitalists are only not doing the labor because they have enough employees not to need to, they can concentrate on the harder stuff like logistics and risk assessments. The average worker will have a very bad time doing logistics, or risk assessment.
I have first hand seen it be the case that the top people can do (almost) everything in a skilled labor company owned by someone who has risen through the ranks.
I have also been a first five employee of high tech companies founded by people who couldn’t do anything out of their lane of business development.
> What is the better way of thinking about the difference between people who derive the bulk of their income and wealth from working for wages and people who generally derive the bulk of their income and wealth from ownership of assets?
Why would you want to think about that difference?
The average business owner has a lot more in common with the average employee than the average employee has with (say) Tom Cruise or LeBron James.
Which camp are politicians in? Are our representatives putting in work for their ghost-written autobiographies, or is their wealth from renting out their seat in the legislature?
Billionaires don't actually have billions of dollars in resources. Bezos' Amazon stock being liquidated would dramatically reduce its value (and giving what you end you with to e.g. poor people would also inflate the price of goods they buy meaning the value tranferrwd is lower still). Which is relevant if you have designs on having the government extracting this value for the benefit of others.
That one can retire on low single digit millions is irrelevant. The only thing that matters is the consequences. If you could only ever hope to get low single digit millions feom founding a company, then far few companies would be founded/invested in. And I don't care how much Marxist theory you recite, the government, no matter how "democratic", is never accomplishing what these private individuals are.
The problem is that there really isn't a good work-around for economies of scale that doesn't lead to worse consequences down the road.
It takes two kinds of work to make a book. Someone has to write the contents, and someone has to print and publish the contents as a book. There's a fundamental difference between the writing labor and the printing labor. Printing labor is proportional to the number of books printed. If I print x books, it takes x labor, and if I print 2*x books, it takes 2*x labor. The writing labor is constant.
Alice and Bob both write books and sell them to their fans. The Carol printing company prints the books for Alice and Bob, and it takes an equal amount of labor and materials to print one copy of either Alice or Bob's books. Alice sells 100 books. Bob sells 100 books. Alice and Bob are entitled to the same amount of money; this should be easily intuitive.
Alice thinks she can sell more books, so she prints 1000 more. They sell out. To my thinking, the only logical conclusion is that Alice should make 10 times the amount of money than she did for the initial 100 books, despite doing no further labor other than ordering the printing. Both the initial 100 and later 1000 books are equally valuable. The Carol company should make 10 times the money, but at the same rate per book.
Alice's book is a massive hit. Before we know it, she sells 100,000,000 copies. Alice is rolling in money. The Carol company has probably had to hire more workers and buy more presses, but overall, the value of the company's labor to an individual book should be the same as it was for the initial 100 books. Alice's intellectual labor scales in a way that the Carol company's physical labor does not. The work of printing copy 99,999,999 is the same as printing copy 1. If the printing employees are somehow entitled to a bigger share of the pie for the book that sells more copies, then you'd need to know how many copies the book was going to sell in advance.
Now with businesses rather than books, the scaling is worse since the value of business to business negotiations depends on the value of both businesses. A transaction between two million dollar companies should be theoretically a hundred times more valuable than a transaction between two hundred thousand dollar companies, and the value of the transaction between two billion dollar companies should be a million times more valuable than a transaction between two million dollar companies.
"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."
Exactly. Capital (or money) is just an abstraction that represents a store of value. If I farm and produce $100 worth of food, and then use that $100 to buy a shoe-making machine, what that means is that the value I produced from the food, as determined by the demand for the food and the amount of time and resources and labor I put into making the food, is equivalent to the value of that shoe-making machine. i.e. I could have just spent that time building the shoe-making machine myself, but maybe I'm not particularly good at that, or I have some special advantage in farming. But I nevertheless have complete and total ownership over that shoe-making machine, in the same way that I would if I had literally built it with my own hands.
This is what the Marxists fail to understand about labor vouchers. We already have labor vouchers. They're called dollars.
"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.
This is close to Nozick's distinction between desert and entitlement. For a simple example, suppose I bet you a dollar on a coin flip and win. I don't deserve the dollar, because I didn't deserve to have the coin land heads. But I am entitled to the dollar, because I obtained it in a legitimate way, by a bet you agreed to.
Similarly here. The claim is not that Bezos deserves his money but that he is entitled to it, having obtained it by voluntary transactions with his customers. You put it in terms of things working better, which is true. But there is also a moral intuition behind it.
I think of this as the difference between a God's eye and a man's eye view of the world. God can know what everyone deserved, whether someone did good things for good reasons or for bad, how much of the outcome was luck. And God doesn't face a budget constraint — if a house burns down and nobody was at fault, hence nobody deserves to lose the house or have to replace it, God can wave his hand and bring the house back.
Humans cannot know what other humans deserve and do face budget constraints. So from their standpoint it makes sense to work with entitlement — did he get the thing by legitimate means — not desert.
Agreed, and I like the desert vs entitlement distinction, it states things in a more concise manner than I could.
I also agree there is a moral intuition even with "only" entitlement - which rests heavily on the legitimacy of the transaction, which in turns rests on the free will/choices/agreements of the other parties, which (not incidentally) I think is a major component of the moral argument for capitalism: that its outcomes (mostly) reflect the (mostly) free choices of people. (obviously there are exceptions and caveats).
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?
What about the assumption that property as a concept is valid? When all of our society is built on cooperation, and any one person's success is predicated on the collaborative effort of millions of people who came before them, what justifies them to say that they, and no one else, should own something?
Indeed. The validity of the concept of property is also an assumption. But that general assumption was implicit in the original post as well.
For that matter, not only is the validity of monetary property an assumption, but the validity of bodily property is an assumption as well. Who says you ought to decide what is done with your body. Maybe someone else should be allowed to take one of your kidneys (especially if he really needs it).
Would you rather that all the resources be owned by the biggest strongest man with the biggest strongest gang of followers?
Property exists whether it's legally recognised or not; legal recognition of property just has the nice feature that we're no longer engaged in a constant struggle to physically monopolise resources. If property isn't legally recognised then people will simply grab whatever they can grab and defend.
Expanding on your "why does anyone deserve anything?"
There is a very tempting line of argument that starts with the idea that desert can't be based on things you didn't deserve. You didn't deserve the genetic endowment that made you productive, so don't deserve the higher income that results. You didn't deserve to have intelligent, loving parents who did a good job of rearing you, so don't deserve to have a better life than the petty criminal who is that way because of the parents he had the bad luck to have. The successful murderer doesn't deserve his punishment, because all the factors that led to his both attempting and succeeding in murder are things he didn't deserve.
Consider a Nazi concentration camp guard. Suppose you believe, not implausibly, that most people, if they had been reared in that society, would have accepted the job. Does that mean that almost everyone deserves the condemnation we feel for the guard or that he doesn't?
For a less exotic example, consider the distinction between murder and attempted murder. Being a bad shot is not a virtue, so why do we give a lower punishment to the person who missed his intended target than to the person who hit it?
All of this is sometimes described as the problem of moral luck, which I discussed in an old article: http://www.daviddfriedman.com/Academic/Payne/Payne.html. One implication sometimes reached is egalitarianism, that, since everybody has the same desert once all undeserved factors that differ among people are eliminated, everyone deserves the same income or the same utility.
The actual implication of the argument is that nobody deserves anything. The fact that I am a human being instead of a dog or a stone is accidental in the same sense that the fact that I had particular parents and particular genes is — do dogs and stones deserve the same income as people?
The answer, in my view, is that desert is not predicated of the imaginary pre-birth me, somehow hovering out there, but of the actual person I now am. Hitler didn't deserve to be a mass murdering tyrant but since he was a mass murdering tyrant he deserved to die. Similarly for positive deserts.
This point is orthogonal to the desert/entitlement distinction I made in another comment. It makes sense, I think, for our legal system to run mostly on entitlement. But our individual evaluations of people, which affect our interaction with them, can and should depend at least in part on what we think they deserve — but not on whether we think they deserve to be the people they are.
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.
It really isn't workers who *figure out how to* do the implementation. That's the point. Ideas are cheap. Ideas plus the vision and skill to see those ideas implemented is rare and valuable.
In almost all cases, it is the workers. Bezos built afaik zero percent of Amazon's infrastructure. Musk built zero percent of PayPal, Tesla, and SpaceX. Zuck may have built a bit of Facebook, but that part I'm sure is long gone and no longer part of their product. Henry Ford didn't design and build the cars and factories.
It's exceedingly rare for an entrepreneur to do much of the work at any but the smallest businesses, and that includes the hard work of actually designing and making the product.
Again you missed the point. Obviously Bezos didn't do the programming. But did he figure out how to implement his ideas, or did he just have the idea and ask someone else to do all the brainwork?
... and yet workers continue to give them their great ideas and the fruits of their labor. If capitalists truly provide such little value, it's quite puzzling why workers would do this so consistently.
How so? All Amazon can do is offer people contracts that they can choose to sign or not sign. I don't think they're holding anyone at gunpoint. And even if you want to claim that they do have some sort of coercive power because they're so large now, they were a startup at one point. And yet apparently Jeff was able to convince a lot of really smart people to give him credit for all their ideas and work.
If you really think that employers and employees bargain on equal footing, I really don't know what to say. You are incredibly misinformed. Maybe look into the history of the labour movement, where workers were routinely murdered for fighting for extremely basic rights.
This is drastically undervaluing how much of a hand Bezos had in scaling Amazon. Amazon is the result of 30 years of tiny decisions that have compounded into a $1 trillion company. The idea that the founder and CEO was just bumbling along as this happened is insane. The story of him issuing a mandate in 2002 that all employees communicate via APIs alone is a precise example of why your point is nonsense:
This memo right here directly lead to AWS, which is why Amazon is worth $1 trillion and why cloud computing has totally revolutionized the world. And it takes an incredibly visionary leader to do something like that. If that pivot didn't occur in 2002, Amazon is not worth $1 trillion, Bezos never becomes the richest man in the world, and it's very possible cloud computing is not a thing in 2022.
Who designed and built every single one of those APIs? Every single line of code? Who installed every single server in every data centre? Who made every single implementation decision?
That memo is worth precisely zero without the input of the workers.
I would also say that the value to society of "scaling Amazon" is probably mostly negative. Amazon creates a lot of negative externalities, from the decline of main street and local businesses, to extremely bad treatment of workers, to enabling third party sellers to defraud customers, and so on.
We would be much better off without a "scaled" and fairly monopolistic Amazon. So I'd say to the extent Bezos is responsible for that, he deserves not plaudits or wealth, but the opposite.
There are millions of people who can write and expose APIs. Doing the work is not difficult. Making the decision to reorient an entire company as a collection of microservices, and forcing everyone to adhere to that decision, was due to Bezos alone and is what directly lead to cloud computing. And cloud computing has made everyone in society wealthier by trillions of dollars wether they realize it or not.
You are being willfully ignorant. AWS was doing $100 million in revenue back in 2007 and growing at something like 50% year-over-year before Google and Microsoft had done *anything* about cloud computing. It's the reason they started scrambling, but they were totally behind the curve. AWS didn't face serious competition from either of them for 7 years: https://techcrunch.com/2017/02/13/why-aws-has-such-a-big-lead-in-the-cloud/
There are legitimate criticisms to levy at Bezos and Amazon, but you undermine those criticisms when you don't give him credit where it is due and make yourself look foolish.
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.
And also…are you *sure* someone would have come up with the idea for Amazon if Bezos hadn't? We tend to think of ideas as inevitable, but I'm skeptical. I mean, if Jobs had never founded Apple, I think our lives would be *vastly* different now. Just how I can't really say, but at the very least computers would be clunkier, uglier, and more difficult to use, and at the most, computing might *still* be something for businesses, universities, and nerds.
On the other hand, Newton and Liebnitz invented calculus almost simultaneously.
Which is Amazon more like? The idea of selling things online is obvious; that was inevitable given the environment, and indeed Bezos was not at all the first to do it. But one big store, selling you everything as cheaply and easily as possible? That might not have happened at all! We might have hundreds of smaller marketplaces, or a few larger ones, or one dominant but really awful one, like if Microsoft had gotten into the space first. Things might be better or worse than if Bezos had not acted. We hope markets lead to upwards progress, and they do seem to long term, but that doesn't rule out temporary inefficiencies.
The ultimate question is, what is the principle we're setting? What is the likely effect on the future, on future prospective entrepreneurs and businesses, and most importantly, on general welfare? What precedent do we want to set?
Personal Computing, or Computing for that matter, doesn't owe no shit to Apple, the Commodore PET and the TRS were launched in the same year as the Apple 2, Xerox PARC was working on their own vision since the start of the 1970s and had vastly better (but more expensive) machines by 1976, and the entire idea of the personal computer itself was explored since the 1960s and mapped fairly well in broad outlines, the late 1970s is simply when Moore's law caught up.
Apple is such a fucking propaganda machine, the North Korea of tech companies.
>>Initial sales were sluggish as Apple sold only 600 machines in 1977, mostly due to the high price compared to the PET and TRS-80. However, with the addition of the fast and relatively inexpensive Disk floppy drive accessory, made possible by an ingenious disk controller using only eight chips that Wozniak designed, the Apple sold 7,600 units in the following year and 35,000 in 1979. It was still a distant third compared to the other two machines in the trinity, however.
Then later :
>>A combination of great marketing and even better luck propelled the Apple from an also-ran to a serious contender. In 1981 the company sold 210,000 units, leaving the PET in the dust and nearly equaling the TRS-80's numbers
Trust me when I say that Apple is 67% propaganda and fan worship.
Do you use a graphical user interface? Do you use a screen-only smartphone? Is attention paid to user-friendliness in the software you use? Are your electronics devices esthetically pleasing without being only for the wealthy?
It's hard to say that these things would definitely not be true today if Jobs had never lived. But there's no question that he, personally, greatly advanced the field in these and other dimensions.
For kind of a knockdown example: There were no usable tablets until the iPad. They had been tried, they failed, and had been essentially given up on. Now they're ubiquitous. That is solely due to Jobs.
I've never owned a tablet, and don't want a "screen-only" smartphone (but if you just mean "the keyboard is on-screen" then okay those are pretty good), but I did own multiple smartphones before the iPhone, was not excited by the iPhone, and didn't really feel like Android was a significant improvement. The capacitive touch screen was, on the whole, better than previous pressure-based screens , but when I think of my favorite features of my phone ... I'm thinking the cameras, the internet access, the ability to write out entire words with a single stroke, and the low price.
- first cameraphone was invented in 2000 (not by Apple)
- phones with browsers arrived around the same time (not by Apple)
I will say, the first Macintosh was a great product. The key GUI technology was not invented by Apple though, I preferred PC over Mac (due to low price and high programmability), and I find it hard to believe that some other company (Microsoft?) wouldn't have eventually made a good GUI inspired by Xerox-PARC.
I very much appreciated the improved user-friendliness of Windows 95. To the extent they copied the Mac, good, though what did the Mac have that wasn't invented in the 70s? Also Win95 had its own innovations - I love taskbars and tabs. I think it's trendy to sacrifice user-friendliness these days (e.g. all kinds of phone apps; Windows 8's bizarre dual UI)... developers should still know how to do it, they just... don't always bother.
And I don't see how human designers somehow wouldn't care about aesthetics without Steve Jobs.
The GUI technology was not invented by Apple. It was languishing, unused, in a lab. When the Mac launched, GUIs were viewed as laughable in the computer industry. After the Mac, GUIs rapidly became near-universal. Until the iMac, computers were boxy, beige, and ugly. After, designers worked to make them esthetically pleasing. Before the iPhone, there was no such thing as a phone without a physical keyboard (though Newton and Palm had brought out PDAs without them); indeed the notion was laughable. Now they're universal. And of course these are only a few of the many similar examples.
Whether human designers would not now care about aesthetics without Steve Jobs is unknowable. We only know that, in this industry, they did not until he started a revolution in design.
The fact that you don't use Apple products has very little to do with whether Jobs had a major impact on your life.
>I think the big unanswered question here is: Why aren't there any meaningful competitors to Amazon?
There are, though. In the retail space you have Walmart/Jet.com, Target, eBay, AliExpress, Shopify, etc., and in cloud computing there's Google Cloud and Azure. They all have fair sized shares of the market, and I don't think they lack the resources, or are prevented from competing fairly.
I don't understand how they're not direct competitors, Walmart and Target are not just brick-and-mortar stores anymore, they're trying to catch up in the online retail space. If I wanted to by a doodad, I could go to Amazon.com, Walmart.com, Jet.com, Target.com, etc. They are all directly competing in the online retail business space for my business.
They're trying. But they're not really to that level. You can buy stuff from Walmart.com. People do, I suppose. But they don't seem, from what I can see, to be really posing any kind of threat to Amazon's dominance at this point.
More importantly…are you denying Scott's premise here? Are you saying there's plenty of competition for Amazon, and they don't have any real market advantage?
I think there's plenty of competition for Amazon, enough to keep them on their toes instead of being able to capture all the market surplus unchallenged. They no doubt have some market advantage just from the scale and brand recognition, but I'm not sure how big that effect is.
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.
You're missing the point of the two years. Say that if Bezos had never lived, Beff Jezos would have founded Amazon in 1996. That means that the world would only have lost out on 2 years of Amazon, which means that that's the sum total of the benefit he uniquely created.
And the point here is that various possibilities are considered, one of which being that some other person would have invented Amazon in 1996 if Bezos hadn't in 1994. Do you know that would not have happened?
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.
Agreed. Also, it's worse than that. In a world where most wealth and power is political (as it would inevitably be under any system that gave an even more massive role to the government) , your best talent would be playing political games, not business+leisure games. And those are zero (or negative) sum.
To expand on Bldysabba, the problem with drawing a line about how much wealth one can have is ultimately once you allow the government to draw the line, there's no limit on it. You might be willing to make Amazon for $999 million, but what's to say the government won't make the line $500 million tomorrow... then $100 million... then $10 million... and so on. Letting the government draw the line at all is a massive power grab.
"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.
Good point. I think there's an element of toxoplasma of rage here: no one wants to defend hedge fund billionaires whose value to society is even more questionable than that of Bezos, Gates, Musk, or other spotlight billionaires, so they tend to come up less in these discussions. It would be valuable to consider how many millionaires and billionaires are the result of desirable capitalist incentives, and how many of undesirable ones.
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.
I think that's write. I think Bezos won in part b/c he's really good at what he does. Amazon has been a creative and growing firm with products in many different industries, and some other firm may not have offered as good or as diverse of products. Some countries, like Russia, where Amazon doesn't operate, don't have a single dominant e-retailer. There are a bunch of lesser so-so ones.
Could make this argument for Musk. It's not clear Tesla had to happen. Other carmakers were content to ignore electric. And it seems like Paypal's best days are well behind it. Had Musk & Peter Theil stayed at Paypal, maybe they go on to do a lot more interesting things than what they did.
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.
Materials science deserves a lot more glory than it gets. Many of the apparently "too late" inventions were simply waiting for someone to invent materials with appropriate properties.
I don't know much about archery, but wikipedia tells me that compound bows are built of things like fiberglass, aluminium and carbon fiber ; I'm guessing that the design wouldn't work nearly well if built out of wood and steel. (Also, it looks like you need precision machining to make all those little cams and pulleys which can rotate freely.)
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.
"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."
Huh, sounds like a pretty bad deal to take. And yet somehow a lot of people voluntarily took this deal, choosing to give Bezos billions of dollars. So he must have produced a ton of value somehow.
In a free market, the only legal way to make money is to beg other people to give it to you. Ever tried begging for 200 billion dollars? It usually isn't too successful, right? Well, somehow, some way, Bezos begged for 200 billion dollars... and people actually gave it to him.
That doesn't happen unless you produce a lot of value somewhere.
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.
Amazon doesn't "operate in" New Zealand in that it doesn't have a distribution network here, but it does in the sense that I can log in to amazon.com and order something to be delivered to me as long as it can be shipped here. So it's not particularly cheap - nothing individually shipped to New Zealand is cheap - but it's good enough for niche goods that no-one else has. For everything else there are the internet arms of local bricks-and-mortar stores, or TradeMe (which successfully held the niche here that eBay might have otherwise taken).
I suspect that a local Amazon distribution chain wouldn't have the scale to be worthwhile to Amazon. For Switzerland it probably wouldn't save much over having things individually shipped from Germany/France/Italy.
You can and always could order from amazon.de, amazon.fr etc., and have it shipped to Switzerland. Amazon tells you which vendors ship to Switzerland. But until recently (3-4 years ago), it was not very user-friendly (you saw only when you processed an order whether the shop would ship to Switzerland), and that was enough for Amazon to lose the competition for the Swiss market. The winner is Digitec/Galaxus, which has 3-4 larger sales volume in Switzerland than Amazon. Amazon is only the fifth-biggest online store in Switzerland.
There are also some other broad competitors (brack.ch, still larger than Amazon) and some companies specialized on only one branch (like Zalando for clothes).
In Australia, amazon.com.au exists but isn't very widely used. I've looked a few times but it never seems to be significantly cheaper than anywhere else so I haven't bothered. There's some local competitors too, e.g. kogan.com, though I've never used that either; they supposedly have some good deals on cheap Chinese electronics if you're in the market for that.
The fact is that people just don't do all that much online shopping in Australia the way they do in the US -- they'd rather just head down to the shops to pick up whatever they want.
I suspect that there's some very US-specific factors going on which enabled Amazon to become so popular in the US.
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.
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.
The internet, water utilities, and the government were all already paid for by taxes in the first place, so that seems a bit circular. "We stole your money to build the internet, and then you used the internet (that we built with your money) so now we're entitled to any and all of your future income."
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.
Elon Musk's wealth seems to have little to do with network effects (Tesla super charger network not withstanding). His wealth seems to mainly come from share market speculation rather than actual revenue numbers from his businesses.
His wealth is one of 2 things: he's producing a product that really is just that much better than the competition (in a field in which there _is_ some amount of competition), or else it's just baseless speculation. Either one of them will eventually end. I think there is far less reason to be worried about Musks current profit making endeavors. One might argue that his initial PayPal fortune was from "got there first, benefited from network effects keeping out competition" except that the market for electronic payment services seems to be more robust than others.
The argument in the post was "are there cases where billionaires have not earned their profit". I think that he makes a decent case that this is true of Bezos and Amazon. I'm _much_ less convinced that this is true of Musk.
Did you edit your comment to remove any mention of Musk? Makes it look like I'm talking to the air or I'm one of those Musk fanatics that brings him up at any opportunity.
Not a big deal but in future mentioning the change in either the original comment or the reply would be courteous. (You know, only if it invalidates the whole purpose of the reply; I'm not one of those people attaches an edit log noting every typo corrected.)
My comment still (and always) mentions Musk. I'm not sure what you are talking about. Do you mean my original comment? That one never mentioned musk.
-edit- I was pretty sure that substack left an indicator when a comment has been edited. To test, I edited this to see. if it did.
-edit2- yup, it does. At least for me, it indicates that I have edited the comment. Neither of my two preceding comments have the mark, they were never changed.
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[1], 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[2], 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[3] 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.
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[1] And not just in terms of consumer appeal, either, of course, given the tremendous role AWS has served in enabling other Internet services.
[2] 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.
[3] Exempli gratia, the current 4th wealthiest woman in the world, MacKenzie Scott, Bezos's ex-wife.
I've sometimes heard of Japan as being such an alternate world: home PCs have been uncommon (perhaps because of space limitations in dense cities), and people used feature phones for things we use computers for. They also kept using faxes longer than anyone else.
I find it exceedingly dubious that some guy other than Bezos wouldn't found an online shopping empire within a year or three. Dotcom bubble anyone? Lots of people wanted to do online shopping. A few of them would surely be good at it.
(I also find it dubious that the internet depended on online shopping to grow, and dubious that the explosive growth was healthy. But if so, I think much misery exists in the world today due to whatever factor prevented microtransactions from taking off. Still today there's no microtransaction infrastructure. I've been saying for decades it should be built into the browser.... I was going to say it's dubious that Bezos is so much more valuable than its key software developers and other key employees, but I understand AWS is overpriced and has a shitty user interface, so maybe Bezos really was worth dramatically more than any other single employee. Random webpage tells me the second-biggest shareholder has 0.02% of Amazon, though obviously those numbers were different in the early years.)
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.
Of course, and public finance provides great analytical tools to think about what those riches should be taken away to finance (public goods), and how (mainly, consumption taxes)
Indeed. However, I do think a great many people, including many commenters here, think Bezos "deserves" every last one of his billions per se, and the virtue of Scott's post is that it pokes at that way of thinking. There's an overwhelming mass of people that treat this as a dichotomy, as if the choice before us is just "communism or capitalism: pick one." It's a shocking lack of imagination. There must be so many other ways society could work. So I like this essay, even though Scott hasn't taken it to the logical conclusion of looking for mechanisms that might make society more fair (though I doubt his ideas here represent any firm moral opinion on his part.)
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.'
I'm curious why free 2-day shipping seems to be so highly regarded in this post, like someone perfecting the art of getting us stuff from China is considered the heights of innovation? If Amazon had invented interdimensional travel or something I would understand more the reverence for Amazon's "value" creation.
I feel like there's a lot of just world fallacy implicit in many comments here. A common way of thinking seems to say: Jonas Salk isn't a billionaire, and the engineers who first built Amazon (or GMail) aren't billionaires, and so what Bezos did must be much more valuable. And the guy who made Crucial Open Source Library X that 12,607 companies depend on, well his net worth is under $200,000 so f*ck him.
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.
Most firefighting organizations, at least in the US, start out as volunteer fire departments. They only turn professional once they, or the population they serve, get to a certain size. In the US, 2/3 of all firefighters are volunteers.
And yet 95% of fire call-outs are attended by professional firefighers. If govt stopped paying them I expect private business would step in to fill the gap.
Online shopping isn't "critical" in any sense of the word, and the idea that the US government could create anything close in efficiency, in terms of cost and usability etc., as Amazon.com, is preposterous on its face.
Firefighters are less of a necessity now that buildings are less flammable, but instead of reducing the number of them they just get reassigned to EMT duties:
Yes that's a good point. I spent 20 seconds trying to think of the least controversial example of this widespread phenomenon but in the end everything has nuance I guess.
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.
That would be a more plausible argument if the list of occasions when government had flung good seed onto concrete under a bone-dry sky weren't as long as my arm. Solyndra, Sematech, Federal water projects, the Space Shuttle, the War on Drugs, healthcare reform (many times), Federal student loans, No Child Left Behind, Common Core...if the Federal government were a VC firm, it would've gone bankrupt ages ago, and nobody in his right mind would park his capital with them. The fact that once in a blue moon they actually semi-accidentally do something right does not inspire general confidence.
It's hard to know how good the US seeding is in the absolute terms - but in relative terms, it is clearly working - US has way better successful startup rates, and Amazon was started here. That said, a long list of failures is not much of an evidence of things being done wrong - it's pretty much a given for any high-risk/high-reward type of activity.
Amazon was started without a shred of government involvement. So was Facebook, and Google, and Apple, and IBM, and back in the day Ford and Bethlehem Steel. What you consistently see is that private entrepreneurship creates innovation and huge new industries, government at best sustains well-established industries, and often to the detriment of new ones (e.g. ULA versus SpaceX, GM versus Tesla).
This is hardly surprisiing, if you think about it for five minutes. By definition, a brilliant new idea looks silly or lunatic to most people until it proves itself in the real world by undeniable broad success -- that's *why* it takes an unusual mind to think of it, and believe in it, during the early founding stages.
So not surprisingly any organization that is highly responsive to the majority, like government, will only ever support what the conventional wisdom thinks is a good idea. And will therefore never discover or support anything new and innovative.
Or to put this in financial terms: if the government were an investor in the stock market, it would only ever buy stocks when their price was high (because the price is high when the majority of people think the company is doing well), and sell stocks when their price was low (because the price is low when the majority of people think the company is doing poorly).
What happens when you always buy high and sell low?
Military projects and public education were already paid for by taxes in the first place, so that argument seems a bit circular. "We stole your money to build the internet, and then you used the internet (that we built with your money) so now we're entitled to any and all of your future profit."
We'll, the US Government-seeded pipeline, however flawed, does work - and results in value that far exceeds that created by any of the alternatives developed by other countries, particularly those where the Government is not involved at all (no Amazon-sized successes coming out of Somalia, are there?) - so seems fair that some of the value should be used to help perpetuate the pipeline. Of course, a better pipeline would be better, but at some crude level what matters is that the existing one is still way better than not having one.
It's hard to know what the counterfactual world would look like without the crowding out effect of US government investment spending, although we can try to guess by looking at the efficiency of each source of spending.
We have a handful of examples of successful government ventures, but the list of successful private ventures is easily 100 times longer, even though the government has been responsible for anywhere from 30-70% of R&D spending over the decades.
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.
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!
agreed that the original intuition pump was not that convincing. i think there are two directions our intuitions get pulled when we think about "how much people deserve to be paid" in these scenarios. one is that people should be paid commensurate with their proportional causal contribution to the surplus. and the other is that they should be paid what the market dictates. As someone above mentioned, the first is just a way of doing credit assignment (maybe like Shapely values). And that can be entirely rational in the case where we want to stabilize good working arrangements (again, no altruism required). But it seems we're conditioned by economists and the general liberal consensus to think that only the second can be rational. In the ideal case where markets take everything into account, the two might converge. but in general, we shouldn't expect them to. And when they don't, it's still not clear to me why we should privilege the second way of thinking (unless maybe you think that that's our best, though still imperfect, way to approximate calculating the first thing).
>it's still not clear to me why we should privilege the second way of thinking
Could it be because if janitors at Google made 1000x more than janitors at Bob's tools for basically the same work just because they happened to be employed by a more productive enterprise, it would seem profoundly unfair to the janitors at Bob's tools? You could argue that investors have this same problem, but there are elements of luck and risk involved, unlike plain labour.
I did some back-of-the-envelope maths that I won't bore you with, and found that if you can find super-janitors who will reduce the probability of an employee slipping and falling and becoming disabled and needing to resign from its current small value to zero then you should be willing to pay these super-janitors about $1 per year extra.
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 ?
(edited) I think Elon is replaceable — by a really good investor. There are probably tons of people who could do what Musk did. Let's say 0.1% of the population are every bit as talented and driven as Musk. That's over 7 million people. But to do SpaceX you also need (1) tens of millions of dollars just for starters and (2) a burning interest in going to space / colonizing Mars. (2) is not super uncommon but (1) is, and out of those 7 million people, maybe Musk was one of only like 4 people with both qualities (and maybe 2 of them came later and said "nah, SpaceX exists so I won't bother", and the last one is building a solid SpaceX competitor as we speak, but will earn much less money because first-mover advantage).
Maybe someone could do it without (1), but in place of (1) you would need a special ability to convince billionaire investors to fork over tens of millions of dollars, which itself is a rare skill that rarely co-occurs with great engineering talent or a burning interest in space. But parhaps someone else could have founded a SpaceX-like company given the right choice of cofounder. Note: I'm not including some of the other space companies in the "7 million" because few companies have executed their goals as well as SpaceX.
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.
Bezos is worth hundreds of billions now precisely because he increased the value of Amazon stock to over a trillion, because most of his net worth is from his ownership in the stock, not from executive pay. His actual salary is something like $80k since the beginning, and he's never taken stock compensations; he's the exact opposite of the highly paid executive who doesn't deliver value you're suggesting.
What makes you confident that he was so instrumental in increasing the stock price? Why not some combination of the thousands of other people who work there? Just because he owns a lot of stock and benefits from it increasing in value doesn’t mean he personally is making that happen
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.
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.
> 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.
It's true to some extent but not sure it's that meaningful. If Bezos wanted to offload his Amazon stock to buy Newfoundland or something then he'd still get a very substantial fraction of the current price. (Note that he wouldn't just dump all his shares onto the market one morning, they'd treat it like an IPO and spend months rustling up major institutional investors to buy them.)
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.
I hope you understand that how much emphasis you put on fairness is a reflection of your values and not some objective standard. Different people put different degrees of emphasis on fairness. In fact, traditionally at least, liberals value fairness over freedom, while conservatives value freedom above fairness. There is no way to settle this dispute, about which of these virtues is more important, through arguments.
Absolutely it is subjective but some opinions are more carefully thought through than others. I don't think many people would really prize fairness over all else if it meant that everyone got their fair share but we all went hungry. Someone might say that wouldn't be the outcome, but that is just another way of saying that they think that they can get both fairness and material comfort with the same policy not that fairness is the be all and end all.
I like fairness, but I personally care more about whether people feel happy and fulfilled. They are not the same thing.
To be fair to Scott, he does not just talk about fairness but to my mind he seems to over emphasize it's importance in thinking about what we should do with billionaire wealth.
BTW, I am definitely not a conservative by any ordinary meaning of the term!
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.
The idea being similar to a short sale. I know this house is worth $80,000, but I also know the owner needs money right away, so I'll only offer $50,000.
I don't think the example is a great one; instead of showing how exploited the engineers are, it shows how weak the role of money is in incentivizing them. It's like talking about how famous they should have become; a lot of people don't want fame, a lot of people only want enough money to feed themselves.
Yes except I suspect in this person's dream reality these engineers instead of exchanging their labor for productive work at an employer, would instead be spending their days attending craft beer festivals, hiking and masturbating to hentai.
Which you know, don't knock it till you tried it, but is hardly some great "actual value".
RB, sorry, but we must have completely different concepts of value.
The very concept of "absolute value" is a fallacy. When I was paid for a job, my pay was based upon how much value I could likely add according to the employer adjusted for competition. They then gave the job to the prospective employee that would agree to do that job and add the most value for the least cost, subject to me or someone else accepting the role. Over time in a relatively free and competitive market wages (and benefits properly adjusted for inflation) track pretty well with productivity, so workers are not being exploited.
Indeed, considering freed markets have led to average incomes which are twenty times higher than historic alternative systems (which could never even escape the Malthusian Curse), workers benefit more from "neoliberalism" than in any other system ever tried.
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.
> Not sure if Benzos is the best example (not sure if he invests much in political power)
The guy who bought the Washington Post and turned it into his personal blog? You're not sure if he invests much in political power?
I'm all for stopping any individual from accruing too much political power, but shouldn't we start with, y'know, politicians? Let's abolish the position of the President of the United States before we start thinking about taking away anyone's money.
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.
>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 isn't just an immutable fact of reality, it's the aggregate sum of what people will pay for that new better value. And boy, are we always willing to pay a lot, even for small amounts of value...
The US is 22% of the world economy. Of course the German company would have produced for Germany, Europe of the world. The vaccines were free everywhere, so it was all government purchases everywhere.
I'm not sure why the second-best entrepreneur deserves anything for a business they counterfactually would have founded. People generally only deserve rewards for their actual actions.
I'm also not sure that Bezos' reward can be broken down into reward for the idea + reward for labour. It doesn't seem plausible that Bezos could have the idea, then pay someone to do the work and end up with $199 billion or whatever. Even though Scott didn't notice the niche in 1994, I think probably several people did, and having the "busines acumen to fill it successfully" is doing a significant amount of work. Perhaps we might think of a there being a "founder award" for successfully nurturing a new business into existence.
Seriously though I am interested how true this is. Certainly on the open threads Scott gets a lot of engagement without having to provide any content. And there are probably all kinds of network effects, first mover effects and other positive feed back loops in blogging.
Her goes generalized Georgism! Those special niches which companies occupy are in some metaphysical sense "land", and can be taxed accordingly. Proportionally to market share or something. Hope is, tax on occupied market share would not damage the incentives as much as the tax on income.
if you include metaphysical senses of "land", don't we already have Georgism? I bet everything can be thought of as "land" in some kind of metaphor if you think about it long enough.
But more seriously, I find it quite interesting to think of occupied market share as land, I just fear it's going to get really complicated once you actually start the categorization in reality. There are niche markets that belong to many categories and some that are only ones in their category. I guess we already categorize things like this to figure out which companies are monopolies, though? So it could work? I'd like to read more about this!
A simple way to tax "market land" is to simply make corporate taxes progressive. From a GDP standpoint this can be inneficient: now companies will stop growing when the increased taxation makes it uneconomical. However, from a game theoretical point of view, consumers could end up better off because the increased competition means value cannot be captured as easily.
I'm surprised this seems to be the first suggestion of this in the comments here, some 600 comments down and 3 levels deep.
I'm also sad we aren't doing this already. The possibility of making corporate taxes progressive and thereby disincentivizing natural monopolies is the only clear reason corporate taxes should exist to begin with. Without that, you might as well replace all tax on corporate profits with progressive capital-gains (and income, for dividends) taxes, so you don't have to hit Amazon stock in Bezos' wealth and Amazon stock in grandma's meager retirement savings at the exact same rate.
Pretty much every tax has some inefficiency, from the GDP standpoint. Capital gains taxes disincentivize investment, income taxes and sales taxes disincentivize trade. Even Georgist taxes create weird distortions depending on how you evaluate "unimproved value" for sufficiently large plots of land. At least with progressive corporate taxes the inefficiencies have more potential upside.
This would be trivially easy to get around. Amazon splits into a hundred different entities, each covering a different geographic territory with a gentleman's agreement not to engage in zero-sum competition.
I'm not sure how easy "maintain a oligopoly with a hundred entities and no public agreements and antitrust laws extended into tax fraud" would really be. For Amazon in particular they'd have to divide up differently; their profit margins depend on logistics, and half of their barrier-to-entry power is the fact that logistics doesn't scale down well.
But yeah, defining what a "single entity" is is the flaw in the scheme, at least as far as deterring monopoly and monopsony effects goes.
I think even the secret-cartel workaround would still be great for avoiding bureaucratic sclerosis; a hundred entities whose only directions from HQ (which one is HQ, exactly?) are a wink and a nudge would be much more likely to have some fertile ground for new disruptive ideas.
Why would it work as taxing "market land"? From the point of view of Georgism, if we tax one person with 1000 land, we get the same amount of money as when this land is held by 1000 people having 1 land each. So I don't see why progressive taxes are relevant here.
I'm not sure there is a coherent point of view of Georgism. If you get the same amount of money from the one person with 1000 land, then you've broken the "Georgism doesn't disincentivize improving your own land" promise, because in the case of 1000 people any improvements on any 1 unit of land would have increased the unimproved value of those other 999 neighboring units. If you still let those improvements raise the assessed unimproved value of all that land when it has a single owner, then in the limit you're back to taxing the improved value of land.
If there's a canonical Georgist answer to "what is the value of unimproved land in the middle of Disney World", it's hidden well enough that you can find a lot of people who claim to be solid Georgists arguing for different answers.
Well, first, income tax is explicitly non-Georgist. Also, even if we treat money like some sort of land, income tax would be like taxing rate of increase of land (derivative of land), not land itself. Better analogy would be taxing people in proportion to the amount of money they own, rather than income -- but we already have that, and it is called inflation.
Also see my other comment in this thread for why progressive taxes don't seem to be Georgist.
So I think that considering various metaphysical senses of "land" and applying them to Georgism would provide not every possible taxation scheme, but very specific kinds of taxation schemes, which might be very interesting to consider.
To think of market share as land, the simplest thing would be taxing company in proportion to number of people it serves (with coefficients dependent on industry, so that we don't tax a company selling luxury watches to 1000 people the same way we tax a local bakery selling bread to 1000 people). This could provide some interesting incentives, so that companies better serve smaller amounts of people, and leaving other people to other companies.
I am not an economist, so it's all just stray thoughts, and could go disastrously wrong for reasons I can't think of. An example of a problem I _can_ think of is how this idea interacts with intellectual property. Under this tax scheme, if someone thinks up of some service and deploys it for 10000 people, other companies can look at this service, copy it and provide something similar. However, if the innovation behind the company's success is locked behind a patent or an author's exclusive rights, then it can't be copied easily, and most of the world is left without this value at all. For example, if you film a movie and show it only in a few cities to lower your taxation, no competitor can film the same movie to provide to other populations. (However, it said that modern media is so bland because it tries to cater to everyone, so we could see some quality increase and unearthing of local talents, so who knows!)
This also reminds me of the fact that we can't deal with monopolies and all the sadness that they cause without somehow reforming intellectual property (yes, I am looking at you, printer ink!)
You are right: taxing corporate profits sounds un-Georgist since the correlation between "land" and profit is tenuous. How about progressive VAT based on, say, gross revenue?
I think that Google janitor intuition pump is potentially misleading. There are lots of similar but slightly different possible scenarious here. A couple of competing intuition pumps:
At the dawn of industrial revolution factory workers earned low wages and had dangerous working conditions. Now factory workers have much better working conditions. Should their wages be even lower so that they earned the same money for the same work+risks as the workers from the past?
Google and Bob’s Tools used to be valued the same per share. Now Google shares are 1000x more valuabale. Should Google shareholders be 1000 times richer?
It seems like civilization getting richer is different from one company getting richer. For example, if I pay my gardener $40/hour, and Jeff Bezos has 10,000x more money than me, should he pay his gardener $400,000/hour? But if civilization does get 10,000x richer, then I think either gardeners would make 10,000x as much, or it would make sense to raise the minimum wage 10,000x.
Oh, my bad, I've actually misread the original example with cars and thought it was talking about every car company, not just one.
I agree that civilization becoming richer intuitively feels different compared to just one company becoming richer. Still, it's pretty interesting where does this intuition come from. There is a sorites paradox type of problem here. The enrichment of civilization would mean that every car company started using new technologies and producing better cars. Than we would think that workers deserve better pay. But any single company adopting new technology isn't a reason to pay more to its workers. How would the transition from one state to the other happen? Not just in our intuitions but in actual market mechanisms.
One source of our intuitions comes from the notion of fairness. It would be unfair if two workers get paid vastly differently for the same job, right? But is it really, though? Wouldn't market just solve it by ensuring that the most qualified gardener gets the job at Bezos house? Maybe Bezos should pay his gardener considerably more? Oh at least the employers at Amazon who actually create profits for him. Then, when whole society becomes richer the transition to the state where every employer is payed more would be easier.
I really think that if a company dominates an important market due to network effects, then governments should declare this as an infrastructure, and enforce fair market access.
Regulating infrastructure companies works very well in many countries and branches. Telecom, electricity, public transport. Basically, the government ensures that all consumers and (important) all vendors/competitors have fair access to that market.
For amazon, that would mean that they have to offer market access to all vendors, and can't just throw you out when they don't like you, or when you don't agree to their insane conditions. For facebook, they would have to provide an interface by which other companies can integrate their profiles.
There are a lot of cases where this should apply. Play stores, whatsapp, ...
(But not everything that is big. Google search does not profit from network effects, you are not forced to use google search because all your friends use it.)
I get nervous about this because actually government regulation of infrastructure only works well when government is very good, and in other countries it ensures nobody gets infrastructure, or that there are perpetual brownouts, or that all money invested in infrastructure ends up in the hands of kleptocrats. I expect US government to get worse over time and for private companies to have to make up the difference. See for example https://www.awanderingmind.blog/posts/2022-07-30-state-of-south-africa.html . This is part of why I'm excited about "decentralized infrastructure" like solar panels, drone package delivery, etc.
I think there is an important difference. The companies in South Africa are owned by the state. I agree that this can very easily be abused and fall prey to corruption.
But I only suggested that the infrastructure companies should be regulated to give fair market access, not that they should be taken over by the state. I see a lot of systems where this runs very well, at least in developed countries. For example, in Germany the telecom and electricity market work like that (railway as well, but the railway company is state-owned, so I leave that out).
For example telecom: there are three big network providers in Germany. But they have to give access to the infrastructure to any other company. At a fee that allows them to make profit, of course, but the fee is regulated by the state. So other companies can offer contracts to end users. The big network providers are essentially guaranteed to make some (moderate) profit from the infrastructure. But to make additional profit from direct interaction with the end users, they have to compete in the market.
I am less familiar with other countries, but I don't think this is an unusual construction, at least in the EU. (Any examples in the US?) And it doesn't allow politicians to extract money from the companies, because none of them is state-owned. So the incentives are well-aligned.
Incentives and allocating resources based on competence.
If you tax entrepreneurship too much you don't get better redistribution - you get potential entrepreneurs doing something else, and no more Amazon period. Look at URSS for an extreme example, or Europe for a moderate one.
Also, billionaires getting "allocated" billions allows them to do cool stuff - and they're preselected to be competentat that. Musk is an extreme example, but see also Gates with his charity, or Buffet with many years of value creation.
The idea that Bezos would give up if he could only become a multi millionaire seems odd to me. O would argue that they are motivated by money as a secondary trait.
A sub-C-level manager at FAANG is easily a millionaire :) Total compensation is approaching a million per year, if not more.
Quite a bit of the attraction of high-risk, high reward career paths is not personal wealth per se - it's the potential for much higher agency and power to do stuff. At least it's why I personally went into it, and 20 years in, I'm pretty sure I'd still make significantly more money if I was an employee. But my current position has quite a lot of chance of going big - right now it's probably over 50%, so I'm pretty happy with my chosen path. So if one data point means anything, I'm clearly motivated by "a chance of a shitload of money" more than by "a lot money".
You are perhaps misreading the nature of what money means to this kind of person. To a businessman and *especially* to an entrepreneur, revenue is a direct measure of your spiritual success. People love you! To paraphrase the Beatles, you're more popular than Jesus! You were 100% right that you had a brilliant idea! How do you know? Because people keep sending you oodles of money for whatever you're providing.
So huge piles of money are *exactly* the kind of thing that satisfies the intrinsic motivation you identify. It isn't about earning money per se, it's about achieving the level of social success *of which the money is proof*.
But yes they don't necessarily value the money qua money. They often (cf. Bill Gates) end up giving away much or even most of it.
I don't think I can say anything insightful at this level of abstraction, but at a different level of abstraction my intuition says that most of the surplus generated by capital should eventually be distributed to the public in the form of UBI. It seems like the government could achieve this by periodically issuing new shares of ownership in every company at some fixed rate, and selling those shares at market value.
Clearly you still want people like Musk and Bezos to capture part of their contribution to the surplus, but allowing them to claim an endlessly increasing share of global wealth seems undesirable. With enough effort you can probably justify this at a lower level of abstraction. Perhaps by noticing that all surplus is ultimately derived from natural resources, and then asserting the axiom that natural resources are rightfully the property of the public, to be used only in exchange for compensation.
The bulk of Bezos' wealth comes from owning 9.79% of Amazon. Amazon is valued at $1.31trn, so Bezos' share is worth $128bn. Forbes report his net worth at $153bn.
The value of Amazon is (in theory) the net present value of its future cashflows, so its *future* customers and not past customers who are paying for it.
You could also own 9.79% of Amazon, if you had invested $75m at its IPO. Well, you might not have had $75m, but some people did, so from 1997 onwards, Bezos' wealth has been accruing from his choice to remain so highly invested in Amazon stock, which is a choice others could have made, if, let's say, it was obvious in 1997 that Amazon would achieve a disproportionate return from exploiting a natural monopoly.
Actually, that's not quite right because checking the prospectus it seems only $62m of stock was offered at the IPO, but the general point still stands.
Actually, the transfer to consumers through low prices came from basically the same $200Bn that Bezos has. Amazon has been burning through equity to subsidise prices for many years, this was possible because share price was high and Bezos (and other shareholders) are rich also because share price is high. If we somehow tax Bezos out of his $200Bn, it should be fair to tax his early investors out of most of their money as well, as it is even easier to make a case for fungibility of investors than a case for fungibility of founders. But if we start taxing investors out of most of their equity gains, they are not going to bid Amazon share price that high to start with, so there would be no money to give away to consumers through low prices. Admittedly, this argument is somewhat Amazon-specific as few companies are that aggressive in giving investor money to consumers for that long.
My intuition is that it's not about a 1000x wage for the Google janitor, but about Amazon denying their warehouse workers an unscheduled pee break, let alone a living wage. Billionaire Bezos would be much more palatable if his company was at least a little above average in pay and/or working conditions. If the market fails to arrange these things, you need some form of government intervention such as taxation, though the exact nature of which can be discussed.
>Billionaire Bezos would be much more palatable if his company was at least a little above average in pay and/or working conditions.
???
Where does this idea that Amazon doesn't pay well come from? They start at $18/hr, I haven't been in the unskilled labour market for a while but that seems well above average.
A challenge to your intuition. My intuition says that every large company or wealthy individual has a target on them. A large number of people will hunt for justifications to hate them. This is particularly true if it supports their political aims. All they need is for a few workers or competitors to complain and they will amplify those complaints. It goes from Amazon is not perfect to Amazon is evil.
Just to check: of the vast number of Amazon warehouse workers, how many does your intuition tell you, felt compelled to pee in a bottle? My intuition says that even one making that claim would be sufficient to cascade through the internet creating a meme that will grow into a legend. The legend will persist even after all the warehouses are automated and people are criticizing Amazon for the destruction of all those well paying jobs.
An obvious problem with saying that CEOs should realise any amount of profit from the success of their company is that they don’t lose the equivalent amount from failure.
Many a CEO has lost a company billions in value. Most earn good wages in doing so. Many still get bonuses.
But i wasnt specifically talking about Bezos here. Founder CEOs will make money for their company, or you wont hear of them. However plenty of CEOs have run companies to the ground and received wages and bonuses as they did it. If you are entitled to 10% of a company’s gain why not be responsible for 10% of the lose? Of course nobody would work like that, the risk of personal insolvency being too high but it shows the disconnect between how profits are distributed vs losses.
Very few executives are paid in exorbitant amounts of straight up cash, a lot of execution compensation is in the form of restricted stock and stock options, which is what makes them share in the gains *and* the losses.
No they don't share in the losses. They are exempt from being pursued for those losses and can make a large salary or even a bonus as the stock tanks. Sure, their options might be worthless but that's a zero limit. They get a percentage of gains but don't pay out a percentage of losses. I don't mean that they just get nothing, but that they owe nothing. Millions in gains if the stock increases, but 0 in losses if the stock tanks.
You're conflating several different things, gains from owning the stock, and compensation for work.
Bezos the founder/shareholder's net worth gains when the stock price increases and incurs losses when the stock price decreases.
Bezos the CEO gets paid a cash salary which doesn't increase or decrease with the stock price.
Some other executives at Amazon get compensated in restricted stock which also increases and decreases with the stock.
There are only very rare cases where someone is paid in a way that increases with the stock price but doesn't decrease when the stock drops, and that is performance-based bonuses (e.g. "you'll get a $X million bonus if the stock price hits Y within Z months").
In which case do you think someone should be "pursued" and owe money for stock losses? Keep in mind executives are just employees, and shareholders already suffer losses when the stock price drops.
I am not confusing anything. I am talking about total compensation. I clearly know how stock is compensation for CEOs because I already explained that.
"In which case do you think someone should be "pursued" and owe money for stock losses?"
No because I clearly said "Of course ***nobody would work like that***, the risk of personal insolvency being too high but it shows the disconnect between how profits are distributed vs losses."
What I am saying is that CEOs only have partial skin in the game. If they are to be employees then that should be the compensation.
I am not confusing anything. I am talking about total compensation. I clearly know how stock is compensation for CEOs because I already explained that.
"In which case do you think someone should be "pursued" and owe money for stock losses?"
No because I clearly said "Of course ***nobody would work like that***, the risk of personal insolvency being too high but it shows the disconnect between how profits are distributed vs losses."
What I am saying is that CEOs only have partial skin in the game. If they are to be employees then that should be the compensation.
Those people aren't billionaires. In exchange for having their losses capped, they accept much lower gains than the founder CEOs. They are usually millionaires, but they are not billionaires.
We're talking about billionaires here, which means we're basically just talking about founder CEOs, a few of their heirs, and some princes and oligarchs. And we're really not talking about the princes and oligarchs.
I don't think there's any way that founding Amazon could have cost Jeff Bezos $200 billion dollars. I suppose it could have caused him to make $200 billion and then lose it if Amazon suddenly goes bust, but I expect that for most kinds of bust he is still pretty rich.
Founding Amazon did not cost Jeff Bezos $200 billion, but many decisions made after the the initial company launch could have cost a large portion of that fortune. If his wealth was capped by policy or taxes at say $10 billion, would he and people like him continued to take the risks necessary to grow the company knowing he had very limited up side potential? Would investors trust them?
The question about incentives asked many time is, isn’t $10 billion enough to get people to start businesses? This the wrong question. The question should be, what happens when people approach the cap?
There are multiple ways in which Amazon produces problems elsewhere.
Amazon focuses a lot of frugality. A workplace that makes their employees work on doors instead of letting them work on proper desks has negative externalities.
The strategy of not treating customer service workers as human agents who's expertise matters is likely bad. I could imagine an alternative Amazon that pays senior customer service workers more and provides better ways for those to escalate systemic problems that annoy customers to be solved to be successful as well.
Amazon signs contracts that require producers of goods to sell those for higher prices when the goods are sold at other shops than they would be sold for in a counterfactual world. A merchant that wants to sell both on Amazon and on Walmart is not allowed to sell the product for lower on Walmart where the merchant has to pay less for fulfillment to Walmart than the merchant pays at Amazon.
Amazon Prime does create a moat that makes it harder to compete and where it would make sense to outlaw as monopoly building mechanism.
I would expect that part of why Amazon stock is valued as high as it's currently valued is not because Amazon produces a lot of profit currently but because it's investors expect Amazon to be able to extract even more rents through monopoly power in the future.
If you look at Uber it's more obvious. It's investors believe that it's okay to lose lots of money while building up Uber to make it the market leader in expectation of being able to profit from monopoly power in the future. To the extend that billionaires have their status because of monopoly seeking investors, that produces problems for society.
I think part of the problem comes from not considering where the wealth actually comes from.
It seems completely logical that of CEO (or anyone else) should have a compensation commensurate to added value to the company.
But in the case of a CEO/shareholder, they also get wealth from the value of the company itself. Sure, the CEO probably has been involved in getting the company to this value.
But consider the following : all the employees are also contributing to the value of the company. That value is bought off them via their salary. In the end, the difference between the wealth created by an employee and the salay they are paid is added to the value of the company, and thus, to the wealth of the CEO.
So the wealth of the CEO/shareholder is not just the result of his own direct work. But also taking a part of the wealth generated by the other. As sort of internal taxation, if you will.
Sure, that wealth generated by the employee might be enabled by the creation of the company by the CEO. But the creation of existence of the company itself is made possible by the rest of the society and its infrastructures (you cannot invent Amazon without the internet, after all).
It seems logicial that is the CEO/shareholder taxes its employee on the ground on having enabled their wealth creation, that society can also to the same degree taxes the CEO/shareholder on the ground of having enabled the very existence of the company itself.
The concept of "counterfactual competition" is quite weird. It is one kind of counterfactual assumption to assume that Bezos was not born but otherwise the world works the same as ours. To assume that there are no economies of scale in commerce in general and all hypothetical late Amazons exist simultaneously and compete with each other is a completely different kind of counterfactual and the difference between that world and ours is much deeper than a few billion o redistribution here and there. So even if you somehow develop a consistent model of that weird world, it is not clear if any hypothetical outcomes in that world would tell much about fairness in our world.
Also, when you are looking at the first counterfactual and establish that Bezos owes some of his surplus to the guy who did not get to found Amazon two years later, this guy is presumably quite a successful enterpreneur in our world, so he owes a big share of his surplus to Bezos. So this is an argument for substantial cross-shareholdings in a small group of eligible counterfactual founders. This is actually the reasoning behind medieval guilds which enforced substantial (but not full) redistribution between close competitors. I am not sure that a world with a closed billionaires guild is much more fair than ours. The impact of guilds and competition suppression in general on innovation is known and it is not very encouraging.
I think "desert" ends up as a mid-level moral abstraction that's impossible to dispense with. Why don't I seize your home, sell it, and give the money to the poor? This would probably raise utility in a short-term sense. But in a long-term sense it would be bad, and I think explaining this requires property rights, and that fleshing out the explanation of property rights requires something like an idea of desert.
Also, $200B to Jeff Bezos is a great incentive for millions of other entrepreneurs to try hard to innovate, and the overall effect is that a lot of entrepreneurs try to do a lot of things, a bit earlier than it would have happened without some big fat successes like Jeff and Elon and others.
Money have diminishing marginal utility. How much harder do you think the enterpreneurs are trying now counterfactually to a world where it was not $200B but $20B?
I agree, but the reward ought to fit the accomplishment, and my claim is that Jeff Bezos' accomplishment for which we are trying to reward him is coming up with Amazon two years earlier than the next guy, and that is worth probably some single-digit number of billions of dollars.
All of Amazon's earnings and most of Amazon's market cap is coming from AWS. If Bezos only had created Amazon Retail, he probably would be a single or low double-digit Billionaire. Precisely for the reason you are giving, there is economies of scale but if Amazon would try to extract to much value from its Retail businesses, there would be someone else.
And AWS is a much more Musk style innovation, where Bezos was for many years the only one who tried to create this business and other players only occurred after Bezos has shown it is possible.
Once companies get so large that they can buy politicians and NGOs they will do so. People wouldn't mind it so much if all the things that billionaires could do with their money was buy expensive luxury goods. It's when they can buy laws, not only to pull the ladder up behind them on upstart would-be competitors, but also to do whatever they think of as 'the Good', that we see the problems of having a class of people that are above the law, since they get the laws made. I don't want Bill Gates' vision of vaccine policy, or editorial policy at newspapers. But I cannot vote him out of power since it wasn't given to him through elections. The problem with the rich is not that they are 'unfairly rich', but that they are 'unfairly powerful' no matter how fairly they earned their money.
There's also the angle that the destruction of antitrust enforcement since Bork has led to a drastic reduction in competitive acriss the economy, unfairly tilting compensation in the direction of the lines of Bezos. (See Matt Stoller's blog for navy examples of this.)
One simplification, that to me put the whole thing under a different light, is to both forget that the multimillionaire ( Let's stick to Bezos, to be simple) will redistribute it's money, together with lumping tax with redistribution and not check who redistribution favor. Gov decide where taxes go.
So basically, when progress generates a surplus, the alternatives are let the creator of the surplus (or the first mover to the surplus-generating niche) decide where the surplus will go, or let the governement decide (more reasonably, which mix of the 2?). Would I be better under Bezos choosing or under Gov choosing? I don't know and my point is it's not clear at all for most people: It depends on Bezos priorities and Gov priorities. I guess only people usually favored by one (Bezos family/associates) or the other (victims du jour for western Govs) are reasonably sure.
So even under pure selfish reasoning, without any fairness consideration, the optimal private/public distribution of the surplus can not be decided without knowing much more about players than if they are private or public....
I think this only makes sense if Bezos gives a lot to charity; otherwise I think it's self-evident that the members of the Bezos family get less utility from an extra few billion than government clients (even granting that the government has a lot of non-charity functions and waste).
Bezos doesn't give that much to charity, nor do most billionaires, but I think you could make an argument that the ones who do are so much better than the government that it's worth it. I think this would be a different argument than the one in my post or in your comment.
Charity is obviously a possible target, the one that would convince many (maybe most? I don't think it will convince all, cause each charity is focussed on specific problems, and solving some problem will be considered neutral or even a bad idea by part of the public).
But my point is that the surplus will be redistributed anyway: Maybe to yacht builder, to mansion sellers, to gold bathtubs manufacturers, to rocket company or to Amazon growth. Even if Bezos sleep on rivers of cash (physical, not even in the bank), or burn it, it means removing cash from circulation, which in fact redistribute value to all owners of remaining cash (well, the government will very likely just print this amount, so gather the surplus almost as fast as if he taxed it. Not that he doesn't do that anyway, Bezos using special cash burners or not.)
So money is not only (or even mostly, especially at this level) for buying things, it gives the power to decide who will get it and what they will have to do to get it. It's in fact very similar to gov power, so billionaires can be a form of power distribution, away from gov.
If the gov is perfectly democratic and overall nice (but could it be, to all? I think not, even in theory, and it's certainly not in practice, even western gov) , billionaires are probably not great. If gov sucks, i think that billionaires are good by default (they would need to be worse than bad gov to be a net negative)...
Practical consequence: what about China hitting on its local billionaires like Jack Ma, or Russia hitting some of it's Oligarcs? I think it shows my point, and should be kept in mind if officials start pushing for heavier taxes on Bezos or Musk for example. Is it for (fairer/more efficient) redistribution, or is it because they are not following party line?
> you could argue that Bezos is being paid not just for his idea, but for the hard work of serving as CEO of Amazon over many years. I’m skeptical of this because it seems like the fair wage for that would be the going rate for top-tier CEOs, which is very high but not hundreds of billions of dollars. So fine, subtract that small amount out, but the rest still seems to be some sense of paying Bezos for his idea
Another wrinkle here is that a large part of bezos's pay here is just for taking the risky investment of owning Amazon. Amazon has gone up something like 2000x since its IPO price - if you'd invested a hundred million dollars in it back then (a lot, but not an unreachable amount by top tier CEO wage standards) you'd be about bezos rich by now.
Do you think it is possible that if Jeff Bezos wasn’t born, that online retail may have been solved earlier?
There seems to be an assumption here that every successive hypothetical inventor must come later in time. Is it not possible that through anti-competitive practices or just moving slowly and inefficiently (but at a pre-existing large scale) that a dominant business could come to a solution later. Compared with a genius at the helm of a startup that could have accelerated faster without that dominant (Bezos) business.
I picture it as a large slow growing tree with a broad canopy preventing smaller rapid shoots from overtaking.
Perhaps Amazon is not a good example here for stifling innovation and maybe Google would be better.
I don't think so because Amazon has to exist (and probably be pretty big) before it can start crushing competitors. I think it's possible (though unlikely) that there would be a *better* online retailer without them, but I don't understand how there could have been an earlier one.
I find this argument unconvincing, because the creator getting to keep much of the value they created is part of the conditions that would ensure someone else built something like Amazon. In the pirate treasure analogy, how many people would rush to dig for it if they knew they wouldn't get to keep what they found?
Nobody if they do not keep at least a little. If they keep the first 10 million, then a decreasing share of everything above? Probably almost 100% of the people who would look for it if they keep the whole thing will still look for it....
But it does not means I push for this kind of solution, because regardless of fairness or incentive to future entrepreneurs, ultimately the surplus is always redistributed, the only difference is if it's Bezos who choose how, or the government, or a specific mix of the 2....
Given that the guy who created the surplus had some particular qualities (maybe intelligence, persistency, inventiveness, or ruthlessness, and certainly at least incredible luck, so if you believe in luck it may correlate with other decisions), and given the mixed track record of various governments (various in time and space), I am not sure it's clear who would redistribute more fairly or more efficiently....
Many? If you told me there was $1 billion in pirate treasure on a beach an hour away from me, and I would only be allowed to keep 50% / 5% / 0.5%, I would start driving to that beach pretty quickly.
To me, the typical liberal defence for why it's wrong to take stuff from people by force isn't that they created the value, but that the stuff was given to them consensually. It applies to lottery winners as well as to entrepreneurs and to labourers and to heiresses.
So the fact that people are not slaves ( i.e. they monopolise their labour) means they are in the same "monopoly position" as a large company which dominates a market?
I'd say that violating a principle doesn't mean abandoning it. One might think of a principle as a strong prior on the morality of a certain class of actions, which might get overruled in certain cases. E.g. if we have a principle against involuntary servitude, we might still favour conscription when a genocidal dictator is invading, but that doesn't mean we have to abandon the principle and be OK with chattel slavery.
Let's say Bob has the magic power of making piles of gold appear out of thin air. Maybe there is some abstract sense of fairness under which Bob should get all the value generated. But from a utilitarian point of view, 5% of the gold is enough to incentivize Bob. Leaving 95% of the gold to be put towards some good cause. If Bob's utility is sub-logarithmic in wealth, increasing tax can encourage Bob to work more. Ie if Bob can get everything he wants for $X, then he will generate $2X given a 50% tax rate, and $20X given a 95% tax rate.
There seems to be an unstated assumption here that says “dollars earned are a measure of value,” without asking, “ok what exactly is value?”
As best I can tell it’s an emotional response, since that emotional response is necessary for people to hand over the money in the first place.
So, dollars measure “towards responses generated” which could come from any number of things, including direct robbery, or, say, providing services to robbers. When you add on the nature of debt-based money creation, ot then seems increasingly dubious whether dollars really “measure” anything other than “ability to get more dollars.”
But When you’re getting money from the government, or, say, a lawsuit payout, is it still _measuring utility_? Or just acting like a proxy?
When the fed printed a trillion dollars, they didn’t create a trillion dollars worth of utility, did they? Does the total money supply correspond to total utility?
This all starts to get much more complex because of feedback loops. So I’m ok saying something like, “cash flows act as proxies for utility”, but this is very very different from “the net worth of a person is a measure of the utility they have created.”
RISK. Creating something like Amazon or Tesla entails lots of things (innovation, hard work, ability to raise capital, salesmanship, etc.) but it is done with an astronomical amount of risk that few people are willing to take. After something is successful it's easy to point at it and feel like now everyone should be compensated. The salaryman takes no risk with their compensation so they get their $50K. If they want to risk more they can earn more but they have to make some kind of investment (new employer, learn new skills or accept a mix of compensation with incentives where you might earn 150% of your salary or 90% depending on performance.) I've been amazed how many people would rather have a compensation plan that pays them 100% versus a choice that offers them 130% to 95%. I have not expertise on the tax system, I know ours is overly complicated and full of loopholes. And the government is terrible at running the economy. Henry Ford already showed us that. RISK!
Every entrepreneur takes on risk of banrkuptcy, regardless of whether they end up with $200 bln or a mom-and-pop shop. That's it.
Perhaps we should tax Bezos to fund a social safety net so people can found companies with unlimited runway. This way we can save time and annoy both sides of the political spectrum at once.
If taxes are set high enough to deter Bezos from starting/expanding Amazon, then it follows that whoever would have founded “Slowazon” two years later is also deterred. To use another example, if Pfizer and Moderna are racing to discover a new drug, with Pfizer set to discover it a year before Moderna, but then the government passes new price caps on prescription drugs, then both Pfizer *and* Moderna will give up on R&D. So, from a policy perspective, the opportunity cost of deterring Bezos really is no Amazon, not getting “Slowazon” two years later.
This makes some sense. As much as I cringe at the patent system, it’s hard to imagine having such advanced pharmaceuticals without it.
What would a counterfactual society look like where the cap on entrepreneurship is orders of magnitude lower? From a personal perspective it’s hard to see why a potential $200B is really much more motivating than $20B. Raising capital would be harder if that cap were implemented in corporate taxes. But a very steep personal tax that only kicks in in the billions per year? Harder to see how that would deter innovators.
The opposite surely? The incentive might be to keep working rather than retire rich. If it was about getting a yacht then many entrepreneurs would retire by 30.
Because 999m was already enough to retire on. And the tax wont be 100% anyway. CEOs who are richer than God who stay working are clearly not in it for the money - they could hardly spend what they have.
Economists - like Scott Sumner - argue, that the riches of Bezos/Gates/Buffet/Musk/MBS* or even the richest: V.V. Putin DO NOT matter much, as (long as) they are not consuming much of them. If Gates bought all Big Macs in the world - or Buffet: all Cherry coke - there might be a problem, as prices would be driven up or only standard coke left at Wal-Mart (The Walton: the richest family around for a while now. The three richest Germans were: the two ALDI-brothers and Mr. Schwarz - owner of LIDL. Now one bro died, both took 2nd class train-tickets - cuz "just as fast a first". Made you poorer? All monopolies?)
The super-rich are usu. not into "exploiting" anyone. They 'just' own companies that are valued very highly. Those who got rich by relentlessly pushing their company to outperform others are usu. too busy to buy Porsches/yachts/palaces by the dozens.
Putin (and other state-billionaires) are different: They actually do buy all this stuff - "got to show them" - AND misallocate billions for cities in the desert/ wars in the neighborhood (Yemen/Georgia/Ukraine). Again: The trillions of "net-worth" of the super-rich in itself are a non-issue. The consumption of those riches might very well be. Gates seem to do fine. The O(i)ligarchs less so. Luxury-consumption-tax: Great idea - if you can make it work.
But taking say 99% of Bezos' shares et al. - worth 150 billion USD - to fund ... ay, there's the rub: what exactly?! 5 months of serving the US federal deficit**?? - Or building 800 F-35? Now, that would make the world a so much better place. And drive up prices for steel/titanium et Al..
The problem with US billionaires is that they dont stay away from politics. Also I’m the opposite to Sumner - by spending their money the rich distribute it. By hoarding it they keep it.
And you are teaching economy at ?? - One man one vote. Maybe Bezos/Gates/Buffet have even better ideas about "politics" than Hillary or Donald (who is hardly a billionaire)? - Otoh, Bezos bought the Washington Post, it's true. And turned it into NYT-trash (see Scott and Zvi about "Lincoln and Karl Marx" ). Better he had not spent that. But kept it invested in his company. Only known trillionaire "hoarding" - (i.e. pumping it in unproductive assets esp. gold) is - again - V. V(oldemort). Putin. Oh, MBS paid 400+ million for a pic of Jesus. Not sure when this trickles down to his all-muslim subjects.
Like your commentary style. Ad hominem, followed by lack of clarity, Putin Putin Putin, and MBS. Who actually spent money. Anyway its generally accepted in economics that spending money is more beneficial to the economy than saving it.
Sorry, as you wrote " I’m the opposite to Sumner " I assumed you are an economist with an opposing view. As I understand now, you are not, right? (Neither am I, that's why I quote them.) Putin and MBS are spending money and, indeed, I strongly dislike this two humans who each command over a trillion $ without any checks by any laws. Not least, as they spend it on very wasteful or outright destructive projects. That leaves less resources for the rest of us to use. So we are worse of. I am not worse of being a windows-user or being an amazon customer - rather both create clear value for me, and a considerable part of humanity. How confiscating their shares would create a better world in the medium or long term - still eludes me.
I'm not sure it makes sense to think of holding shares in a company as hoarding money. A sack of gold under one's bed does not participate in the economy, but a company does.
I think it's important to clarify what we're talking about here. I can imagine someone feeling that there's something morally wrong with any one person possessing vastly more wealth than any other. Perhaps you feel that way yourself, but if that's your argument, the conclusion it should point to is not that the wealthy should *spend* their money, but rather that it should be seized from them (e.g. via taxation) and given to their poorer brethren.
After all, spending wealth isn't truly the opposite of keeping it: by definition, when you spend your money you receive in exchange something of nominally equal value, so you haven't lost wealth at all, but rather converted it from one form into another. If the economy were a zero-sum game, spending money would be a net-zero transaction that did not alter anyone's net worth in the slightest.
In reality, of course, because different things are worth different amounts to different individuals, the economy is not really a zero-sum game but a positive-sum one: the act of trade effectively generates value by moving assets from those who value them [relatively] less to those who value them [relatively] more.
If every act of trade generates value, it follows that fostering trade adds value to the economy (thus, ultimately, to its participants), which is the reason, as I understand it, to think of spending as good and hoarding as bad. Spending creates an act of trade in its own right, and, beyond that, transfers money to the seller who may, in turn, use it for a new act of trade, creating a multiplier effect. Hoarding does neither.
If my understanding is correct, holding your assets in a company that itself participates actively in the economy is no worse that spending them on something else. Spending is superior to hoarding not because it redistributes wealth but because it facilitates trade, which generates additional wealth.
Well thats a longer explanation of what I think. Spending money on a luxury yacht (for instance) will employ lots to people to design, build, maintain and run the yacht. Money is like manure. You have to spread it around or it smells.
But corporations aren't money: they aren't media of trade whose purpose is to facilitate the exchange of the things people actually value. They're assets like the yacht: they have intrinsic value independent of what they can be exchanged for.
Asking someone to exchange the things he values most for things he values less would invalidate the premise that trading generates value for both sides. It's hard for me to see the point of that.
The original comment of yours that I replied to said, "Also I’m the opposite to Sumner - by spending their money the rich distribute it. By hoarding it they keep it."
Nearly all the wealth of the rich people that have been the subject of this discussion [Bezos, Musk, etc.] is in the form of the corporations that they [partially] own. What I am saying here is that, if corporations aren't "money", then these men are not hoarding money, contrary to the implication of the quoted sentence. Is that any clearer?
The other thing that you notice here is that while Marxists credit workers alone with adding value, ignoring in particular how important a founder/ceo is - neoliberals credit the founder alone.
I don't think neoliberals credit the founder alone. They do certainly credit the founder(s) at an outsized value compared to other individuals at the company. They may even do so at a level that is above some optimum number, but that's not the same thing.
Amazon has over 1.6 million employees. If their average total compensation were $50,000/year, that would be $80 billion dollars *per year* going to the employees. The median pay is about $30,000 apparently, with an average that's higher (a core group of very highly paid employees).
My guess would be that the number is a good bit higher than that, after factoring in benefits and taxes paid by the company. So let's round that up to an easy $100 billion dollars per year. Jeff Bezos has made about $200 billion since 1994. His employees make about half that every year the company continues to exist (and the number of employees is going up very rapidly, so this number is going up as well). If anything, the employees are making much more from this enterprise than Jeff is.
Neoliberals definitely credit the employees with their portion of the success of the business - and generally assume (may or may not be true) that the compensation these employees receive is just compensation for their efforts. More skilled employees, as well as founding employees and management, tend to make a lot of money. Warehouse employees who are interchangeable with millions of other people tend to make much less money.
Do you really think that Bezos was responsible for 50% of all value? There are well paid employees no doubt, bit nothing like mr B. If what you are claiming is true then if Bezos had stopped working the companies value would have dropped by that much.
If employees are getting $100 billion a year, and Bezos is getting $5 billion (his total worth averaged over the time spent working on Amazon), then he's worth 5% of all value. That may or may not be too much, but that's certainly closer to the ballpark than 50%. If Amazon continues to expand and employees get $200 billion or $300 billion a year, Bezos may be looking at "only" capturing 2% of the value. I don't think I have enough information to take a strong stand on whether 5% is a good number, too high, or too low. I doubt anyone has a justifiable claim to the correct formulation of that number, but I'd love to be wrong about that.
Two points: First, I think you mischaracterize the effect of competition versus monopoly. It's not just that competition leads to a larger share of the surplus going to consumers. More importantly, competition leads to a greater surplus (and this effect can be large). To see this in a simple setting, suppose I had a monopoly on sandwiches and I could produce sandwiches for free (like I said, simple setting). Obviously, the efficient thing to do would be to give everyone as many sandwiches as they wanted; it costs me nothing, after all. But the only way I can do this by setting a price is to set that price equal to 0. Then I make 0 profit. I want profit, so I set a price greater than 0, but that means sandwiches are not being consumed that really ought to be, for the surplus. The analysis extends to more realistic costs.
Second, the reason (I mean this factually, not morally) that Bezos makes so much money is not that he is such a good entrepreneur/innovator (though I do not deny that he is). It is because the distribution business is a natural monopoly, because of the returns to scale of providing distribution. (Imagine being a plucky entrepreneur setting up a competing distribution network...) Bezos naturally faces little competition, now that he is the established incumbent. So it is not the value of the surplus he created that made Bezos rich, but the particulars of the field in which he happened to innovate. Fleming, when he invented penicillin, arguably created more surplus than Bezos, but because penicillin production isn't naturally monopolistic, he could capture far less of that surplus. (I realise I'm torturing history a bit here, but the point should be clear. Also, the fact that medicine is now associated with the unnatural monopoly of patents only strengthens my point.)
The central tension here is that competition is good for efficiency (surplus creation) with fixed technology. But because not all the surplus goes to the owners of the technology, competition is bad for innovation (creation of new technology). Monopoly (natural or unnatural, through patents) is one way of addressing the inefficiency in innovation, but it sacrifices surplus once the innovation is out there. In principle, the solution is lump sum rewards for innovation by some centralized agency, but that is not practical in most cases (and it comes with its own theoretical issues). In practice, I am not aware of a good solution.
Bezos “owns” the equivalent of roughly 25% of Amazon’s market cap. That does seem a bit high, if he is going to split half with customers, and a quarter with employees.
Perhaps a better split might be:
40% customers
30% investors
20% employees
But 10% for founders might be too low a floor for startups, given their high failure rate. Not so much for Bezos, but for 95-99% of entrepreneurs who take similar career risk.
I don’t think Bezos is an angel or saint, but he’s not Beelzebub, either. I appreciate his healthy competition with Elon Musk, and how they are both crushing NASA on the vehicle front.
Hi Scott, thanks for the post, as always I love your way of thinking.
I think you're making a common mistake : attributing too much value to "the idea".
As an entrepreneur once told me : the idea is worth 1, the plan is worth 10, the execution is worth 100
In many industries, the winner is not the first to have the idea. Google was not the first search engine, Facebook was not the first social network.
Ideas are important but they are not an on/off switch. Think of it as a belief or, as Peter Thiel puts it, a secret. You know (or you strongly believe in) something that most other people think is rubbish. That gives you an edge, a first start, but it doesn't help you much in the thousands of decisions you must make in a very uncertain environment along the way.
Often the idea evolves a lot when confronted to the market. Each iteration requires courage (accepting you were wrong on some important part), insight (changing in the right direction), resolve (not changing too much) and perseverance (grinding long enough to survive one more iteration). As Paul Graham says, some founders never know how close they were when they gave up.
Back to Bezos. I think you chose Amazon to illustrate your point because it doesn't look much like a tech company. Without Page and Brin, maybe the world would never have had such a powerful search engine (you even make that exact point with Musk), but Amazon? Come on! Someone would have done that sooner or later.
See? That mistake about the importance of the idea : "someone would have founded pseudo-Amazon two years later". But the idea of ecommerce has a very low value. In France we were doing ecommerce on Minitel since 1980, yet that 15 years headstart on the idea didn't convert into French Amazon.
The idea of selling stuff on the Internet was already pretty obvious in 1994, but nobody knew how to do it right. Nobody knew what was different from physical commerce and what stayed the same. Amazon invented most of it. One-click shopping (everybody laughed), marketplace, AWS...
And Bezos is a management genius, he actively set systems to prevent Amazon from becoming complacent as it became bigger. If you're interested, you really should read Zack Kanter's outstanding paper : What is Amazon ? https://zackkanter.com/2019/03/13/what-is-amazon/ Bezos imagined, invented and deployed stuff nobody knew were needed.
Also, we're used to insane growth in software companies, moving bits. But have you seen anything resembling Amazon's growth in businesses moving atoms? There's this anecdote (dunno if it's true, I wasn't there), back in 2003 or so, when Ebay's Pierre Omidyar and Meg Whitman visit an Amazon fulfillment center. Bezos is enthusiastic in showing them how Amazon tackled the monstrous task of handling billions of parcels. As they're leaving Whitman tells Omidyar that they were right not to get into logistics, it's too messy and complex. These are very smart people, but they didn't understand then that delivery is a critical part of the user experience. Bezos knew that, saw that incumbent logisticians were not going to provide the level of service that he wanted and took the herculean task of building a global ecommerce fulfillment system, and succeeded, while growing 50-100% year over year, and offered that as a service to vendors on the marketplace... Would pseudo-Amazon have done that? Ebay certainly didn't. If Amazon hadn't set the standard to next day delivery, where would ecommerce be today?
Two years, you said? What if it's 5 years, or 10? And did you take into account how much the Internet economy in general benefited from the drive of ecommerce, itself driven by Amazon? What if Amazon only kept 10% or 5% of the surplus it brought to the world instead of the 50% you supposed?
TL, DR : The concept of having the idea first is simplistic and often underestimates how much exceptional persons may have brought to the world.
Whether the way of getting treasure feels "earned" to our intuitions or not, no one would waste anything energy on it if it was, like, a bag of rocks or $29 or whatever. The outsized nature of the possible reward drives entrepreneurship, the engine of this feverish flux of human interface and interchange. With only mild reward potential, you will get only mild entrepreneurship.
And if you don't like this feverish flux, there really are many places where entrepreneurship is turned down from the American cacophony. Not straight up communist dystopia like Cuba or dprk, but nice normal civilized places like Sweden or the UK, where starting a business is a little harder and growing it into a unicorn is almost impossible, but public services are amazing because the system distributes consumer surplus to the public more than to the capitalists. If that sounds good to you, why not move there, instead of killing the one place where cacophony lovers can thrive?
I just see billionaires as the natural consequence of the rules we made.
$1 + $n = $(n + 1).
You can found a "company" which earns its own $, and you can own "shares" in that company, which you can then sell to others.
Something something prevent monopolies.
I like this system for its simplicity and its incentives. In terms of outcome, I don't see the side-effect of "billionaire" as something worth worrying about.
One side effect I don't like is that innovation slows down when everyone is financially uncertain. I want UBI to patch this.
This is a reprise of the 19th century debate about theories of history. There's Robert Carlyle's Great Man Theory of History, "The History of the world is but the Biography of great men '' where Jeff Bezos would be characterized as an exceptional individual with an unique set of talents. The only hero who can slay the dragon. A branch of this is "Great Founders Theory '', where the way Great Men influence history through the institutions they create.
Then there's Arnold Toynbee's "Challenge and Response '' dialectical approach, where different civilizations face a series of challenges, such as wars or climate change, and their capacity to face them successfully and grow depends on a creative minority, capable of coming up with solutions. Not a guy, but a small number of people. If they do succeed, they tend to take over society and become an oppresive minority, categorically unable to solve the next crisis with the tools developed for the previous one.
Then there's “People's history”. Great Men are a narrative convention, and the masses are the true movers of history. Napoleon is nothing without his army, without peasants laboring the fields, women sewing uniforms and so on.
Even more Communist is the materialistic approach. Material conditions and social incentives interact to produce certain types of individuals and not others. Brazil is obsessed with soccer, so they produce a bunch of great players. America is obsessed with entrepreneurship, so they produce a bunch of Jeff Bezos and no Neymars.
There are a thousand of these theories, but how did this debate resolve itself?
It didn't.
Nowadays, historians don't really concern themselves with coming up with grand theories of history or counterfactuals. When they look at historical records and data they find way too many counterexamples which crush every neat little narrative anyone can come up with, so they don't bother coming up with anything other than modestly noting this or that pattern.
The "Give me a Break" Theory of History.
As for the particular example, it depends whether you think Amazon is closer to a problem-solving technology or a work of art. Both Newton and Leibniz can develop Calculus, because both were looking for ways to deal with change and continuity. But if Shakespeare had not lived, there would've been no Hamlet, no “that particular play”. And while Elizabethan England produced a number of very strong playwrights, none of them could have ever written specifically the text of Hamlet.
I personally think Amazon is closer to Calculus than to Hamlet.
I think you can get around most of this issue by taxing consumption instead of income or wealth. When a billionaire uses their fortune to found a new company, they're creating more value, and that shouldn't be punished with taxes. Whereas when a billionaire buys a yacht, sure the yacht company makes money; but the value that went into the yacht, from raw material to labor to innovation, is permanently redirected from the rest of the economy. That value could go towards commercial shipping or cars or something, which would actually provide value to everyone else through cheaper/better goods and services.
The extent to which a billionaire continues to make good invesents and start good companies is also a way to "measure" how much their success is skill rather than luck. And taxing consumption instead of income/wealth encourages reinvestment, especially for skilled billionaires. So if Bezos loses billions on Blue Origin while Musk makes billions on SpaceX (both funded by earlier entrepreneurial success), or if Bezos knows he won't get lucky again and spends all his money on yachts, this acts as a kind of naturally selected tax on billionaire luckiness.
Another way to put it is that when "wealth" is in the form of, say, shares of a company, that wealth is actively producing value for the economy. When "wealth" is in the form of yachts and mansions, it's actively draining value from the economy. It's kind of nonsensical to lump these both into the same category of "wealth" when they're basically opposites.
The niche Bezos exploited was made possible by the same system that allows him to profit by exploiting it. Indeed, it was made possible by the exploitation of many other such niches in the past. I don’t think this particular niche is the final output of the system — it will contribute to the emergence of many other niches in the future. The first justification of the billionaire’s windfall is that those are the rules of the game, and he might have lived his life differently if he knew the rules would be changed after he invested in exploiting a niche. The second and more important justification is that changing the rules now will deprive future generations of the opportunity to exploit further niches.
This is well-thought-out and well-articulated (as usual).
But I think taxation should play a much more important part in thinking about this than you have afforded it here.
Bezos may have figured out how to deliver the value to our door, but he didn't create all the added value alone. He was only able to build Amazon by leveraging the value created by the people who funded and developed the internet, who built the roads, who subsidized the gas in the tanks of the delivery trucks, who made sure that the dollar was fairly stable and that the political environment was conducive to growing a business, who gave him tax credits, who negotiated NAFTA and China's entry to the WTO, who paid for K-12 education for Amazon's employees, and kept them mostly safe while they were growing up, etc.
It takes a village to raise a trillion-dollar company…
Basically, Bezos and Amazon used more than their proportional share of publicly owned and funded projects and assets, and I'm not convinced the public has charged nearly enough for its contribution.
(There's an idea that we shouldn't tax Amazon or Bezos much because they contribute so much to the community in other ways. That's like arguing you shouldn't take a salary from your job at Walmart because your community benefits so much from their low prices.)
So, if we're thinking about fair ways of distributing the surplus, taxes should be central to the consideration, not an afterthought.
I think there's something kind of evil about forcing people to buy subsidized gas without giving them the option of saying no, then saying "AHA! You took our subsidized gas, now we own you and none of your accomplishments are your own and we deserve everything you built!" I mean, come on, at least give him the option to pay full price for gas so he doesn't have to listen to you.
And I think there really should exist a free Wild West somewhere, where people could opt out of the totalitarian liberalism of much of the west and into a natural state (whatever that is) – even if such a place only serves as a contrast to what we have, and a place libertarians can threaten to move if progressive candidates win elections.
But now that we all live in complex societies (especially those of us who have some choice in where we live) we should take the good with the bad and appreciate that everything is interconnected, and that (subsidized gas or not) it probably would have been really hard to become a hundred-billionaire in a society where everyone else is a hunter-gatherer. Once you accept that, you accept some sort of inheritance and I think you should be willing to pay something back. I’m not arguing for communism, just an alternative to the view of taxation as “theft” or a necessary evil.
You should also appreciate that, because you only thought that their *should* exist a "free Wild West" rather than actually making sure it *did* exist, the people who create things are allowed to say that since they didn't ask for your help and weren't allowed to refuse your help, they don't owe you a damn thing for your help beyond the taxes they've already paid. If that.
I don’t get it… Is it somehow my responsibility to make sure there exists societies that someone else might want to live in? There are plenty of cities, states and countries to choose from, including tax havens, and countries with a weak state and shaky democracy, where you can build your own infrastructure, refine your own gasoline, and educate your own workforce, if you don’t like the way your local system solves those issues.
Once you’ve chosen where to operate, it’s not about “asking for help”, it’s about ownership and about who writes the rules. Just as once you decide whether to build your app on AWS or on Google Cloud, you follow the terms and conditions of the provider you chose, and pay what they charge.
You can’t just build a house on other people’s property and expect to get to keep the whole thing, and you can’t build a business on other people’s infrastructure and political structures and expect not to pay for it. You owe what the owners charge. If you don’t like it, take your business elsewhere.
This is obvious in business – why isn’t it equally obvious when it comes to civics?
The answer is, it *is* obvious and entirely uncontroversial to companies like Amazon. They play this game all the time – letting cities, states and countries compete against each other on price and services to win some new facility.
The problem is that almost all governments are terrible at charging what their societies are worth to entrepreneurs. Like mom-and-pop stores trying to win against the Walmarts of the world by dropping their prices, instead of providing a better experience worth paying for.
Citizens (and the bureaucrats and politicians who represent them) should get better at realizing the value and relative advantages they bring to the table, and get better at charging fairly for it – and that should be part of the equation when figuring out how to capture and divide the additional value created on their structures.
I'd add that I think you're missing a whole diffusion of responsibility argument - that we are overrating the importance of Bezos to Amazon and underrating the importance of the other early employees.
How much of the success is attributable to Bezos and how much to say, Eric Benson who created the first "if you bought X, you might like Y" code, or Susan Benson who got Amazon early publicity, or Ellen Ratajak who built the original infrastructure, or Scott Northrop, or Tod Nelson, who did early warehouse automation, or Jonathan Kochmer who redesigned the recommendation algorithm so it would recommend music based on your books and vice versa (it used to be siloed by each store) or Tom Schonhoff who built the customer service teams that had a great reputation until Amazon got super big, or Paul Davis who built the original back end, or Shel Kaphan who built the original front end (or MacKenzie Bezos, who ran the entire finances and HR for the early company, but I think she's been adequately rewarded)?
If you conceptualise the innovation as being done by a team not an individual, and the billionaire as the member of the original team who happened to be able to drive the rest out and therefore they make all the money and the others don't, then there's an argument for a much broader distribution of that super-wealth.
Despite being a supporter of capitalism as the best system ever tried in practice for economies, this is the weakest argument by capitalists I have seen, and I think a large portion of the problem is capitalists overvalue the lone genius, that is the lone genius bias is huge amongst capitalists. To be fair, history books compress so much time and focus on great men rather than the millions of non-noble or leaders combined with America's individualistic culture meaning that people believe that billionaires are superhuman people, sometimes near-deities.
I think people have been overtrained to hear the words "lone genius" and think "aha, it's politically incorrect to believe in those", but actually a cursory look at history shows there are plenty of lone geniuses and they create huge amounts of value and I hope they continue to do so.
The only argument I'm making in this post is that Bezos' genius probably moved Amazon forward a few years (which is still worth billions of dollars!) but it would still have eventually been created without him (probably by another genius). I think other people do even better - I'm not sure anything like Tesla would have existed without Musk, or anything like crypto would have existed without Satoshi.
I think you overestimate “also rans” here. If you didn’t have Amazon, you’d probably be shopping on Walmart.com, which for my dollar is a much worse experience despite a decade of investment following a blueprint for success laid out by Bezos. If we’re honest, Android phones weren’t up to iPhone standards for at least 6-8 years after the initial release. Plus, it’s very hard to delineate between where Android phones would have ended up if Apple didn’t exist at all and where they were able to get to by mostly duplicating Apple’s efforts.
Basically what I'm saying here is lone geniuses, if they exist, are ultimately replaceable by a team of less intelligent humans within reasonable time. And given the normal distribution that is intelligence for humans, something like this has to be the case. So geniuses exist, but unlike power-law worlds, they are far more replaceable. This isn't about political correctness, this is just a fact of how intelligence is distributed.
To me, a better starting framework is the concept of "universal destination".
The first aim of all productive activity is the benefit of all humanity. In the same way that the earth (really all matter/existence or poetically "creation") is a gift for humanity. (Maybe the earth is also a gift to each living entity?) Each person is also a gift to humanity. Our productive activity is an echo of creation.
We really don't need to be incentivized to do good, it is our primary nature to be good and to be in solidarity. Nor do creativity and imagination, the spring from which improvements come, need to be incentivized: it is our nature as a species to be imaginative. Talk to some 3 and 4 year olds.
"Surplus" only really exists after the duty to all humanity has been satisfied.
"I made this so it's mine. I thought of this so it's mine " The universal destination proposes a different way to think about this that is not transactional or bound in a chain of custody. Instead, I made this so it belongs to humanity. But I am part of humanity so some of it is mine and my existence is required to have made it so the portion that satisfies my basic existence is mine. And if I am a parent, I have existential duty to children (entrusted to be raised for the benefit of humanity - ie the children are gifts to humanity just like every other person. Someone needs to protect that gift.)
Entrepreneurial activity is labor. The mental exertion of thinking up an idea of a product is not fundamentally different than the physical exertion of the worker making the product.
Labor whether mental or physical (as if nerve cells are less matter than muscle cells?) has as it aim the benefit of humanity. We might be diverted from the true aim by some selfish libertarian impulse that our primary aim is self satisfaction but would a distraction from our true essence and purpose: We exist as gifts for humanity. But as indicated previously we are part humanity and we must exist to produce and we may have special duties to humanity if we have had children, so there is a recursion.
Is there no private property? Yes there is private property but private property beyond what is required after your existence and your children's existence is ensured is always subject to the claims of humanity. Private property is a means of procedural justice not an end.
Disputes will however arrive: who gets this particular thing. Dividing the car into 7 billion pieces is no good for all kinds of obvious reasons. So private property and the chain of custody to the labor, is a good status quo default, even if everyone is "entitled" to their sliver of the car.
How exactly to divide stuff up is a political question that communities and societies work thru in a consensual manner. Even the dictator has some consent that exists because a majority of people have not said "hey buddy who put you in charge?!" Consent by silence or inaction.
Surplus is not the incremental increase caused by the improvement (whether by invention or better management and organization of the process), as proposed or implicitly presumed by Scott.
The universal end of all productivity value is always humanity, subject to initial justifiable existential demands of laborer (whether mental or physical) and the laborers' children whom they raise as trustees for the benefit of humanity.
The billionaire's pile of wealth is always subject to the claims of humanity but in and thru mechanisms of procedural justice of distribution which can only be decided politically. (Basically via taxation and eminent domain however those are politically agreed upon. Implicit in the political is peacefulness. Social ordering without peace and consensus is war and anarchy. "Politics is the peaceful resolution of conflict." (attributed to Mark Sheilds but this was a phrase used at Notre Dame in the late 50s when Sheilds was an undergraduate, the name of professor who used it escapes me right now.)
From the 1967 encyclical Populorum Progressio:
"Everyone knows that the Fathers of the Church laid down the duty of the rich toward the poor in no uncertain terms. As St. Ambrose put it: "You are not making a gift of what is yours to the poor man, but you are giving him back what is his. You have been appropriating things that are meant to be for the common use of everyone. The earth belongs to everyone, not to the rich."
See also the Compendium of the Social Doctrine of the Church:
"177. Christian tradition has never recognized the right to private property as absolute and untouchable: "On the contrary, it has always understood this right within the broader context of the right common to all to use the goods of the whole of creation: the right to private property is subordinated to the right to common use, to the fact that goods are meant for everyone". The principle of the universal destination of goods is an affirmation both of God's full and perennial lordship over every reality and of the requirement that the goods of creation remain ever destined to the development of the whole person and of all humanity. This principle is not opposed to the right to private property but indicates the need to regulate it. Private property, in fact, regardless of the concrete forms of the regulations and juridical norms relative to it, is in its essence only an instrument for respecting the principle of the universal destination of goods; in the final analysis, therefore, it is not an end but a means."
I don't think that this is a very valid argument because it makes the false assumption that if the capitalist hadn't invented the product, it would have eventually been invented by somebody else. That's completely unprovoked and sounds totally wrong to me. Throughout history, societies fail to invent things all the time, then they go extinct or are conquered by societies that are better at invention. So a more fair way to put it is that POSSIBLY somebody else in your society might have come up with the invention, or possibly a foreign enemy would have come up with that invention and your society would have crumbled due to your enemies gaining an insurmountable advantage that you could not compete with.
The idea that "somebody else would have invented it anyway" is unprovoked and even if it was true, you have no guarantee that the invention would have been created by somebody with positive feelings towards your society, rather than somebody with hostile intent. Only a narcissist unaccustomed to the realities of life would assume than every invention will be used for their benefit rather than to harm or even destroy them.
So we don't just pay inventors a premium for their DISCOVERIES, we pay them a premium for them being altruistic enough to use their discoveries for our benefit rather than to hurt us. Failing to adequately incentivize this choice can often lead to very bad outcomes. For example, why would the future inventor of AI decide to use it for societies benefit instead of taking over the world and killing anybody who opposes them? We should probably make sure to incentivize the first outcome rather than the second.
I actually think that "very big online retailer" is a big enough niche that we can be pretty sure someone would have invented it anyway. As people have brought up in the comments, many inventions are invented independently several times within a few months of each other and it's a question of who makes it to the patent office first; I think by studying these cases we can determine that most (though not all) inventions are usually replaceable within a few years.
I'm not sure what you mean about the narcissists - if you're a narcissist who invents a $200 billion dollar idea, I think you start the company and collect the $200 billion. I have no idea if Jeff Bezos is a nice guy or a narcissist or whatever, it doesn't matter to his success and it doesn't matter to me.
I disagree on the inevitability of the “very big online retailer” at least one big enough to drive the changes necessary to compete at scale with large store front retail.
In a world without Jeff Bezos, I could easily see the second runner up settling for being the worlds largest online book store while another founder duplicates big box hardware store model, but skips all clothing because they don’t have a solution or resources to manage returns, etc, etc. this much more fragmented online world would lack the volume to drive affordable next day shipping, one click purchasing or many of the other things that make buying from Amazon so beneficial (or addictive) to consumers.
Speaking as the ordinary idiot in the street, I think the view around redistribution of excessive wealth, and measuring what does count as excessive wealth, is proportionality.
Does Bezos deserve to be a multibillionaire? That's a difficult question to answer. Who *deserves* anything, at all? And indeed, "treat every man as he deserves, and who should 'scape whipping?"
Is Bezos entitled to his billions? Well, I think most people wouldn't object too much to him being a billionaire, or even having five or ten billions. What grates is "This guy is rich enough to be able to fund his own toy rocketships to play with like the other billionaire boys, but his company apparently operates on such thin margins that it really does need the workers to pee in bottles instead of going to the lavatory so as to maintain the necessary level of productivity".
That does not make any intuitive sense at all. The company can be valued at incredible rates, but it's also permanently teetering on the edge of collapse? Bezos can have a net worth of somewhere between $150-160 billion, but it's not real money in fact?
$10 billion sounds like more than enough to manage to struggle through somehow in order to live on it. When talking about hundreds of billions for one man, that sounds less like "reward an entrepreneur" and more in "now we're operating in the realms of fantasy". At those levels, it becomes more and more difficult to argue convincingly to ordinary people that "we *need* to reward entrepreneurs at that level or else they won't bother setting up in business for themselves".
I think there's a lot to this sense of intuitive indignation, but practically speaking, I think it's important to remember that Jeff Bezos has hundreds of billions of dollars based on the valuation of his share in Amazon, and his only having a fortune of around 5-10 billion depends, not on laws about how highly people are allowed to be compensated for their work, but on restrictions on things like how large a stake in a company someone is allowed to own, or how large or valuable a company is allowed to be without being broken up.
If you're going to grant that it's reasonable for someone to have $10 billion, why not grant that it's reasonable for them to have $100 billion? Both are such bizarre inconceivable amounts of money that I can't think of any way to distinguish between them. I'm concerned that if someone makes $1000 billion next year, people will be saying "$1000 billion is so absurd, they should stick to a reasonable amount like $100 billion", and if somehow Bezos' fortune crashes to $10 billion, then they'll say "$10 billion is so much, how about $1 billion"?
That's why I said proportionality. Go back fifty years, and we'd be talking about Bezos being a multimillionaire because billionaire is only a thing in fantasy, there's not even that much money in the national economy! Jump ahead fifty years and we'll be saying "So-and-so is the USA's first trillionaire!"
(Kindly note: all dates and figures pulled out of the air for use as examples, I have no idea if fifty years ago the national economy was or wasn't worth a billion).
Suppose Amazon goes "poof" in the morning and Jeff, poor poor deprived Jeff, is reduced to his last billion, like the Getty fortune (and we should, I think, take note of how the former 'richest in the USA' families dwindled in wealth; nobody took it away from them, no socialist government was voted in and seized it, no workers' revolution, but rather 'too many descendants split the inheritance and squandered it rather than building up new businesses').
EDIT: I apologise to the Gettys, the family fortune is around $5 billion. They have fallen from their former lofty position as "richest in the world" (back when that meant the founder had a fortune equivalent to $1 billion in today's money) because of the inflation in worth of how people make fortunes.
Would anybody really try and advance the proposition that Jeff Bezos, now only worth $1 billion, was horribly deprived? He could still live a life free of want and care, and in luxury that many can only dream of as a fantasy. He might *feel* deprived having lost so much of his fortune, but in actual terms, nobody can really argue that he is lacking anything to have a comfortable life.
His wealth is fairy gold, anyway; it's all based on the valuation of Amazon stock, and it's only worth that much so long as he doesn't try to realise it. He can borrow against it, but if he tried selling his stock to get money, he'd crash the price. This is why I am less than impressed by markets as the One True And Only Way, because it's fairy gold: in the morning, you are left with only a handful of dried leaves.
Does the niche exist because there are a lot of people trying to innovate, or do innovators exist because of niches? Since the population of innovators is finite, we can't take for granted the existence of niches-soon-to-be-filled either. Modern high output wooden beehives were possible in 300 B.C., yet it wasn't until the 20th century that they were invented. The opportunity to create the flying shuttle existed for 8,000 years, but it wasn't until 1733 that it was created. The niches were there! The use cases were there! It was the innovators who were missing.
But your model seems to imply a log function of potential founders, which might hold if can you set culture and institutions and incentives constant. Explain one's assumptions about the elasticity of innovators and taxation becomes clear.
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I'm confused what part of this model you find compelling. The counterfactual world where online retail doesn't follow a power law distribution and competition drives prices further down isn't obviously possible. So I don't see why it should govern thoughts on optimal tax policy.
Is it that Bezos is getting paid rents in the form of market power and partial ownership of a company that sits at the top of a power law? If so, there doesn't seem to be an obvious way to reduce those rents for the benefit of consumers that's significantly better than allowing him to invest and buy yacht boys to clean his poop deck.
And lastly, is Bezos the typical billionaire? Policy should be gauged towards both the typical and future billionaire founder. Reason based on one market example at your peril.
Usain Bolt won a bunch of races, but if he hadn't raced, someone else would have been named the fastest man in the world.
Imagine instead a world where nobody is ever declared a winner in foot races. You can race, sure, but if any news outlet wants to publish the results they only publish participation. There's no Olympics. No prize, no recognition. After all, if Bolt hadn't crossed the finish line when he did, someone else would have crossed maybe a second later. And someone else after that, and so on.
Maybe in that world you still have an Usain Bolt as the fastest man in the world. But he's considerably slower, probably not going to train for races, and nobody knows he's fast - maybe not even him.
The NBA wouldn't be the same without the scoreboard, and entrepreneurship wouldn't be the same without the incentive structure.
But not all proponents of taxing billionaires want to take every excess dime. Just proportionally more. What if, in our racing analogy, you got rid of the Olympics? Would Usain Bolt refuse to run? Not worth it without the maximum prize. Maybe he'd still run, but in other races, possibly closer to home.
What if the economic trade-off isn't in whether there are any incentives at all, but in what gets incentivized. Want more global involvement? Make outsized global prizes. Want more community involvement? Bring incentives closer to home.
I think footraces should be decided statistically. In order to be a winner, your times have to be statistically meaningfully different. Let's consider the Red Bead experiment and Deming's insight into statistical thinking. Let's measure all sports with a control chart!
As to "games", well they are just that "games" a diversion.
The rest of the world seems to produce great universities without the Academic Sports Entertainment Complex.
It seems that the value for an athlete of an Olympic medal is how much more money in sponsorship/endorsements they can get. So if there are no Olympics, but instead entering and winning Fastest Male Sprinter contests internationally gets the same amount of "will increase your asking price", then it would be worth it.
The Superb Owl is not a global competition like the World Cup, but somehow teams still compete in it and it is worth something to the players to be Superb Owl winners 😀 There isn't a World Cup of tennis, but "won Wimbledon, won the Australian Open, won US Open, etc." seems to be something that top tennis players find worth their while training for and playing in. Daniil Medvedev is currently ranked World's No. 1 male player and he's not confining himself to only playing tournaments in Russia.
Interesting. What do you think would happen if we took all sponsorship out of sports? Say there was a sport where the players were banned from receiving sponsorships, or getting paid for playing. They still get public accolades for winning - indeed, we'd make sure we televised big games and had news/TV reporters conducting high-profile interviews of the winners on the field and in a newsroom after a win or loss. Players still train and play in expensive gyms and world class facilities, with highly-paid coaches, assistants, medical staff, etc. The only difference is that all players get essentially the same compensation for playing the game, whether they win or lose. Would the competitive nature of the game be enough to keep it exciting/interesting?
Imagine we took that same scenario, played out over a few decades to reach equilibrium, then suddenly allowed players to begin receiving sponsorships. How would that change the game? (speaking specifically of the performance of the players on the field)
Fortunately for us, the NCAA ran this experiment. Its biggest confounder is probably the potential of a small fraction of players to get lucrative professional contracts, but since most have no hope of such contracts, we should be able to deduce something from the 95% of players who just walk away with a scholarship and often an undergraduate degree.
So, I woke up to this, and someone has probably already made substantially the same point before, so anyone who's already seen it among the 600+ comments there are now can ignore this-
But I think that the counter to this argument is that it's not about rewarding the first person to reach the goal, but creating the incentives that encourage anyone to aim for the goal at all. If Jeff Bezos hadn't founded Amazon, would someone else have created a massive online retail/distribution giant in its place? Probably, assuming the business incentives still existed to make that a worthwhile thing to do. If companies above a certain value were required to be broken up, that would almost certainly have prevented it, and if individuals weren't allowed to own controlling stakes in companies, that would likely have prevented it as well. It's difficult to arrange business regulations which *prevent* people from sometimes becoming billionaires which don't leave the average person worse off in some ways.
In the situation where God declares that there's treasure on the beach, the person who claims it may have not have *earned* it as much as the person who goes to the trouble of narrowing down exactly where it is, but if for some reason God really wants someone to claim that treasure, he's better off not waiting for someone to prove themselves worthy.
The question that I find interesting is did Bezos intend to create Amazon? The Amazon we now have, which is venturing out into making TV shows, etc. instead of the Amazon he started off with, which was "replace physical high street bookshops with retail ordering, like catalogues but you do it over this new-fangled Internet".
What really sold me on early Amazon was "hey, all these hard-to-get or out-of-print books are available there!" That's what I still use Amazon for, except now I get everything downloaded to Kindle for PC instead of hard copies. I don't want or need Amazon Fresh, Prime, Music, Alexa, or the TV streaming service (though I admit, I have used the clothes and some other departments shopping so I have branched out from books).
Bezos may have intended to set up "online retailing". Did he envisage, back then, the behemoth Amazon would become? Did he lead the way in diversifying into other areas, or did he follow the leads of other companies and of employees in his own company?
If there was a point when he switched from innovating to imitating (e.g. 'everyone is running digital music/streaming services, we should do and use our market dominance to crush the competition') then how much of the added value did he create and hence 'deserve'?
I think being at all realistic, one has to recognize that the most wealthy people aren't necessarily creating *that* much extra wealth relative to what someone else would have created if they hadn't been around. But without him, Amazon wouldn't exist at all, and he did lead it to a lot of growth. The question of whether, as a society, it's okay for us to let some people become so extraordinarily wealthy, is less a question of whether he "deserves" or has "earned" it, and more a question of whether we're better off if we disallow people from owning controlling stakes in companies they created above a certain value, or break up companies if they achieve a certain threshold of value. And I think in both cases, we'd actually be worse off, that we'd be "buying" the prevention of multibillionaires at the cost of a significant amount of societal welfare (and I say this as someone who has taken considerable advantage of Amazon services which I don't think it would have been able to develop without such a huge investment into its infrastructure.)
Whether he "deserves" such extreme wealth, and whether we'd be better off as a society if he didn't have it, are different questions.
An interesting real world model of who finds what was already actually there first and how that plays out in both creating billionaires and creating a dependent underclass is the 1848 and 1849 gold rushes in California. The first movers made a lot of money, the second plus movers did make some or nothing, but the fact of the gold rush created follow on opportunities to exploit that created other billionaire classes. That there are follow on opportunities to exploit is entirely predictable of any new innovation, but *what* those will be aren't necessarily and both are impacted by other events that happen concurrently but not because of the new innovation (in this case California statehood, the transcontinental railroad, etc.). Wouldn't any taxing scheme impact those follow on opportunities, so that it's not just about taxing the first mover?
The thing is, I don't see how to avoid regulatory capture and killing innovation (so not feasible to tax billionaires a lot unless you're either tolerating significant tax cheating and/or just going straight to socialism and nationalizing the thing) and that many will suffer as things play out from any game changer innovation even if you eventually get to the place you want to be (more people better off). It's almost as if we think there's a way to prevent the latter and that doesn't seem realistic.
See, I honestly can't follow the argument that someone will say "Well, if I can only make $1 billion instead of $20 billion, then I won't bother with my innovative creative new idea, I'll go work for somebody else and make $2 million".
It may be very annoying if the government tells you "The company is worth $20 billion but you can only be worth $1 billion", but on the other hand, isn't "You are guaranteed to be worth $1 billion" better than nothing? Half loaves and all that?
Maybe this can replace the Chart blaming the Christian Dark Ages for why we aren't all uploaded androids living on colonies in other galaxies - it's the Entrepreneur Spite Gap! All those people who through the ages said "Well if I can't have it *all*, then I'll have *nothing*" and they refused to innovate because they couldn't be a millionaire/billionaire/trillionaire and out of spite remained a penniless pauper grubbing for stale crusts, and without their Novel Inventions, we never got to have a hyperloop running straight to Proxima Centauri 😁
You'd think re: the money as an incentive to innovate and technically I agree given after a certain point how can there be more marginal utility in another dollar (especially given that it starts to get hard to spend after a certain point)? But this discounts those upfront years when you aren't rolling in it, it's just an idea only you and if you're lucky a few partners believe in and are devoting insane hours to, and it just feels like you are getting regulated, taxed, and fee'd to death with low profits because customers refuse to pay or haggle excessively - slogging through that morass (and knowing you'll have to) skews the incentive to start somewhat. Plus, we don't see today's super rich behave in this manner either, they still tend to on average hoard, penny pinch, tax evade etc. to keep their bank balances high - so that says something about how the marginal utility of adding to actual cash in hand somehow doesn't seem to fade even as it stacks up.
I mean, if they got to $1 billion on anything other than pure altruism, you'd basically *expect* them to at least slow down (if not stop) once they hit whatever cap this hypothetical government is adding here.
And do they keep the power from their ownership (arguably what that $20 billion represents in the first place), or are they required to give more and more of it away as the company continues to grow?
If the former, you've just made their $20 billion opaque: "there are shareholders, and then there are *shareholders*".
If the latter, who is receiving this (increasingly-less-partial) ownership? At least 20 people (and counting) given the premise, otherwise one of *them* would pass the $1 billion cap. So now you've got a miniature Senate. Or Supreme Court, or whatever. What you don't have anymore is an executive. Rule by committee is, empirically speaking, very, very slow.
What I always find funny is that Amazon should not exist. They should have been beaten to the market by Sears in the US and either Eaton's or Consumer Distributing in Canada. And yet none of those businesses which already had much of the groundwork set up for catalog ordering, warehousing, etc., were able to do the same thing. Their direct competitors - chain bookstores - had the resources to provide the same service and stamp out Amazon almost immediately, and yet they didn't.
So not only do you have someone who managed to break into an industry which already had many businesses which had the resources to outdo them, they managed to drive other established major retailers into bankruptcy.
There certainly is an amount of luck involved. But it also involves a certain amount of vision, tenacity, and leadership to make that happen.
Agreed about the vision etc. but it is also undeniable that there was a hefty chunk of luck involved.
Bezos founded Amazon in 1994, right at the start of the dotcom bubble. It could have gone down with many of the other fledglings of that time which thought that they had cracked the code to getting rich quick. It is understandable why the big businesses like Sears didn't have the turning circle to convert their business to online-only retailing, and why the chain bookstores thought that this wasn't a big competitor: they were moving into adding on extra value like cafés in bookshops, and who was going to bother ordering a book online when they could just buy it right away at their local bookstore? Maybe if you were some guy living in the sticks with no bookshop or amenities near you, but that was a niche market, let Amazon have it if it wanted.
What Bezos did that *was* smart was build a brand. He understood marketing, and he copied the idea of the big brands, who moved in first and established themselves. Once people use your product's brand name as the reference for the entire field (e.g. people saying they will "hoover" instead of "vacuum" the sitting room) then you've got it made.
So working hard on building the brand and managing to be one of the survivors when the bubble burst are indeed the victories of Bezos and Amazon.
The article seems to mix two ideas, what is a fair or just system, and what is an efficient system. The answer to each is not independent but you need to be clear which is which.
To the degree that anyone who becomes very rich has certainly had some luck (and probably a lot of luck) then having very rich people is never going to be 'fair' and perhaps this provides a moral justification for progressive taxation that fits with most people's moral codes. Whether this is a good idea from an efficiency perspective is another question however.
As an aside, in many countries there are lotteries which are very popular. The participants know that the winner becomes very rich and that is entirely down to luck. And yet people do not seem to regard these as particularly immoral, presumably because all participants no the deal and are participating of their own free will. The belief that it is you who could be the lucky one one day seems powerful as a justification for large luck-based rewards.
This is mostly an argument that "deserve" isn't that helpful a concept on a societal level. Replaceableness argument is fair enough but you could go much further. Bezos' parents invested a bunch of money in early Amazon; if his parents weren't well-off American citizens would Amazon exist as it is today? Or what if he had gone to worse school? Maybe there was a particular teacher that really inspired him that other potential entrepreneurs didn't luck into having, and without which he would have ended up some highly paid non-billionaire investment banker, did he "deserve" that teacher? Also he clearly lucked out in the genetic lottery, another thing he didn't deserve. He must have worked extremely hard but there's probably genetic factors to that too!
And at the end of the day if you peel away the layers of explanation enough you find Laplace's demon, giggling madly at the idea that a particular organism "deserves" something that was predetermined by the boundary conditions of the universe.
But even if you throw away any claims of just deserts you can still pretty easily argue for or against billionaires, it's just the typical boring but reasonable left/right debate. Against billionaires: diminishing marginal utility of wealth, so you should tax rich people more and ultrarich people the most. For billionaires: low taxes encourages risky entrepreneurship which improves overall living standards.
Good comment, but here's a question: you can make a case that Bezos doesn't deserve to keep say ~90% of his current wealth like how Scott does above, but under this logic, who does deserve it? Logically, I would say only one or all of the following : Amazon employees, investors, or customers. I don't see anyone actually making any arguments to this effect, though. I see people on the left saying Amazon should pay its employees more, but without offering much of a justification beyond "because they can," which isn't terribly convincing, and its worth noting that they say this about every company, seemingly, not just category killers like Amazon or Costco or whomever. I think the more common position, though, is that Amazon and Bezos ought to be taxed heavily, and the added revenue used to pay for spending that benefits either the public at large or specific interest groups, and this seems far less justifiable to me.
I think I wouldn't make a case either way about whether Bezos or employees or customers or the public deserve the money most (though I'd argue you're underestimating the contribution of the public/the government, because stable rule of law, property rights, and infrastructure are important to any business). The point is that the concept of "deserve" evaporates when you look at it closely so doesn't deserve any moral weight. The relevant question is how to balance the incentives/diminishing marginal utility tradeoff.
Yeah, I largely agree; I guess my point, not well stated the first time was that if desert does evaporate for an individual or set of individuals, a lot of people seem to assume that the money or property in question is then fair game for public use, but that doesn't follow.
I would also just make the point that while stable rule of law, property rights, and infrastructure are indeed great and necessary, I don't see that the provision of these services entails any sort of open-ended financial commitment to the government on the part of Amazon anymore than it does me. Amazon uses public roads, so do I, and the roads are maintained largely via gas taxes, which presumably we both pay in proportion to the amount we use the roads. If more maintenance costs are incurred, just raise the gas tax accordingly, no? I don't think one can argue that just because Jeff Bezos used publicly financed roads to generate a large portion of his wealth, that now requires him to, I dunno, fund Medicaid and SNAP or student loan debt relief. Ditto for the rule of law and property rights.
Until Amazon does manage to replace every single flesh and blood employee with robots, AI or any combination thereof, the employees *do* contribute to the success of the business. The customers *do* contribute by continuing to patronise it, if we all decided tomorrow that we'd shop local etc. instead, Amazon would be worth zilch and Bezos - well, he probably has enough investments, property, etc. socked away that he would still be very rich, but he wouldn't be multi-billions rich.
So if Bezos 'deserves' his current wealth due to the success of Amazon, would he 'deserve' to lose it all if people switched loyalties to another brand?
The thing is, billionaires (Bezos) don't really have $200B. If they get to keep $200B, they will be taxed 33% or whatever the tax rate is. They got paid at going rate of capable CEOs and that is the cash they have in their bank accounts. In a way system already works, just that if you have money to spare, you can hire smart people to find the loopholes for you.
I should add here that personally I think any govt should incentivize people to create more value. Most govts are poor capital allocators and inefficient. They are good at policy and creating specific ecosystems. That way, people are better off if a bunch of entrepreneurs are competing to create more value for everyone. A social construct around it is how everyone measures their worth by comparing to the next guy, and that is probably a bad starting point.
The thing that this misses is the thrill of the hunt, which has it's own reward. Humans do things they enjoy because they are challenging. Being financially rewarded is helpful, and enough is important. But how much is enough? It is not billions. When I was a kid, we criticized Brazil for the discrepancy between the owners and the workers in terms of compensation. Here in the USA the managerial class is compensated by a factor of 300X the rank and file worker (don't quote me on this, maybe it's just CEO's) which is absurd. No human is "worth" 300 times another human, regardless of their skills or intellect. We need to reform our culture to place engagement and interest in the activity more centrally than financial reward, and we need to uncouple wealth from virtue. The wealthy have replaced the monarchs, especially since their wealth is deemed to reflect their intelligence and virtue rather than their luck and ability to extract value from the rest of us.
Okay, then let's make it a proper hunt. Governments don't get to seize his wealth and Bezos gets to keep every cent of the putative $200 billion or whatever Amazon is valued at today.
But right from the start, all entrepreneurs and innovators and value-creators are working under the conditions back in the day. You take on all the risk, and if it works out you get very, very rich, and if it doesn't, you lose your shirt.
No tax breaks. No loans at favourable rates. No incentives to come set up in our state and we cut you a deal. No bail-outs for being 'too big to fail'. NO LOBBYING OR LOBBYISTS.
Jeff (or Elon, or Richard, or Tom, Dick and Harry) want to set up their own business, let them go right ahead. But they don't get handouts (unless from friends/family who want to invest in the start-up) or leg-ups or special considerations, even if they do make it to be mega-big. They get taxed like you and I and the rest of the working joes do, they want to squirrel money away in Swiss bank accounts or Caribbean tax havens, sure go ahead, they can play spy vs spy with the government on that as always.
If Jeff wants a mega-mega-yacht, he can earn and keep the money to pay for it. But he can't shop around for "so who is gonna offer me the biggest bribe to set up in their city?" for his second headquarters, he has to abide by tax and labour laws and all the rest of it.
If you don't want government sticking its fingers in your business pie, fine. But you don't get any favours from government either. Just be treated like every other citizen living and working in the country. And then I'm happy for you and your hundreds of billions. There's that (in)famous quote from Warren Buffett about 'my secretary pays more tax than I do'. Let Warren have his riches - and let Warren pay much more tax than his secretary on them. 'Oh I only get paid a peppercorn salary, that's what I pay tax on' and the bulk of the income comes from dividends etc. managed so he pays little to no tax but has the benefit of hte money? Then if he gets the benefit, he also gets the liability.
Set things up that way, and I think there would be far fewer people talking about "deserving" and calls for seizure and redistribution.
This article seems to assume the reward is always for being "first" to the scene. While this is certainly part of it, it's missing a large piece of the picture. Why is Zoom the dominant meeting platform throughout the pandemic rather than Skype?
As an attempt to think logically about these issues, I think this is a nice piece, but in the end my instinct is to reject the premise. I strongly suspect none of us would be happy living in a world where "who deserves to have how much money and why" would be put to a democratic vote. Two wolves and a sheep deciding on what to have for lunch....
Are you really comparing two random people to wolves and a sheep to a billionare?
How else other than the peacefully resolution of conflict (aka the political ordering of society) are these decisions made.
I suppose a philospher king or Solomon might be better than the "democratic" political order, but it could be a lot worse.
You made something so it's yours. Ok well your parents made you so everything you made is theirs? Or, the land upon which you stood to make something and the natural resourses of the earth required for the making of the thing were not made by you, so where is your claim then?
"Democracy is two wolves and a sheep voting on what to have for lunch" is a quote attributed to Benjamin Franklin, and yes, I would say it applies in such a case. There are a lot more average people than rich people, and in a democracy, votes are what ultimately matters, much more than money.
To answer your question, I don't see this as a conflict to be resolved. Jeff Bezos has a lot of stuff. I do not have as much stuff. There is no conflict here, though, unless one of us decides that we should have some of the others' stuff. I would advise people to strongly avoid that type of conflict in the first place, though, by simply not trying to take other people's stuff. There are a lot of historical examples where that's gone very very wrong, just in the last century or so. I'm sure there are even more examples if you go back further, like the French Revolution or the Tai Ping Rebellion.
If everybody globally had enough "stuff" and there was no rent seeking behavior we might be in a different place. But there is still abject poverty - less than before but it still exists.
Unless you are an anarchist, government has legitimate authority to tax for the common good. So how do we that? That is a political question decided thru democratic republican primarily general with majoritarianism, unless you're China in which case the party decides. ( Or in some places by a dictator or oligarchy)
The political question can be guided by principles. What are those principles?
Now take that formula a look at the history of the size of Amazon and the amount of declared earnings and fresh investment. No relation whatsoever for the early years. Mr. Bezos had the equivalent of an unlimited IRA.
Not only do retained earnings magically turn into expenses for tax purposes for growth companies, securities laws make starting a competitor using funds from middle class investors very expensive.
Once over the hump of getting part of your business to be profitable, a creative entrepreneur gets extra cheap capital to play with up to the point where diseconomies of scale finally kick in. Jeff Branson did the same starting with a record club. Once he had the income stream he could say "Screw it; let's do it," to some smart people and just make things happen.
Quick search in the comment section turned up three uses of the word "privatize" and no uses of the word "commons". The problem with Bezos isn't that he's getting too much credit for a good idea first, it's that the entire space that he occupies is a form of theft of something public, as was Microsoft, Google, Facebook, and all the big recent billionaire-creating enterprises. The other problem is that even to the extent that what he is creating is not just privatizing the commons because he was the first one there with fencing materials, it's that Amazon itself creates actual harm, like a form of pollution. Are there good things about Amazon that aren't just the commons sold back to us? Maybe. But there are for damn sure things about it that are worse -- more addicting, more trivializing, more materialistic, more self-centered -- than any form of commerce previously devised. The same is at least as true for Google and the rest.
Focusing on the billionaire at the top is popular among those who need human faces to have grievances about, but the systemic problem is vast and mostly underground. This is why it wouldn't really help to bring out a guillotine (though it might not hurt either -- more testing is needed to answer this).
Yes, I can. But first I would ask if your question is in good faith, or if you're doing the "Can you point to something obvious and concrete to demonstrate a subtle and complex point? Oh you can't? Guess you're wrong!" or "I'm not interested enough in what you've mentioned to look it up on my own but I want you to do a big homework assignment on this topic that I probably won't read".
I'm not assuming you're asking in bad faith, mind you -- just checking.
I'd say I'm genuinely curious/good faith, but also quite skeptical? To me, Amazon seems like such a clear example of a company that does something that has been private for a very long time (selling stuff!) in a different way (on the internet!) - i just don't see where the commons come into it at all. But I'm open to learning more or hearing a different perspective, whether or not I'll end up agreeing with you.
Fair enough. I find it a fascinating direction of thinking, starting with the insight that there are many forms of commons, some of them quite subtle. We can ignore the grosser kinds: how Amazon relies heavily on public or formerly public infrastructure (roads, the post office) at a deep discount in a way analogous to Walmart helping its underpaid workers sign up for Medicaid, or the (demonstrated) way it will steal a design from a sub-retailer, have some company in China make knock-offs that it sells as "Amazon Basics", and then ban the original retailer. Let's further ignore the way Amazon simply does a better job of tragically exploiting the global commons both ecological and human -- these are deeply troubling but only a bigger, harder version of what it replaces.
Rather, think about commerce as a cultural commons, an idea-space in which it is possible for humans to interact (originally, I give you this gourd and you give me that digging stick, or later I give you this arrow-head and you give me that fish hook). Amazon is slowly acquiring this space itself, the whole process. In the same way that we all increasingly check Instagram or whatever to see how our families are doing, we check Amazon to see if a product exists -- and to buy it without reflection if it does. If a cousin is not on IG, he slowly disappears from cognitive view; if a product is not on Amazon, it slowly disappears in the same way. Don't believe me? Try experiencing how painful it is to buy something you've been buying for years on Amazon somewhere else.
More subtly, there are common social goods that are disappearing faster than old-growth forests, things like ability to delay gratification, to budget, to fix or reuse things, to make do without. Many of these can be lumped together under what salesmen used to call "sales resistance". Community networks of a sort that can be called "knowing people who know how to get stuff" are also casualties. The list can go on -- all that's necessary is to ask "what is it that this billionaire supposedly adds in value and where is it coming from, how is it making us all poorer?"
Tbh, Scott, you brought this on yourself with the book reviews of Lacanian theory, starting with Sadly, Porn. In grappling with Lacan I've now read three books and a variety of essays by Slavoj Zizek, where we find statements such as:
"[...] which designate three domains of what Hardt and Negri call 'commons,' the shared substance of our social being whose privatization is a violent act which should also be resisted with violent means, if necessary: the commons of culture, the immediately socialized forms of 'cognitive' capital, primarily language, our means of communication and education (if Bill Gates were to be allowed monopoly, we would have reached the absurd situation in which a private individual would have literally owned the software texture [of] our basic network of communication)"
In order to figure out where Zizek is more Hegelian than Lacanian apparently I have to read Hegel, and frankly I'm getting too old for this shit.
Patents expire; but the Bell Telephone Company remained dominant until broken up by governmental action because it had created so much infrastructure. In theory a true competitor to Amazon could arise, but Amazon has too many advantages because it dominates its market niche. It's similar to how mammals were unable to replace the dinosaurs for a period of 150 million years until the dinosaurs became extinct, for reasons mostly unrelated to the existence of mammals. To truly create real competition to Amazon would require anti-trust action or some new disruption in the retail sector, and the company that pioneers the new disruptive technique might become the new monopolist.
Bezos’ billions are invested in Amazon. Do you think if they were transferred to US Fed Gov they would be better used? Does the marginal 200b of federal spending yield more social benefit than Amazon?
I think the question of whether billionaires 'deserve' all of their billions is largely irrelevant and a distraction. If you 'prove' that they don't deserve it, then does it follow that it should be taken away and redistributed? The important question is what effects doing so would have on the creation of value going forward, not whether it is deserved or undeserved. Much of the 'wealth' the billionaires have is in the form of company shares. Who would these shares go to next? Would the government take over? Would the company fall apart and cease to create value if the shares were more finely distributed? I don't know these answers, but my instinct is that this is where the analysis and discussion needs to be.
I think this is fair, pointing towards the weakness of a "wealth tax" approach. But one reason we have such concentrations of wealth is that we have low income tax rates, many exploitable loopholes, and proliferating large-scale rent-seeking opportunities enabled by the growth and sophistication of finance capitalism. These features, which largely postdate 1980, permit flows of wealth towards individuals on a scale that did not exist for the previous half century.
If you were to ask what the ultra-wealthy "deserved" when I was young (the Eisenhauer years; top bracket income tax rate of 91%), the answer would have been framed within a paradigm that simply did not allow for, in current dollars, ten-billionaires. That possibility had been legislated away in the post-Mellon era, and the idea of a Bezos or Musk then would have been comparable to asking now: "How much of their income/wealth do multi-trillionaires deserve to retain?" The expansion of concentrated wealth and wealth-determined power is accelerating on that scale, and that's the future-oriented question I think we should be asking in order to throw light on the present.
If "deserve" is an ethical question, the answer has to be framed in terms of complex ethical judgments about specific means each billionaire uses to gain wealth. If it's a legal question it has to be framed in terms of current laws or the social purposes that we think should govern legal reform. If it's a social and political question, however, it has to be considered largely in consequentialist terms, within a consensus framework of value. I think it is a consensus framework of value in the US that ordinary people should have a significantly wide range of leverage over decisions that fundamentally affect their lives. When you're on a path towards wealth concentrations that point towards financial oligarchy, I think the answer is that no one "deserves" to gain, through economic activity, determinative power over the lives of ordinary people without their active political assent.
But Jeff Bezos wealth is almost all stock in Amazon (and same for Musk, and Buffet and, maybe to a lesser degree since he's diversified some, Gates in their respective companies). It has almost nothing to do with the tax code, income bracket rates, loopholes etc. other than the fact that we don't tax wealth in and of itself (and we didn't in the 1950's either). You could tax their consumption higher, but their wealth wouldn't be significantly changed.
You're absolutely correct, tg56, and I think Laura pointed out some of the problems connected to a wealth tax, which I think would be a poor approach. But I'm not addressing whether we should take away billionaires' wealth, I was talking about the governmental and legal principles under which individual wealth is accruable on this scale. If we feel the scale is socially and politically dysfunctional, undermining the ultimate value of positive features of gross economic growth that capitalism is designed
to generate, then the system should be modified to curtail the trajectory of increasing wealth concentration.
The class of super-rich we have now (which, because of a combination of the Depression and subsequent tax policies had ceased to exist here in the '50s) is a sunk cost. We changed our approach to income (and estate) tax and regulation, and didn't reexamine it as new technologies and financial methods appeared. If we simply ask highly simplified and abstract questions like Scott's in this post, our thought experiments are unlikely either to capture the complexity (both practical and ethical) of how super-wealth is currently generated, or to lead us to decisions that could construct an off-ramp before we run into a geometrically escalating top wealth bracket.
I think a socially holistic view suggests the need for serious reform in the age of financialized capitlism. Earlier comments from posters like Erusian seem to think that this means veering to Marxism or socialism, but optimal policy design is very unlikely ever to conform to one-dimensional ideologies. Decade after decade, I've listened to people use the bete noirs of "socialism" and "communism" to mischaracterize any adjustment of regulated capitalism that swings the balance back towards the 1933-1980 consensus. We have now a hybrid of capitalism and socialism, with huge admixtures of ad hoc pragmatism baked into commercial codes. We made a very large shift toward the capitalist end of the spectrum after 1980. I think we were much closer to having it right in the earlier era, which was generally dynamic in term of innovation and growth, while significantly reducing income inequality and the off-scale concentrations of wealth that characterized the era from 1868-1932.
Just to add a thought to my own longwinded post here: One aspect that relates to the form in which super-billionaires hold their wealth concerns tax policy governing its conversion to consumable form (capital gains and estate tax). A progressive capital gains tax and a return towards the 55% taxable rate on sizable estates (including taxing estate holdings of securities) might be a start.
"... the governmental and legal principles under which individual wealth is accruable on this scale."
You mean... freedom?
Individual wealth at the highest scale is most commonly formed by: founding a company, the company grows and becomes very valuable, and so your share of ownership in the company is very valuable. I don't see what particular "system" allowed for this other than "the system that allows people to start companies, and freely transact shares of those companies." The only system that would disallow that is a system without private property rights at all.
"If we feel the scale is socially and politically dysfunctional, undermining the ultimate value of positive features of gross economic growth that capitalism is designed to generate, then the system should be modified to curtail the trajectory of increasing wealth concentration."
Capitalism was not "designed" any more than freedom was designed. Capitalism is literally just a word that describes what naturally happens when you don't have a government that uses violent force to prevent people from voluntarily transacting.
No, I don't think I mean "freedom," Ludex. There is a full spectrum of legal options between absolutist views of private property and systems that do not allow for it.
I disagree with you about "capitalism" as well. I think you are speaking of natural features of markets. Capitalism is a doctrine (hence "-ism") about how such features can and should be exploited by states, and it takes many forms. Anti-capitalist ideologies don't deny the market features you're pointing to; they deny that state licensing of the free opertion of those features leads to the social values they advocate. Note that capitalist governments use force, sometimes violent, to prevent many kinds of voluntary "transacting," most obviously in areas of drugs, military arms, sex, medical services, tax collection, etc. No form of applied capitalism has ever lacked regulation. This thread's discussion concerns optimal standards for regulation, based on social values extrinsic to market dynamics, but granting the positive potential of those dynamics.
> Decade after decade, I've listened to people use the bete noirs of "socialism" and "communism" to mischaracterize any adjustment of regulated capitalism that swings the balance back towards the 1933-1980 consensus.
Here's my issue with this comment. The 1933-1980 consensus was free market, anti-socialist, highly confrontational with Communism, pro-entrepreneurship, pro-military, and pro-big business. It did not involve a wealth tax or corporate nationalizations and was fairly anti-welfare and huge into military spending. Yet I doubt that's the consensus you want to return to. Very often this argument is made not by people who want to return to the Washington Consensus/Great Society but by people who want to move far to its left.
And let's not romanticize the past. The economy of that period was not only less diverse and poorer but also involved immense pressure on workers to be loyal to their company. It was also dominated by big business and still had the very wealthy running around including billionaires. They used to literally sing hymns to the CEO. It was the era of the Company Man and if you want to see what that was like look at East Asian salaryman culture.
I'm quite sympathetic to reforms meant to help the average person. I'm generally for universal healthcare, for example, though I prefer something like the Dutch, Swiss, or Singaporean system to the British or German one. But very often the far left policies that end up following such complaints are neither from the period you're talking about or common in Europe.
Erusan, I agree with some elements of your comment, but not with others. The 1933-80 consensus was far less free market than the 1868-1932 consensus and far more socialist (think of the TVA and Social Security), and the same is true for its contrast to the post-1980 consensus. It was confrontational with Communism after 1946 as a function of the USSR, but not before. It tended to be pro-big business, but certainly less so than after 1980. I'm not idealizing the era (although I'm nostalgic for it, like most feebleminded seniors); I'm speaking of its tax and regulatory policies relative to those we have come to take for granted now.
You are comparing the 1933-80 consensus to contemporary progressive politics, represented by political figures like Bernie Sanders and Elizabeth Warren. As I specified, I'm not in favor of a wealth tax, and you don't have to be a progressive to feel that the regulatory and tax approaches of the New Deal/Postwar period are better models for society than those we follow now--you can be a vanilla liberal, which is the way I think of myself. (Luckily, I really like vanilla.)
As for the "company man" and "salaryman" cultures (the latter really only applies to Japan; other E.A. regions only came to emulate it paertially after the 1970s), you write as though they were coerced. Loyalty to companies was induced through stable employment, promotion, and benefit regimes that could be cohesive or toxic depending on individual corporations, and that were compatible with strong labor unions complementing those white collar cultures. (The other term used in connection with "salaryman culture" in Japanese studies is "lifetime employment culture.")
So far as I know, there were no US billionaires in the '50s, which is why William Richards' 1948 biography of Henry Ford was titled, "The Last Billionaire." Of course, a billion then would have been about 25 billion now, so it might be best to say there were no 25-billionaires in the '50s, while now we not only have a raft of those back, as we did in the Gilded Age and after, but we have 100-billionaires.
> You are comparing the 1933-80 consensus to contemporary progressive politics, represented by political figures like Bernie Sanders and Elizabeth Warren.
Indeed. I was explicit about that. If you want to fill in your specific program I can tell you what I agree with, disagree with, or am ambiguous toward.
> It was confrontational with Communism after 1946 as a function of the USSR, but not before.
Incorrect. There was significant persecution of Communists in the 1930s. FDR explicitly defended capitalism as such and the "American economic system" which he contrasted with the USSR and Fascism.
> It tended to be pro-big business, but certainly less so than after 1980.
No, it was more pro-big business than afterward. The New Deal ideal was big business in partnership with government. What happened after the 1980s was the replacement of a regime of direct cooperation with one of more regulation but independence. Which in turn allowed significant disruptions and anti-monopoly cases. You can see echoes of this in how Yglesias argues big business is good because the government can force unfunded mandates and regulations onto them and they just absorb them. That was the Washington Consensus ideal.
> I'm speaking of its tax and regulatory policies relative to those we have come to take for granted now.
Which ones specifically?
> As for the "company man" and "salaryman" cultures (the latter really only applies to Japan; other E.A. regions only came to emulate it paertially after the 1970s), you write as though they were coerced. Loyalty to companies was induced through stable employment, promotion, and benefit regimes that could be cohesive or toxic depending on individual corporations, and that were compatible with strong labor unions complementing those white collar cultures. (The other term used in connection with "salaryman culture" in Japanese studies is "lifetime employment culture.")
They were to some extent. The ability to exit was greatly curtailed by a system of recommendations and where leaving was socially suspicious. Very often quitting the career ladder meant quitting it for good. (Of course, there were also things like a more robust SBA to help people found shops or whatever.) Likewise white collar workers were mostly not unionized. Of course, it's not nearly as bad as many other systems I definitively want to avoid. I at least see the arguments for it.
> So far as I know, there were no US billionaires in the '50s, which is why William Richards' 1948 biography of Henry Ford was titled, "The Last Billionaire."
This is incorrect. There were a smaller number of billionaires and hundreds of spending power equivalents. And a greater proportion of them had inherited their wealth vs today.
Two things. Winner-take-all games for high payouts are an inexpensive way incentivize large groups of people to compete intensely to achieve something socially desirable. The Giants’ starting wide receiver gets a mansion on a hill, social recognition and groupies. But you can amortize this over the 10,000 other guys who worked very hard for years, may have been a quarter step behind and you had to pay nothing.
Second, Amazon’s value is mostly prospective. They’ve just started producing cash flow although not much relative to their >1 trillion market cap. For decades, Amazon mostly just chewed up investor capital to fund operations and growth. How can you say Amazon’s profits have come at the expense of employees or consumers when it has had mostly no profits? I guess you could say Sequoia or Blackrock have been exploited, except that Amazon’s forward looking valuation has made them tens of billions. Maybe it’s future consumers we’re trying to protect—Amazon flexing its monopoly muscles in 2035?
I've heard arguments like this and I have a few issues with them:
I think what's often hard for people to grasp is that Amazon is very likely better than the other company that would have come into existence 2 years later. I like Facebook as an example, MySpace was a huge "unstoppable" social network the day Facebook launched, but the "better" product won out even overcoming the network effects. We should expect that a company that is producing significantly more utility than amazon would push Amazon out of the online retail market (Peter Thiel thinks you need to be 10x better to do this). By analogy, Bezos deserves the profits, not just from the first two years of Amazon, but from the difference between Amazon's quality and the next best competitor (eg eBay), but also the losses for a company that's only marginally better. I think this calculus usually comes out in favor of the existing company, since the distribution is mostly on the "worse" side.
SpaceX is an especially interesting case because there were a bunch of companies getting into private spaceflight around the early '00s, and none of them have gotten close to the level of cheap and abundant launches that SpaceX has. If SpaceX hadn't been founded people would still be making the claims about "space being intrinsically too expensive for the private sector" that used to be everywhere 20 years ago and have basically vanished since. It may not be 2 years but a generation or more before someone accomplishes the same thing.
I think there's also the question of how much of the utility Amazon generates goes to Bezos. There may be some sort of fairness issue if he's getting 25% of the lifetime Amazon Total Surplus, but if he's getting 1-3% the argument is much weaker.
And finally most of the work Bezos is being paid for is work that no one knew would succeed. If a rational analysis of his efforts to make Amazon gave it a 20% chance of success, then 1996 Jeff Bezos is getting an EV of 1/5th of the money he's currently getting, which makes the number a bit more reasonable.
Charles Stross has another take on billionaires. IMO, his most interesting point, is that after a point the marginal utility of being a billionaire has an upper limit.
Yeah, reading the first sentence "The typical neoliberal defense of self-made billionaires goes..." made me think of this post: https://slatestarcodex.com/2014/11/04/ethnic-tension-and-meaningless-arguments/ (see section II)
I don't see why anyone should need to put forth a "defense" of billionaires. It's like asking if you are "pro-Israel" or "pro-Palestine", labels that are akin to waving little flags but have little to no semantic content.
We didn't appear on this earth with all property equally divided among individuals and peace and love in our hearts. Many billionaires' wealth is rooted in war and conquest, legal oppression of genders, ethnicities, or other arbitrary classifications of humans, and other forms of non-consensual or fraudulent transactions.
On one side of this, we say "Oops! Clean slate! From NOW onward, we will use a non-collectivist libertarian ideology. But everyone can keep all the shit they stole beforehand." This is notably unpopular among those who were stolen from.
On the other side, we can say "Alright, we're coming in with Tanks to take all private property. The People's Dictatorship will equally divide everything among all people." This is notably unpopular among those who did the stealing (or who merely bought or inherited stolen property), and also, there's never been a successful People's Dictatorship that actually followed through instead of being just a normal Dictatorship.
"Tax rich people and give money to people or to fund social services" is the middle way through.
All wealth is derived through illegitimate means. From whom and to whom do we redistribute wealth stolen during the religious warfare of medieval Europe? From whom and to whom do we redistribute wealth stolen during European colonization? From whom and to whom do we redistribute wealth stolen during the Second World War?
The whole of history is a wash of blood and theft, on the grandest to the smallest scales. To require proof that wealth was built on theft is simply to advantage those who stole so comprehensively or long enough ago that their crimes are invisible or their victims’ blood diluted across nations.
You don’t have to accept tanks, or even taxes, but do so with the following fact clear in your mind, noticing the trade off you’re making and accepting it as worth it, instead of pretending it doesn’t exist: a libertarian fantasy is a jubilee for the war crimes of the inheritees of the wealthy.
If someone stole all of my money, and spent it on a luxurious life, and finally died penniless having spent all of it, I would not be satisfied with a system that said “well, all the money is in the hands of people who didn’t steal from you, they were just making voluntary transactions, you’ve done nothing wrong but we have no mechanism to give you anything.”
I don’t think that the chefs who cooked the thief’s food are morally blameworthy. I don’t think the landlords of the mansions where the thief lived are morally blameworthy. I don’t think the driver of the limousine the thief rode in is morally blameworthy. But it was my goddamn money, and I want it back.
I have a feeling that if we took the route of "Let's come in with tanks to take all private property, redistribute it equally among the people, but THEN it's a clean slate and we have free-market capitalism" would result in a very similar wealth distribution to the one we have now within a few years, and a lot of people would be just as unhappy with it as they are the current system. Their problem is not with the starting conditions, it's with the rules of the game themselves (i.e. economic freedom).
I don’t dispute that, but I attribute it more to the fact that wealth and poverty compound in a way that I find distasteful. A rich person will *always* be better equipped to hide from the consequences of crimes, and therefore crimes which produce increased wealth compound on themselves, resulting in a endless flow of money to those who would unethically use that money to maintain their wealth, which is why a one-time redistribution would only work to solve this problem if people really could be Lawful Good Libertarians.
The other reason I believe in constant redistribution via taxes is not an argument I included in the above post, because I don’t think it’s as compelling to a libertarian audience, is that—well, I feel bad about condemning people to suffer for the rest of their life for bad decisions early on in it. If someone orphaned at the age of 18 puts their entire inheritance in the lottery and loses, I would consider it a failure of society to let them die of a curable disease at the age of 30 because of a bad choice made 12 years past, even if it was fully consensual and non-fraudulent. And as someone who is part of the 1%, I’m happy to sacrifice some of my wealth to systems that would protect people in those situations.
There's no way to even have a meaningful discussion *unless* the option to take someone's property by force is on the table. So a sine qua non of the discussion is a belief that that property (or some big part of it) is in fact by some clever philosophical judo actually the property of the collective, i.e. you must accept major tenets of a collectivist worldview.
How you get there --- well, there are a million ways, history is stuffed full of erudite rationalizations of this point of view.
*Why* you get there, well, I nominate the familiar green-eyed monster of envy and jealousy. As old as cavemen, I expect. 50,000 years ago I've no doubt if one Cro-Magnon by luck or cleverness acquired 50 sweet melons while the rest of the tribe had one apiece, then many (perhaps most) of the tribe rationalized why Mr. Fifty was actually, when you think about it correctly, only entitled to an equal share of the melons that were actually, when you think about it correctly, the property of the whole tribe.
Technology changes, people don't. We can construct much more elaborate rationalizations for our base urges, but the base urges haven't changed a particle. So it goes.
Seems like a wise choice. Also, thank you -- now I don't have to pay the criminally violent mobs overtime. Win-win!
I mean, atoms don’t have “owned by Carl” tags on them. Property itself is some clever philosophical Judo.
You could say the same thing about any human right.
"Bodily autonomy is some clever philosophical Judo. Bodily autonomy rights only exist because the government enforces them - there's no fundamental right not to be raped."
Uh, yes? Even if you’re a moral realist, it’s not like there’s a pile of human rights in my backyard and I can go and pick up the ones labeled “property” and “bodily autonomy”.
You have to actually argue for how and why they exist! Otherwise I can just win any argument by saying “X is a human right”.
Yes, of course, human rights are not physical objects.
"You have to actually argue for how and why they exist! Otherwise I can just win any argument by saying 'X is a human right'."
Right, and what Carl Pham pointed out is that a question like "How should 'We' distribute the stuff?" presupposes something to the effect of "We, The Collective, have an inherent right to all the stuff, so it is up to The Collective to determine how we want to distribute that stuff and to what degree we want to let individuals keep 'their own' stuff."
Instead of trying to bake an assumption of collectivism or property rights into the framing of the discussion, we should leave both options on the table and debate their merits.
Weird. I think I see where our miscommunication stems from:
I don’t understand why “How should ‘We’ distribute the stuff” sneaks in a connotation of collectivism but “ ‘We’ should leave both options [for distributing the stuff] on the table and debate their merits” doesn’t.
I don't think so. First of all, there *are* quite a lot of atoms that are clearly owned by me, because they are literally what constitutes me, and this is where our idea of owning our own bodies comes from. It's an intellectual step we take at approximately age 2, when our brain learns to segment ourselves from everything else, and starts to become resentful at impositions on our ability to control our body for ourselves.
Property -- in terms of things in our actual grasp at the time -- follows soon after. There does not live a 4-year-old who does not resent his lolly being taken by force.
To be sure, there are elaborate extension of these core natural concepts -- we have to invent the idea of being able to "own" something when it is not in your immediate control, and we need a whole appartus of deeds and ownership certificates and what not. We need a cadre of philosophers to rationalize these base drives post-facto, and another larger cadre of lawyers to hammer out agreements that function in all the weird edge cases.
But this is all just superstructure, as fundamentally inessential as the rules of marriage in a species wired to be sexually jealous. The core of these ideas, of bodily autonomy and property, are apparently baked into our DNA and arise in us naturally at an exceedingly young age. It's probably why attempts to undo them -- to impose some kind of alternate formulation of social living -- have been uniform and often spectacular failures.
If you mean to say that some other species, on some other planet, could have different DNA and come up with different basic working concepts of community life, then sure. If you're asserting that *human beings* could live differently by mere conscious choice -- no way. We are who we are, and these ideas are inextricably part of who we are. That's as close to "natural law" as one can imagine.
Wrong. AWS was mostly Bezos. Even the engineers/PMs who pitched it to him pitched it as an internal product. He was the one who pushed it to become its own entity and public facing. There are numerous documented accounts of this. He also had a lot of internal hurdles to overcome and had to create a culture change at his own company that took a lot of effort to make it happen. The Steve Yegge Google platforms rant references this (https://gist.github.com/chitchcock/1281611).
Dude, you can wander the Internet and get 10,000 ideas, all purportedly amazing.
Having ideas is easy. Telling good ideas from bad is hard.
I think you're missing something here. Sure, if every worker refused to work for Amazon, Amazon would go out of business. And if every entrepreneur went on strike, we'd all be vastly poorer.
None of that is relevant here. The question is, what is irreplaceable? What is unique? Workers are replaceable. Is Bezos? Would Amazon have been started two days later if he hadn't? If so, the value he contributed was very little. Would it have been started two years later? Then he contributed significant value. Would it never have existed in the form we know it, meaning many goods would now be more expensive? Would AWS not yet have existed except as an internal product? Then he has earned every penny of his wealth.
If every power plant decided to stop producing electricity tomorrow, a lot of businesses would be in trouble. I don't think that we should conclude from this that power plants create most of the value in society.
> If every Amazon worker on Earth agreed to walk out tomorrow and never work for Amazon again, the shares would plummet and his wealth would disintegrate overnight. This suggests to me that a good share of his wealth is not dividends on the idea of Amazon but directly tied to the ongoing labor of his workers
But you've based that on a silly hypothetical; the whole world isn't going to refuse to work at Amazon, and any employee who leaves can be more-or-less fungibly replaced by another one.
Labour is just one of many, many raw products that Amazon buys. What about screws? Let's suppose that all the world's screw manufacturers got together and agreed that they would never sell another screw to Amazon. Amazon couldn't screw servers into racks, they couldn't hold their warehouse robots together, they couldn't fix their delivery vehicles, and sure enough they'd be forced to go out of business for want of screws.
Does it follow from this that the world's screw manufacturers ought to get a greater share of Amazon's worth? I think it doesn't. Screw manufacturers get paid whatever the market price for screws is, and they should be happy with that.
I call this the chain link fallacy.
Imagine you have a chain holding up a heavy object. Every link in the chain is necessary to hold up the object, and if you removed any link in the chain, the object would fall. But it does not follow that every link in the chain is equally valuable. Some of those chain links may be be stronger than others, or harder to build, or more expensive, etc.
The fallacy is essentially the idea that "the value of X = how bad it would be if X did not exist", i.e. "the value of X is the demand for X". The problem with this is that it clearly ignores half of the equation for value - supply. The value of something is a result of both the supply and demand for something.
It's trivially true that if an entire profession or class of people stopped doing their job, things would get bad, since jobs are done because people have some need for them. If we removed receptionists at hospitals, that would mean doctors wouldn't know who to prioritize or know the medical history of their patients, and a lot more people could die. But does it then follow that the receptionist is just as important as the doctor? Taken to an extreme, let's say there's someone operating a dead man's switch - a job where all you do is press a button once every 10 minutes to prevent nukes from firing off and ending the world - and if you stop pressing the button, the nukes will automatically fire. If this person went on strike, the world would literally end - but does it follow that that person is particularly skilled, or non-fungible, or deserving of $400 trillion because without them all the wealth in the world would be destroyed? No, it's a very easy job that requires almost no skill, and there is a huge supply of people who could be button-pressers, so button-pressers as a class of people are not "just as important" as brain surgeons even if the world would end without them.
Nice. +1 to you.
Heinlein called this view "functionalism."
I'd say, "some combination of both". There are several built-in assumptions in your statement, and I disagree with all of them:
1). "Most relevant business/innovation ideas are so obvious as to not be worth mentioning" -- if that were true, we'd be awash in continuous innovation, but we're not. Sure, incremental improvements to existing technologies occur all the time, but genuinely transformative inventions are few and far between.
2). "Management is not work" -- but it is. Those 200 workers cannot all work together in a happy family, making every little decision unanimously or by popular vote or whatever. Maybe 5 people could work together that way, but not 200. They'd either be spending all their time on decision-making, or just doing things at random, and neither option gets you that $200B car. Management is a full-time position; and, as such, it can be performed poorly (and often is). However, good management can be the difference between a new type of car, and a pile of broken dreams.
3). "Investment should not be rewarded" -- then where will the money come from ? The whole point of investment is that you assume the risk, in exchange for a monetary reward. The expected value of this reward is proportional to the risk -- and the risk can be quite large, especially in cases of radically new technologies. Without the startup investment, all those clever and hard-working people would likely have an empty warehouse and a torque wrench, not a car factory.
Okay, you keep wishing for a system you admit will produce worse results while the rest of us will keep enjoying modern standards of living.
The difference, obviously, is that a state can use violent force to coerce people to do things, but all a corporation can do is offer you a voluntary contract to work there or to buy goods and services from them.
What you want to do is use the violent force of the state to make it illegal for workers to voluntarily enter certain agreements, e.g. to work in exchange for a wage.
Most people consider Lochner a bad decision.
> So you think that democracy doesn't work, and that (at least in the workplace) autocracy is the only effective form of leadership?
But those are not the only two options ! In any large organization (one that survives for some time, anyway), you will see small groups of people managed by middle managers; who are in turn managed by higher-level managers, etc., in a hierarchical tree structure. Such managers might be chosen by vote, or by autocratic decree, or by word of God or whatever; but they will nonetheless exist -- because they reduce the communication overhead from O(N^2) to O(logN). This has nothing to do with morality or liberty; it's just math.
> Why not have workers elect their managers?
There are companies that do work that way, but they tend to be less successful overall. The ability to manage is a combination of talent and skill just like the ability to weld metal or write software; and so is the ability to choose the right man for the job.
> Maybe a democratic process, instead of the investments being decided by a small group of wealthy VCs?
The reason these VCs are wealthy is (primarily) that they have the skill and talent to select good investments among bad ones. This skill is not uniformly distributed throughout the population. Let me put it this way: let's say you have to go to the hospital for some life-saving surgery. Would you choose Hospital A, where surgeons are chosen based on performance, and only the best or the best are retained; or hospital B, where surgeons are chosen by popular vote ?
>Why not have workers elect their managers?
Because there's absolutely no reason to expect workers to be competent at doing so.
Also, its not an autocracy. A CEO is beholden to the board of directors, and the board are beholden to shareholders.
But even if you call this autocracy, it simply works. There's no evidence of democracy working.
It works in the10% of successful businesses and fails on the rest. Meanwhile, most democratic states are older than most corporations.
I am glad to.hear that no state can just collapse ,.or "fail to work". But then every democratic state must work.
"So you think that democracy doesn't work"
Democracy gets us all 535 members of Congress. How many members of Congress do you respect?
"Why not have workers elect their managers?"
How about democracy in the other direction; all the managers vote on which employees get hired and fired.
The process doesn't end up making the final decisions, the elected individuals do. What's the ratio of members of Congress you respect? 80%? Higher, lower? Personally, as someone who pays very little attention, I wouldn't go above 60%.
Democracy is described as the least bad system of government, but part of it is that government is necessarily a monopoly. Their job is to create and enforce public policies; it would be very hard to enforce laws if there were multiple sets of laws in a location, with citizens free to switch between the sets as they saw fit.
But businesses don't have to create and enforce public policies; the public has to come to them first. So there's no issue with having a whole bunch of them in the same place, trying every possible model. We don't need to employ the least bad option as a failsafe, we can try every option at once and see which ones people prefer, based on which ones succeed and which ones fail.
We sort of have that with the States system; there are 50 sets of State law, and people can move from State to State at will. It just requires uprooting every part of your life, which is too expensive for a lot of people.
The people with democratic control over a company are the financial stakeholders such as stock owners or partners, because the financial stakeholders the ones out if the company goes under (some companies can work with the workers as the financial stakeholders and democratic management, but only in ideal circumstances). There's a very good reason we give that democratic control to the investors rather than the workers, especially with high-risk start-ups.
Suppose you and your friends want to start a company. You're all workers, and you actually know better than the people that used to manage you. So you evenly pool your money and get the expensive factory, machines, stock of raw materials, and so forth... you do have a lot of money just sitting around, right? After all, the workers that built the factory, made the machines, and refined the raw materials need to get paid. Assuming you get this far, your problems are just beginning. What happens when somebody gets sick and can't work for an extended period of time. Do they still get a vote? What happens when someone retires... where does their payout for their initial contribution come from? What happens when you need to hire someone new... how much do they need to pay to contribute? What happens if your company fails (as most do)... do you all just starve in the streets?
To put this into comparison: Boeing has a net value of $140 billion in assets (based on a casual online search), and 140,000 employees. In other words, the company has a value of $1 million per employee. If the money for Boeing is to come from employees, which you so easily suggest, I would need to be able to pay a $1 million buy-in to start a job at Boeing, and I would be out $1 million if the company goes bankrupt while I am employed there.
Your perspective is interesting, but it doesn't answer @Civilis's question. If investors cannot expect a payout on their investment if things go well, then what is their incentive to contribute money to the creation and expansion of a company ? I understand that giving rich people power in exchange for money sounds distasteful; but where is the money going to come from ? Workers don't have it, since, in your scenario, they're barely making ends meet. Should we just give up on starting new companies, and expanding existing ones ?
And, of course, our public servants (and "servants") in such a scenario are especially out of luck, with either nothing to invest in or investments riding entirely out of their control.
Of course, there is a solution to this. Just switch 'worker control of the means of production' to 'public control of the means of production'! The ultimate in democracy! The public decides what should be invested in and controls the company! And this will never ever be manipulated by politicians (that is, the individuals most skilled at manipulating votes). Never. Especially once they realize that democracy only says that people get a vote; it doesn't say that they get a choice, at least in a "Democratic Republic".
Part of it is that a country requires a fair number of companies that produce necessities like fuel and power to keep functioning; if the workers running those think that they have a say in whether the lights stay on, they have another thing coming. Obviously those workers are enemies of the people. Kulaks, wreckers, and hoarders, the lot of them. This is how the ideals of 'worker ownership of the means of production' when implemented always end up as what we saw in the USSR and the People's Republic of China.
In your hypothetical, are the Tesla workers better at their work than the workers at the previous companies that the new company is $200 billion better than? EG are they better than Ford workers, GM workers, or the workers of some terrible car company that went bankrupt? If so, what would explain why all the good workers are at one company and all the bad workers are at another? How did they get to be $200 billion better than all other car company workers?
From the hypothetical it sounds like in his example the workers have created the better car on their own, but then were bought by someone with excess wealth. This is not a realistic scenario, as far as I'm aware the people assembling a product are rarely if ever responsible for innovation, but this does occur with people slightly higher up the ladder such as engineers or researchers. Sometimes the innovations that improve a company's comparative advantage are created not by leadership but in the design process, and I imagine much of the time those people do not share in wealth creation. This speaks to some existing flaw in the distribution of wealth.
If tesla started chronically losing money, are we going to start charging the workers money to work at the factory (or at least stop paying them)? If the only source of a companies value is through the labor performed, are the workers to blame when the company has negative value? You want to have your cake and eat it too. And tell me, are Tesla workers any better than Ford workers? No? Then the difference has to be the company, in which case it's strange to suggest Tesla workers should be paid any more than equally skilled auto workers at other companies.
>this random apartheid scion named Elon who came up with some pretty obvious ideas and had access to enough capital to buy the factory
Oh noes, not apartheid! Do you speak this way about Zulu people? You know, the ones who treated the actually native south africans much, much worse than anything that ever happened under apartheid? Or is that cool because their skin is dark brown?
Notice that countless people with much more capital than Musk never successfully implemented this "obvious" idea. And the idea you or any other "random" person could pull it off with access to the same capital is a sick joke.
What musk did that created vast amounts of value is not just making some EVs. He has almost single-handedly made EVs cool and desirable, which in turn has sparked untold billions of dollars in investment in EVs at many companies other than Tesla.
But the workers couldn't do their work without raw materials. So clearly, the answer should be that the benefit should accrue to the owners of the iron mines that create the ore that is turned into the steel to make the cars.
No, that's silly. Iron ore is a commodity, just like labour. Both raw materials and labour should be bought at whatever the market price is.
Whatever the contract they both voluntarily signed says.
I'm not sure "liquidity is finite and generally trading volume is a small proportion of the value of an entire company" is really that interesting. They can certainly access a significant number of billions with no issue, whether they do so via the open market or OTC with (or in Elon's case, I suppose often without) the proper disclosures, it just takes time.
And it's not like any billionaire needs all his money in cash all at once. Selling a $billion or two annually is enough to satisfy virtually any desire. And once your portfolio is diversified, you actually *could* convert the entire portfolio to cash with minimal losses, and with lower taxes than than Warren Buffet's secretary pays. The only reason billionaires don't do that is because it's worse than staying invested.
>Getting Bezos to where he is did not require that, and in fact, AWS was a spinoff that happened well after Bezos was the richest man in the world. My point stands.
Not even close to true, AWS was founded in 2006, in which Bezos was tied for the 147th richest person in the world with a net worth of 4.3 billion, while the richest was Bill Gates at 50 billion. (https://stats.areppim.com/listes/list_billionairesx06xwor.htm)
>In the case of Amazon, many and various, but some include the pricing model of Amazon Prime and using its market share to intentionally drive up prices for literally everyone selling what it sells, including Walmart.
How are either of those "loopholes"? The first is just a business model and the second doesn't even make any sense, increasing your prices makes you *less* competitive, it doesn't force your competitor to match.
Amazon Prime is only a year older than AWS. If you only care about how Bezos became a billionaire, you shouldn't care about Prime. If you care about how he became the richest man in the world, you should care about both.
Counterexample - Google's search engine as well as adsense (the innovation of which was in fact making ads less annoying). Twitch. YouTube.
Apple also does not seem to have a tollbooth, or even a monopoly on anything major.
As for your specific claim that manufacturing never makes billionaires: Morris Chang, founder of TSMC, currently has a net worth of approximately 2.8 billion.
There are many many more counter examples to your claim, but I feel that your statement was so strongly worded that even one would be enough.
Neither Apple or Google or any of the tech giants are monopolies in the sense that their existence prevents others from competing. The fact that all Apples products compete in highly competitive mobile / computer segments is self evident. Nobody buys an Apple phone because it's the only option - there are literally dozens of competitors. But Apple has been historically the best for many customers. You have a very inaccurate view of competition and what makes a monopoly.
Having high market share because your product is good does not make you a monopoly mate or a rent seeker.
Then your argument makes even less sense. You are talking about monopolies and antitrust yet can't actually explain how any of these companies are a monopoly? A person can't be a monopoly so if you can enlighten me, that would be great.
Why should I care about cheating?
I understand why I should care about monopoly. TSMC violating IP is breaking tollbooths.
If IP is an unethical monopoly, is it ethical to respect it?
Anyhow, you made a factual claim that billionaires are created via tollbooths. IP violation is a counterexample to that, regardless of the ethics.
Markets and competition do a great job in dynamically coordinating supply and demand especially of scarce resources. But like in every competition or game there need to be rules that are binding for every one. As soon as somebody tricks the rules or cheats, the market doesn't work as well as it could.
"It is categorically impossible to make a billion dollars without recognizing, or worse yet, creating, a bottleneck or tollbooth in an otherwise functional system and extracting rents from its operation. We call these tollbooths "monopolies," and their operation "exploitation" of people, economies, systems, and societies."
Couldn't be more wrong. The way to make a billion dollars is to create a lot of value for other people. The whole concept of antitrust is mostly a farce. The only real monopolies are government created- historically, anyway. All the non-government-created monopolies that were broken up were crushed because they were creating too much value for consumers by lowering prices and driving other companies out of business (i.e. standard oil). The theory made up after the fact that at some point they would raise prices has been proven false time and again. The original purpose of anti-trust was explicitly to protect other businesses against competition.
Fact free assertion much? Like your original post in fact. Others in the threads have pointed out several counter examples, and you're responding without engaging
How could he present examples where you're wrong, when all you're saying is he's categorically wrong? There's nothing to argue with when you don't engage and just tell people to read so-and-so.
I disagree. Others have provided specific counter examples that show you're incorrect. You're not engaging there either. And far from being a Gish gallop, the comment you're responding to is quite tightly focused on responding to your statement.
Major warning (50% of ban): Low content high temperature comment.
No single person can possibly create value worth a billion. If you would say a million I would think about it...
a monopoly is basically a situation there is no real competition. This can be caused by government willingly or not, but there are definitely many other reasons and situations too.
"The original purpose of anti-trust was explicitly to protect other businesses against competition" please give any prove for this, as most people see it differently.
"No single person can possibly create value worth a billion"
Why would you believe that? What about song writers who are super popular and bring joy to billions? Paul McCartney?
"please give any prove for this, as most people see it differently."
Not people who are actually familiar with the history. Like I said, it's not some kind of secret. They were quite open about the purpose being to stop the monopolies from driving smaller companies out of business.
Why could Paul McCartney reach and bring joy to millions? Definitely not on his own. This was only possible by a lot of technology work and resources the society provided. Also if he wouldn't have this reach, there would have been smaller stars in all counties. The key effect that so many people could enjoy music was technology because otherwise they had to attend a live concert everytime.
"Protecting business from competition" is not the same as "stop the monopolies from driving smaller companies out of business". In the latter case its more about protecting the public from the bad effects a monopoly has by ensuring competition on a equal playing field. "Driving companies out of business" usually means other means than fair comptition. So this was not caring about the single protected business that could still loos the market in to one of many competitors.
That's obviously true of everything, but without McCartney all that enjoyment would not exist so it was solely due to him. Music is non-rivalrous so if he didn't exist we wouldn't have that wonderful music and it would not have been replaced by other music.
As far as your last paragraph it's dead wrong. Unfair competition had nothing to do with it at all, just efficiency and lower prices.
We wouldn't have had 'that' wonderful music. But we would have enjoyed other wonderful music that also exists. The point of people have joy is more connected to the access to good music in general than to this particular artist.
Well, yes. efficiency and lower prices are ear exactly the main reasons why we want to have a fair competition and prevent a monopoly then and now. It was and is always about preventing big players form misuse of power, not about protecting some business from competition as your first suggested.
I think your point's on the right track, Mr. Rollins. I'd add to it by pointing out that Amazon is simply one form of exploiting (in a value-neutral sense) the Internet, the outcome of a series of inventions that each seem at least as substantial as anything Bezos contributed, and many of them were developed with tax-payer supported government funding.
It's neither surprising nor necessarily a negative feature that the Internet attracted rent seekers who monetized its potential. One of the Internet's obvious social benefits is its potential to stimulate transactions that produce economic growth: jobs, further investment, and also some concentrations of individual wealth. But if we're considering fairness as an ethical, rather than a political or legal category in the scale of individual wealth, it seems misguided to treat all the socially sunk costs that lie behind the opportunities presented to Bezos as vaporized to zero, although laws and regulatory regimes may allow rent seekers to operate as though they were.
This is just a version of Obama's garbled "You-Didn't-Build-That" semi-misstatement: the accrued basis of public and private infrastructure for all corporate activity forms a sedimentary continent on which individual market accomplishments rise and fall. Capitalist theory concerns the hidden hand that rewards the commonweal by incentivizing individual profit (whether in manufacturing or marketing), but when the social basis of corporate success becomes a hidden factor, the scale of individual profit can exceed anything benefiting the commonweal, and the ethical basis of capitalism becomes harder to defend. The comment of metaphysiocrat (about an hour earlier than this one) gets to the heart of this by pointing out that when wealth reaches a certain scale it translates into a significant pivot of individual social/political/economic power that can be destabilizing.
So I agree that Scott has probably started from the wrong place, treating an economic playing field that includes an array of never-fully-compensated investments and innovations as a tabula rasa. (And this doesn't even get into the manner in which Amazon's semi-monopoly status allows it to wring rents out of every manufacturing and service vendor for which it has become an indispensable middle man.)
+2
-1000
You can't get fabulously rich in manufacturing? Andrew Carnegie? Henry Ford?
Wikipedia has anticipated your skepticism:
https://en.wikipedia.org/wiki/List_of_wealthiest_historical_figures
Their estimates of wealth in 2021 dollars are: Henry Ford $35 billion, and Andrew Carnegie $16 billion.
Look, whatever you meant what you actually said is "Manufacturing does not make billionaires." The reasonable thing to do when confronted with empirical proof that this is false is to say "Oh, huh, interesting. Well, I appear to be wrong about that -- but it doesn't take away from my main point, which is..."
Which otherwise-functional system did Rihanna create a bottleneck in?
The move to AWS was extremely unpopular and management had to give and follow through on crazy "become a microservice or we fire the whole team" style threats to get the company on board. Really think that call was a unique, extraordinarily valuable one that should be chalked up to a visionary CEO earning his whole paycheck.
I completely agree. It was also probably even more incredible than "sell products on the internet" given how it drove down the cost of a lot of activity, and wasn't remotely as obvious to laypeople.
So non-obvious that probably most people don’t know about it, and under appreciated by many who do.
Yup.
No he's referring to moral desert, not culinary dessert.
Ah all these years I actually thought moral desert was spelled the food way! TIL
Yeah it's a confusing word!
Extra-confusing is that we have two spellings and two pronunciations, for four different meanings:
desert /dəˈzɝt/ - what one deserves
desert /dəˈzɝt/ - to abandon
desert /ˈdɛzɚt/ - a dry place
dessert /dəˈzɝt/ - sweet meal
What?! I always that the first one was with 2 s's! Mind blown
There is a restaurant here in San Francisco called Just Desserts (which serves desserts). I imagine a lot of people get the joke, but without realizing that the spelling is different!
1 and 4 are half-cognate, but not in the way you might think! I thought maybe “dessert” was what you deserved for finishing a meal. But actually “deserve” comes from the Latin for “serve well”, while “dessert” comes from the French for “de-serve”, i.e. what you have after the table is cleared 😅
I had misinterpreted dessert as a doublet of desert (that is, a word that was borrowed into English multiple times from the same root, with different meanings for each borrowing).
https://en.wikipedia.org/wiki/Doublet_(linguistics)#English
But as you point out, it's not! Thanks.
I have never seen that first meaning in my entire 12 years of reading and listening to English.
It's relatively rare and possibly old-fashioned. Now I'm wondering how much of my vocabulary is from reading fantasy (possibly written pre-1960 or so) where older words were used for flavor.
I think it is most often encountered these days as part of the phrase "to get your just deserts."
same here, and it's been 25 years (or 40?) -first encountered not today but in another ACX (or) SSC-post. “I am learning all the time. The tombstone will be my diploma.”
I think it's almost a fossil word: https://en.wikipedia.org/wiki/Fossil_word
The only time I can think of anyone using it is in the phrase "just deserts."
Danke! This helps me a lot! We only have dessert - pronouncing it /dəˈzɝɝɝ/ or sth, cuz: crazy French ... - and many prefer to write or say "Nachtisch" ("after table" - sweet meal) not to get the writing resp. pronouncing wrong. Had to google: Das Dessert ( [dɛˈseːɐ̯], [dɛˈsɛːɐ̯], [dɛˈsɛʁt] oder [ˈdɛsɛːr], von französisch dessert) lol, 4 ways to say one word - we really don't know Francaise.
I am so glad to know that ethnic Germans hate French borrowings into German as much as English-speaking learners of German.
(Most of the French borrowed by English was borrowed from Norman French before the Great Vowel Shift of Middle English, so the pronunciations at least *sound* English.)
see how you have to eat your words
Agh! And here I was thinking of moral desserts (rewards for being Good) and moral deserts (dry unlivable places devoid of morality).
Never thought "deserve" has anything to do with it, I thought it was some kind of metaphor.
When a business occupies that kind of niche it collects monopoly rents that should be taxed or regulated away.
"We're sorry, Amazon.com has reached its daily sales quota as determined by the US Department of Profit Control. You are being redirected to Jet.com" You can't regulate or tax incompetence into relevance, and a $1.3trillion market cap isn't unreasonable for a company that does half that many deliveries in retail sales alone every year, say nothing of all the other sectors they're involved in and actively improving. I trust even Bezos to spend the profits more effectively than Bernie, by far.
Precisely because Amazon has such low prices, as Scott mentioned, I expect the monopoly rents are being paid for by the employees more than the customers in the form of harsh working conditions created by what amounts to intentional understaffing combined with quotas so that each warehouse employee is performing more than one person's 'sustainable workload'.
Monopoly rents come from increasing the price above the marginal costs. Do you really think Amazon's success could be built on paying their workers less than other wholesalers or retailers? You must think those other workers are making a *lot* of money!
It's actually the opposite - Amazon workers make far more than their direct competitors pay at Walmart and other retail locations. That said, a big reason Amazon pays more is that they employ them as warehouse workers instead of retail sales employees, which is typically a higher-paid field.
The real question is whether Amazon employs fewer people per sales dollar - which is likely true, and a sign of efficiency. If Amazon pays their employees well (compared to alternative options at least), but hires fewer of them than Walmart or another competitor would have to in order to push the same number of sales, I'm having trouble with the idea that Amazon is acting immorally. They charge less than typical retail locations, and in large part that's because they don't have to pay for the retail storefront. Retail storefronts haven't been good careers since at least the 1990s, and even then weren't great careers.
Well, Amazon isn't the only company acting immorally, but working people hard enough to destroy their health without EXTREME need strikes me as immoral. It's not a "people/sales dollar" question. That's essentially irrelevant. Being an "efficient slave driver" doesn't make you moral, just both immoral and efficient.
You're using evocative language. Let's use more sober terms.
- For one thing, in my opnion it is totally out of play to compare workers at Amazon warehouses to slaves. I think that would only be OK if these people could literally not find any other work, but that is certainly not true.
- Next, most people who work in Amazon warehouses don't die decades earlier as a result of overwork, and so they aren't all "destroying their health". Perhaps they accept a modest decrement in health in exchange for higher wages. Moreover, as you say, they aren't all in EXTREME need. They simply choose to take the tradeoff. Don't young people engage in high risk behavior all the time, for a whole host of reasons?
Do you think companies should not permit people to engage in riskier forms of work? And if so, don't you have to draw a totally arbitrary line between acceptable and excessive risk? It seems awfully presumptuous to claim to know where that line is for the entire human race.
You know what? I had a long ass reply to this comment typed up and I was going to link this (admittedly a couple years old) gizmodo article as a source, but after rereading it to make sure I didn't mess anything up, I realized the article said it better than I could have. So here: https://gizmodo.com/i-tried-to-block-amazon-from-my-life-it-was-impossible-1830565336
Tl:dr Amazon makes its money from webhosting, internet infrastructure, and by being basically completely unavoidable and by being thiiiiiiiis close to being indispensable in regards to keeping the modern internet functioning properly.
Are you implying that the entire telecoms industry collapsed after Bell was broken up or that anti-monopoly laws, which are largely unenforced, do not work and all exist for no reason? This is rather a silly notion and ignores all of the harms to society and consumers and innovation which arise from the stagnant fearful monopolies who seek rent. It is silly and very straw-man to imagine some horrible alternative reality as the only possible alternative.
In most industries we see price gouging, abuse of workers, anti competitive tactics (many of which are also illegal), and reduced quality of service over time. It makes a lot of sense to break up any company which comes to dominate any industry.
D-Jimmy Carter's judge broke Bell Labs when he broke up Bell. D-JFK immiserated Baltimore and Gary when he broke US Steel. The Democrats turned the industrial Midwest into the Rustbelt. When the Clinton Foundation took a half-billion from Microsoft's competitors and the Clintons sent the Justice Department after Microsoft they broke the dot-com boom
Anti-monopoly laws exist for reasons as corrupt and feckless as the rest of US politics.
Is that a good example? I don't think the dotcoom boom ended because of the Microsoft trial. It was inconsequential in the end, Bush ensured there were no outcomes. It ended because a lot of the companies being funded were stupid and the hype came back to Earth. Also, Bell Labs was hardly the end of corporate research.
Amazon also seems like a weird choice to build this argument around (which is nonetheless interesting). Selling things online is easy and with no moat: there is very little first mover advantage there. Amazon is still on top not because of some natural first mover effect, but because they consistently executed better than companies that should really have crushed them. And this is true of most billionaires. My experience especially of tech firms, is that people see that competing would be hard, see success and assume it must be somehow a "cheat". But then they struggle to identify what exactly is stopping them building a competitor beyond it being generically difficult and expensive to catch up with that level of tech, and start talking about how "data is the new oil" and other low value memes. In reality they could create a competitor, and people have done, but they'd just not be as good because they have no fresh ideas and can't match the value created by decades of huge, continuous R&D spend into the existing ideas.
If the trial ended the dotcom bubble it ended it by popping a bubble and bringing things down to earth.
It's plausible that this happened and if it happened it was likely very good.
The theory that the trial ended the bubble is a novel one, I've never heard anyone claim that before. Although the timing is a good fit, Microsoft weren't particularly critical to the internet revolution and actually the trial was proving the opposite - they'd been trying to stop it. Therefore a brief period where people believed Microsoft would be broken up should have been good for dotcom stocks.
I don't say Bell Labs was the end of research. I say it was hugely valuable, decades of huge, continuous R&D spend into existing ideas if you will, and fecklessly broken by D-Jimmy Carter's judge.
Microsoft opened a billion dollar office in DC because of the trial, which followed a half-billion dollar bribe laundered through the Clinton Foundation. Only the big boys can pay big bribes. Small startups were crushed by the chilling effect of the corrupted Justice Department. Crush the small startups, crush the boom.
This is sort of the argument for Jeff Bezos ""actually earning"" $200 billion -- Amazon made a very long series of strategic and tactical decisions right, during a time when nearly all important decisions in Amazon flowed through Jeff.
Most critically to all of them, Jeff found a way to prioritize growth over short-term profitability, successfully earning Amazon decades of time to constantly plough nearly every penny of free cash flow directly back into investing in the business.
There's a quote I can't find on Google at the moment where a ?Walmart? executive in ?charge of building out their internet-sales-portal? talked about competing with Amazon and said something like "We constantly had to skim off chunks of our operating margin to pay dividends, they didn't. They started smaller but got to fight with 100% of their resources, while we were essentially starved of oxygen by the demands of our shareholds."
Bezos is a really, really good businessman.
Even if the Microsoft monopoly getting addressed killed the dot-com boom, it also saved Apple, which subsequently became the most valuable tech company in the world, created the IPod (breaking the music industries backwards attitude in the process) and the IPhone (which revolutionized the smartphone approach and made it useful for the masses). It also made Android phones relevant, instead of torturing us some more with those half-assed Windows phones. So even your own examples don't demonstrate what you actually advertise them to demonstrate ...
Apple had been ‘doomed’ for at least a decade prior. Apple didn’t need saving and was not saved by antitrust. Arguably it didn’t even remove Microsoft as a competitor. The browser antitrust case was a complete boondoggle that accomplished little to nothing, and Microsoft didn’t even have a monopoly.
Of course it was saved by Antitrust, but not the way you chose to interpret my injection. Apple was saved from certain bankruptcy by Microsoft specifically because they feared anti trust law. Microsoft needed a showcase competitor ...
What? This is revisionist history and made up causality. BTW, Bethlehem Steel was Baltimore not US Steel.
Democrats caused the rust belt? What a truly ridiculous proposition.
Sin taxes, hyperregulation, and moral panics are a ridiculous industrial policy. It was ridiculous to lose the industrial Midwest.
You are right about Bethlehem Steel. A different fiasco.
I grew up in South Bend, IN do you think the demise of Studebaker was the result of industrial policy? It was horrible and greedy management.
I've been living for 40 years in Baltimore and represented Bethlehem Steel in late 80s and earlier 90s. My first solo jury trial was representing Beth Steel.
Do you understand how big Aluminum affected the steel industry and the canning market?
And the issues of quality and abandoning statistical methods in American while Japan adopted them.
American management spent a lot of effort to break unions and blame workers instead of listening to them.
The Republicans had no ideas for industrial policy.
Just saw this, but had to comment how ironic it is that you open with a strawman (where did I mention "collapse", say nothing of an antitrust case from 40 years ago before the www even existed), then proceed to call the wholecloth things I never said a silly strawman. Amazon is not stagnant. They're not price gouging. They treat workers well according to someone I know who works there as a side gig and loves it. They're not reducing quality of service, in fact most would say it's getting better every year. If they're broken up, people would pay more and get less. If that weren't the case, then maybe you'd have one, but until then their existence is a net benefit from the majority's pov, which is why millions work there and billions buy from them. That's why the antitrust laws aren't regularly used - because most voters don't want them to be.
The point isn't to allow competitors; it's to prevent monopoly rent collection. Taxing Amazon's profits and redistributing them would solve the problem even without allowing competition. So, in theory, would fixing Amazon's prices lower than what they are now, but in practice fixing prices is hard.
In my opinion, every major financial power needs AT LEAST 6 competitors approximately equal in size/efficiency for optimal results. This isn't necessarily true during the development phase, but it's true once development peaks. If there are fewer than 6, or one is considerably more successful than the others, then government regulation is needed. Ideally by breaking the largest entity into smaller entities. (And the smaller entities need independent ownership! Alphabet over Google should not be considered an answer.)
I thought the evidence from telecoms markets was that there were benefits from going from 3 to 4 major competitors but very few markets with more than 4 major competitors?
The fewer competitors, the easier it is to set up a "gentlemen's agreement" to control prices.
I'm quite willing to believe that the evidence that is shown matches what you've said, but that's not sufficient. There have been multiple instances of collusion to fix prices in the past, but with more groups needing to agree, the chance that one of them will break the agreement for individual profit increases.
Sure, but where are you getting "there should be at least 6" from? It seems very hard to maintain that metric for a reasonable definition of "approximately equal"
Which Telecoms markets? I was under the impression that in most of the USA other than the biggest cities a given area is under a local telecoms monopoly.
Here in Aus thinks work very differently, All the infrastructure is owned by one of 2 companies (one of which was government owned, relatively recently went private) but they're legally obligated to rent that infrastructure at fair prices to any and all competitors.
I was thinking of cell-phone signal providers (Verizon, AT&T, T-Mobile+Sprint, in the US). For cell-phone towers, nearly all of the US has coverage from all three of those physically distinct networks of towers.
They are also required to rent those towers to sub-players at fair prices AFAIK.
Government taxes are monopoly rent collection.
Yes, indeed. Thats the reason why any government should be effectively controlled by the citizens. This is why Democracy is valued so high.
So I fully follow your argument, but my conclution is not that government or taxes are evil, but that any monopoly has to be democratically controlled. Tell the big corporations: allow competition or adopt democratic leadership and give you monopoly rent for the public good. (This does not have to be the state)
I don't know, I think if a corporation exerted a coercive monopoly over important services, didn't allow competitors, and demanded payment regardless of quality of service with threat of locking you away for failure to pay, people wouldn't suddenly say it's cool if the corporation gave them 1 share out of hundreds of millions to make their voice heard.
Is not any Amazon "rent collection" currently reinvested into Amazon business, based on their best idea of how to create further value? So taxing or price controls just changes the benefit to go to consumers in the form of cheaper products rather than investment into a growing business? I don't see a clear reason why this is necessarily good. Maybe consumers would like to see better Amazon-produced movies rather than cheaper Prime subscriptions?
Worthy reading to be found in Matt Stoller's substack BIG on the monopoly extraction of value achieved by Amazon, and their price setting in all arenas.
Why regulate or tax it away? Why not just regulate or tax it enough to make it not collect monopoly rents (or to collect much less)? I feel like it isn't proportional to kill it.
This is what QL is saying. There isn't a missing punctuation mark between "rents" and "that"; the monopoly rents are the thing being taxed/regulated away.
If you regulate or tax it, why does that guarantee the monopoly rent is what is lost? It is still a monopoly. Seems more likely that quality would be reduced in order to maintain monopoly rent despite the tax. That would not be a benefit to the public.
It's not a guarantee but if you structure the regulation or tax well it tends to work pretty well. I think you may be making the perfect the enemy of the good here.
Monopolies - other than legally-enforced monopolies, and to some extent even those* - have a limited amount of headroom. If Amazon raised the prices on all its goods by 100x, it would go out of business; 100x the prices is higher than what a competitor could offer.
If you tax the monopoly distributor by the amount of headroom, it can't compensate to retain its profits, because it would then be subject to competition (at least, if you design the tax so that a competitor wouldn't be subject to it).
*The issue here is that running a criminal enterprise incurs large *but finite* overhead. If you have a legally-enforced monopoly on wine, and you raise the price to a billion dollars a bottle, you will get undercut by people illegally making/smuggling wine for a lot less than a billion dollars a bottle (even factoring in risk premium). You could probably get to $200 a bottle or so without too much trouble, though, assuming the law was semi-reliably enforced.
How are they doing that? Which prices did they jack up?
By your theory Walmart.com’s prices must be rock bottom beneath Amazon, right? Because Amazon occupies an unassailable monopoly position from which it extracts terrific rents?
Likewise, AWS must be much more expensive than Azure…
You have accidentally created an empirically testable proposition, but I’m not sure you’re going to like it.
I think steel manning the parent argument, I'd say that the first mover advantage allowed Amazon to get to a scale where its profits are higher than the 2nd mover even if the prices are the same. If there were 2 companies with the same efficiency of scale as Amazon, the prices would be lower, but you can't see that counterfactual because Amazon's monopolized this position.
I don't quite buy the argument that someone else would've done it a small N years later in this case. It may be closer to Musk/SpaceX and I don't know how to tel for sure.
I think it’s weird to say that Walmart doesn’t have the demonstrated capacity to operate at Amazon’s scale… Walmart has been operating at Amazon’s scale for many many years before Amazon existed.
Walmart is operating at the same scale in some ways, but not others . Walmart's efficiency is pretty different from Amazon when it comes to home delivery logistics, online product selection, customer service, etc. Walmart's not at the same scale in those.
I don’t know, they look pretty obviously comparable to me when it comes to end-consumer service. Have you ever used Walmart.com the way you might use Amazon.com? Huge selection, quick delivery, fast customer service options. I’m not going to pretend that they’re exactly equal in offerings, but that’s not the point. The point is that they’re a legit competitor at enormous scale, and the idea that Amazon is simply operating at a level Walmart can’t is not obvious.
I recommend pointing out some specific things that Amazon can do in online retail which Walmart cannot due to issues of unassailable scale. Then we can discuss at an objective level whether Amazon occupies a position where it can deny Walmart the market.
A fair point, I just looked it up and Walmart ($519B) actually has more annual revenue than Amazon ($470B), which surprised me.
You're ignoring various network effects.
And you’re ignoring obvious benefits to the consumer and the marketplace which are made even more obvious by the stunning popularity of the services and goods provided. Shrug.
Actually, I'm not. I agree that there are lots of advantages to having a monopoly marketplace. It's easier to get a wide variety of goods, etc. But I think that such a thing needs to be regulated as a utility.
I.e. I think the internet marketplace is a "weak natural monopoly". Weak because there don't need to be strong barriers to entry, and "natural monopoly", because it's difficult for small sellers to subscribe to multiple markets.
(Note that I'm not sure that there aren't strong barriers to entry. Amazon lost money for over a decade before it started turning a profit. Just that they aren't required for this to be true.)
Amazon's financial results are not at all consistent with it being monopoly.
Its profit margin (net income / revenue) is ~2.4% and return on equity (net income / book equity) is ~9.4%.
Why do you think financial results are what determines whether it is a monopoly or not? To me it's a combination of what proportion of the market it controls and how difficult it is for someone else to enter that market.
Consider, suppose Apple didn't make any money off their app store. Would that mean that Apple didn't have monopoly control over the applications available in their app store ? Monopoly is an enabler of high profits, but it neither requires nor ensures that. (And it's not the only enabler.)
“ because it's difficult for small sellers to subscribe to multiple markets.”
You keep saying these things that by looking at the market are obviously untrue. Again, there are tons, simply scads, of competitors in the internet marketplace.
Amazon lost money for years because it made the conscious decision to sacrifice its profits for growth, not because it couldn’t figure out a way to turn a profit—it’s weird to me that you have such strong opinions about this without being informed about basic facts of which any shareholder was made aware in quarterlies.
The barriers to entry are so very low that you can spin up a free storefront with less investment than it takes to open a physical storefront, something that should be pretty obvious to almost anybody by now.
This does not cotradict Ch Hi. Yes, Amazon did sacrifice the short term profits for growth. But why was growing so important? Because Jeff Bezos and the other Venture Capitalists realized that once you are big enough the network effect gives you kind of monopoly and that a monopoly is highly profitable once you have them. And as long as the VC believes that you will be highly profitable in the future, they give you money to grow, to run on low margins to case off competitors or just to buy competitors that could pose a risk in the future as facebook did with Instagram or WhatsApp.
This game is just a little more complex than just getting high prices from the customers.
There are countless competing online storefronts of all sizes, so it seems very hard to call Amazon's storefront a monopoly. To be fair, there are anticompetitive features in their ability to leverage their control over the distribution channel between the buyer and the seller, but that's far from being a monopoly.
I encourage you to read Matt Stoller on Amazon's role in price setting for the entire market.
Amazon has monopoly pricing power by virtue of it's relationships with other vendors that use it's platform and the market place power that it wields. He explains it in detail.
To be blunt: if Amazon has monopoly pricing power, then why do its financial results indicate that it is demonstrably terrible at using this power to goose profits? It has a net profit margin of ~2.4% and a net return on book equity of ~9.4%.
That is fascinating, and beyond my knowledge base. Monopolies can afford to operate at a loss? The point that Matt made in his piece is that Amazon sets prices for most goods, even those not sold on their platform. You should read him, it seems you're well informed already.
Nobody but a state with political and military power can afford to operate at a loss over the medium term. And even states can't 'afford' it in the long term.
Does this mean that Amazon sets prices lower than they would have been or higher? If lower, then that's an odd way to extract a Monopoly rent; it sounds more like Amazon driving down prices through competition. If they are setting prices higher, then why can't others undercut them?
Profit is more than one thing. Amazon's declared, taxable profits are.low (hence the annoying fact that it was little taxes) because it reinvests a lot of the money it makes into growth, and governments don't tax investment because the like growth. But if you don't think monopolies are good , maybe you shouldn't encourage unlimited growth.
Monopoly is already illegal. Why tax their investment more than others?
It doesn't have to be a thing just for Amazon...although I am not saying I know exactly how it would work.
"maybe you shouldn't encourage unlimited growth"
Making more stuff with less inputs seems good.
It's what they used to call a natural monopoly. Having one central provider flows from the structure of the business. Amazon has built an amazing fulfillment empire, but it also runs a marketplace where competes with its sellers. It's like the NYSE operating mutual funds or packaging ETFs. Like the railroads, Amazon controls an outsized chunk of the online marketplace and uses its position as one might expect.
The railroads were controlled the structure of commerce in the US. Their tariffs enforced an industrial north and agricultural south. Railroads were as despised as cable companies or ISPs. Regulation helped a bit, but only a bit. Then the government built the interstate highway system and industry was dramatically restructured.
The last big antitrust case involved Microsoft. When IBM got sick of antitrust fights, they decided to outsource the operating system for their PCs. This was like throwing a monopoly bouquet at a wedding and Bill Gates was the bridesmaid who jumped highest and snatched the prize. His plan was to leverage this operating system monopoly into an internet monopoly, and the scheme was working before the Clinton administration sued. The reason I am writing this on Substack and not some Microsoft comment board is because of an antitrust lawsuit.
Railroads tried to cartelize transportation. Microsoft supposedly tried to turn their dominance of personal computer operating systems into a monopoly on browser software. Exactly what product or service are Amazon monopolizing?
They run the dominant online marketplace. There are competitors like eBay and Shopify, but unless you can build your own store and fulfillment system at scale, you either have to stay small or accept that Amazon can put you out of business in a heartbeat. They can delist you without so much as a word of explanation and there is no clear process for finding out what happened let alone getting reinstated. They can simply start selling their own set of products modeled on yours and undercut you on price and deprecate your listings. Even if you are a big company with lots of lawyers and an established brand, Amazon will allow other vendors to sell counterfeit versions of your products for extended periods and your brand will take the knocks if those products are inferior.
I do see some competitors out there. Shopify is the most visible for smaller outfits, but there are also specialty groups like Goldbelly for food items. There are definite counterforces, but Amazon has a huge market presence and lot of resources. A formal antitrust case may not be necessary, but a serious threat of one would make a difference.
It was a simple question. Can you give a simple answer?
It sort of sounds like you mean to say that Amazon provides a service for small retailers that no one else can provide. Not clear what aspect cannot be duplicated. Maybe the “at scale” aspect?
Or maybe you are just talking about network effects? I guess that would mean they are monopolizing the customers.
If an artist makes art that people will pay more for, do we call them monopolists? How much more do they get to charge before they should face an antitrust suit?
I guess what I am saying is, nothing is stopping anyone from providing an Amazon service for people who have been rejected by Amazon or who just hate Amazon. But you could say that about Microsoft, too. MacOS and Linux exist, but are they enough?
So what's the solution, make them a public utility? Did the suit against M$ solve that problem?
I am talking about network effects. Amazon does monopolize customers by providing a central place to start searching for goods. Have you heard of The Street of the Carpet Sellers? That's about what economists call central place theory. Good luck selling carpets if you don't have a shop on that street. Amazon owns that street. They have the critical mass of user reviews. In many ways, Amazon is the new Yellow Pages. If you want to reach customers, you have to deal with Amazon. Ben Thompson goes on about this over at Stratechery.
Sure, nothing is stopping you from XXX, but that's not the way it works in real life. No one made you buy telephone service from AT&T in its monopoly days. No one makes you shop at Walmart though Walmart pushed out every other grocery store for 50 miles. No one makes you buy tortillas from Gruma, but unless you live in a Mexican neighborhood, that means a long drive or mail order. There is such thing as market power. If there are only a handful of art galleries and they only sell art from a handful of artists, they aren't stopping you from buying art from someone else, but they can make you work hard to do so and they can use their market power to stifle new galleries.
One solution is to break up Amazon into a sales company, a network services company and a marketplace and to regulate that marketplace to make sure it stays competitive. Another solution is to require Amazon to offer set terms and due process for vendors. Yet another is to require Amazon to unbundle its sales and fulfillment support services and advertising. How about requiring Amazon to open its database so that others can develop competing search engines without adversarial tactics? These kinds of remedies have worked in past antitrust cases. There is no reason similar remedies couldn't work for Amazon.
Microsoft was a good example. Their intention was to place their idiosyncratic browser between users and the internet. I knew friends working at Microsoft, and they were given explicit instructions not to look at industry standards when they implemented browser components. The idea was that their implementation would become the industry standard. Since they controlled the dominant operating system, they could leverage that to control access to the internet.
Yes, people could install alternate browsers, at least they could at the time, but who was going to even know that this was a possibility? What was going to stop Microsoft from sabotaging them by providing its own browser with a better network API? By the early 2000s, more and more websites were being written to Microsoft's non-standard specifications for HTML and Javascript. Their strategy was working, and we would have a very different internet today without that antitrust suit.
The government lawsuit put Microsoft under the spotlight. Depending on where you lived, your new system would ask you to choose a default browser with Microsoft's Explorer as just one of several options. There was a renewed push to enforce web standards. Microsoft invested in Apple so it plausibly claim that it had a competitor. This created space for companies like Google, Facebook, Netflix and others.
Antitrust has worked very well over the years. The Standard Oil case lowered fuel prices and gave the US better strategic options thanks to competition in that area. One of many IBM cases led to competing platforms and compatible peripherals and software. The Xerox case led to more widespread innovation in copying technology. The Kodak case opened its C1 (?) film processing technology. There's a long list. The last thing dominant companies want is innovation, and they often have the power to crush it. Antitrust is one of the few counter-mechanisms.
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.
Interesting thought, and I intuitively agree.
I think part of Scott's point that this does not address is that certain niches are vastly more valuable than others. So Bezos1 takes the "online market" idea, and leaves Bezos2 with something far less valuable. He's almost as capable as Bezos1, but is worth a tiny fraction of Bezos1, even if he works harder and also has great ideas.
Sure, but each later Bezos’ ‘next-best option’ which they’d counterfactually be giving up is whatever they’re actually doing in the real world. If Bezos2 got removed from the rest of the workforce to found Amazon instead of Bezos1, the cost would be something less than or equal to Bezos2’s actual lifetime output, since each later Bezos would only change jobs if it benefited someone. And Bezos2’s lifetime salary feels negligible compared to $200 billion.
... which would seem to imply Bezos1's marginal productivity is equal to the productivity of the marginal, worst-paid Bezos. This analysis is hard to run in practice, though, since people are *partially* fungible in really complex ways.
This is especially true if Bezos 2 was Travis Kalanick and he made an online store instead of Uber. If I remember right, ride sharing has lowered drunk driving deaths by something like 30% for young people, and every year that innovation is delayed, many thousands of people die. Or maybe it's Elon Musk. He's moved the timetable for electric cars up at least a decade. How much is that decade of lower emissions worth?
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.
> I'd also note that most of the time "getting there first" itself requires investment or effort; e.g. oil exploration is not costless!
Correct! This is explicitly addressed by the Norwegian system, and why they specifically subsidize R&D and investment, in order to ensure a return on investment and effort. The insight here is not to make monopoly the natural carrot we give to private interests as the inducement for development.
> The problem with this kind of argument is that it only works if you refuse to apply it to people's natural talents. Your intelligence or conscientiousness, at least most of them, are not returns for effort or investment either.
It's true that it's not fair that some people are smarter, stronger, and more agreeable than others, but the fact that a policy doesn't solve literally everything doesn't mean it doesn't improve the status quo. I don't see how raising this point is a persuasive argument for what I see as inefficient natural resource policy.
I guess you're accusing me of hypocrisy. I personally find it perfectly consistent to draw a sharp line at internal personal characteristics that are difficult to quantify, and lean on the well established economic literature on the subject, and the empirical results from the Norwegian results which speak for themselves.
I don't think they're the same category of thing at all, when we're talking about internal characteristics, rather than domination of natural resources or monopolization of the market (artificially or naturally) through first mover advantages -- that's much more of a concern for me than the fact that individuals are born with different natural proclivities. I think you've mistaken one of many justifications for my chosen policies as the sole and primary motivating force.
But if we want to bite your bullet anyway, aren't you just making a case for progressive taxation here? You're right we can quantify unearned advantages to people who are taller, more attractive, etc, and they certainly didn't do any work to achieve that. There are a million other such things, some known, some not known, that surely work that way. And the conclusion to what to do about that seems to just be ... progressive taxation, or some flavor of it.
As a matter of practical policy, if we tax monopoly power to ensure equal access and opportunity to the bounties of nature for all people, we can provide the basis for a more just society *and* efficient society without having to go full Harrison Bergeron, which seems to be what you're implying the natural conclusion of my principles is.
Someone being more intelligent then someone else is not a private tax on others. The nature of rent-seeking as zero-sum taking is central to the ethical case for Georgism.
If you want to argue that someone deciding to use their intelligence for their own benefit instead of working for you constitutes stealing from you, you are free to make that argument of course.
Yes, a baron on the Rhine charging people tolls for using a river is structurally identical to someone deciding not to work for you. There is no difference between these two scenarios. Good job.
To be clear I'm not 100% sure if this argument is perfectly applicable to Amazon specifically, but this is the kind of argument I think Scott is making so I wanted to point it out. It would fit in the case of a company that relies on a large war chest of patents (and Amazon certainly owned the 1-click checkout patent for ages). There's a case to be made that large networks with strong lock-in and sticky network effects are monopolistic in nature and should be tackled with these kinds of tools, but my own personal theory / understanding of that is admittedly undercooked at the moment.
The thing I mostly look for is: has one company eliminated its competition because they're just *so dang good* or because others are effectively forbidden from even *trying* to compete with them, through natural or artificial means?
My guess is that Amazon has taken advantage of more traditional economies of scale compared to other other modern tech giants. Like, it's just really hard to run a postal service, and once one of a certain size exists, it's impossible to compete with as a new entrant in the market. Probably why a national postal service was so important to the framers, now that I think about it.
"Network effects" in general are overestimated as one of the roots of big tech monopolies, probably because it makes them sound natural, rather than the inevitable consequence of modern IP policy. If network effects really did matter so much, we'd all still by using Myspace. Cory Doctorow at the EFF has written at length about it.
I think people underestimate the impact of Facebook being started at Harvard. It is almost a meme at this point that half the point of going to Harvard is to network with the kind of people who get themselves into Harvard. Zuckerburg made that work for him in many ways.
Second, Facebook really was better than MySpace. You had responsive and well designed pages (no autoplaying videos on someone's page...) and all sorts of better features than MySpace.
Finally, and probably the nail in the coffin: MySpace missed the take-off of smartphones. Just like Google+ did, but in the other direction. Google+ was, iirc, better than Facebook, but they were too late and the network effects were too strong at that point.
Except Amazon didn't discover online retail. It wasn't even the first mover. Nor does it have any kind of exclusive right over online retail. (Except patents which might be a good area for reform.) While I think there's serious problems with Amazon I don't think it's at all analogous to something like land rents or an oil field.
To be clear I'm not sure the analogy fits with the specific case of Amazon myself either (see the other parallel replies), but I think this is the general structure of the argument Scott is making.
I'm undecided on the issue of lock-in (AWS is notorious for that) and network effects as it relates to the question of monopoly / dampening of competition.
Lars, in my experience the average person is convinced that building and running something like AMZ is utterly trivial, and that they could get easily do it if they just worked hard for a week or so.
There's a fundamental disconnect between people like me (and some others here) who see the kinds of people CAPABLE of creating billion-dollar enterprises as fundamentally rare and unusual, and most people who seem to imagine that anyone can do it (which is much of the tone of Scott's second half argument).
I'm not sure how you resolve this, especially since people have extremely strong opinions about this based on essentially zero knowledge of anything relevant to the issue; what you are seeing is some sort of poll as to "beliefs regarding human nature", not any sort of reasoned, evidence based analysis of just how many potential billionaires are out there ready to create companies should one of the current giants fail.
For example in the case of AMZ, did they succeed because they were "so much better" or because of various nefarious nastiness like one-click patents? I'd say "so much better than the alternative", but it's hard to *prove* that (especially when you're arguing with a kid who wasn't even born when AMZ was founded, and has no clue how frustrating and incompetent retail was in the early 1990s...)
Yeah. Maybe taking Amazon off the table clarifies things a bit. How about digital distribution of Video Games? This seems like a thing that wasn't invented by anyone in particular, and Steam wasn't "first", they were just the first to establish a tight market niche.
I got so tired of people pitching their Steam competitor startups to me I wrote a blog post about all the reasons they were going to utterly fail:
https://www.fortressofdoors.com/so-you-want-to-compete-with-steam/
I said, the only way you can ever do this is if you have TRUCKLOADS of money and just dump it into user and developer acquisition.
...which is exactly what Epic Games did a few years later. They've carved out a niche, but they've yet to give Steam a real run for their money. But realistically, only EGS could do it, because the network effects are that tough to overcome. Every other would-be Steam competitor I've seen (and I've seen so many I've lost count) has failed before they even started. (GOG was already established by this time FWIW, and they've remained tiny).
But if Steam hadn't made Steam, would someone else have? And would it have been as good?
My answer is "probably" (but not a 100% certain yes).
I think a lot of these debates hinge on the particular example you pick, which can distract us from the underlying ideas.
Of course the other way to look at it is "what's the business"? Should Coke care about Pepsi, or about "share of throat"?
Steam is in the business of games, and maybe the winner/only serious competitor there if you care only about a particular type of game, but if the space is "entertainment in the 21st C" then they are in competition with tiktok and Netflix, both of whom are doing a lot better.
Perhaps the Steam space is just as large as it gets, and there are multiple alternatives (like Apple Arcade) that are just not interested in EXACTLY the same space as Steam.
So I don't know. Is your argument that Steam is the winner because they were first, rather than because they are better than anyone else? I don't know enough of the space to comment.
The one thing I will say is that video games seem to be extremely dysfunctional as a business community, presumably because so many people enter it based on passion rather than business sense (see, eg, the history of basically everyone ever associated with Id). So they're kinda the worst case opposite version of the AMZ problem!
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I'd say a better example is Intel, who very definitely sat on their laurels (driven by massively incompetent management) for fifteen years, and we're now seeing that play out.
As Adam Smith said, "There is a great deal of ruin in a company", so it will take time for the denouement, but I don't see a turnaround ahead of them. Or IBM as an earlier example, ruined in the same way.
And MS as the rare example where the right person (and those are so rare) really could right the ship. Still to be seen whether Satya is the Tim Cook or the Louis Gerstner of MS...
Intel is also interesting because, before Apple achieved their miracle, everyone in the know would have told you that "a modern CPU is built upon so many patents that no-one can possibly compete with Intel; the best achievable is weak parity by the existing companies". And yet that was not true.
Monopolies were not the barrier they were believed to be... at least not in the US, in a space where the law and the system mostly worked the way it's meant to and politics did not weigh down the scales in any particular direction.
As someone who *has* gotten a (small) business up and running, this times 10. It is unbelievably difficult to succeed, which is why something like 90% of new businesses don't. There are whole classes of problems to be solved that the naive don't even realize exist. Succeeding at the Amazon level requires throwing natural 7s like 100 times in a row, a huge bucket of luck and decision-making that is almost supernatural in its ability to be right over and over again.
For what it's worth I've gotten several small businesses up and running too and very much agree, which is why I think society should reward the effort and the the taking risks and the investment and the being right, but not so much the huge buckets of luck.
"There's a fundamental disconnect between people like me (and some others here) who see the kinds of people CAPABLE of creating billion-dollar enterprises as fundamentally rare and unusual, and most people who seem to imagine that anyone can do it (which is much of the tone of Scott's second half argument). "
There is a broad range of intermediate possibilities. Perhaps one person in a thousand could do it, perhaps one in a million. In the usa alone, that would yield somewhere between 300,000 and 300 such possible people. But at any given time, I doubt that there are 300 unoccupied potential billion dollar niches for new corporations - so potential founders could be quite rare, yet _also_ plentiful enough to saturate their possible niches.
OTOH, the fact that future billionaires often first moved to America does suggest that billionaire-size niches are limited and more plentiful in America than elsewhere
OTOH, that doesn't guarantee that billionaire niches are naturally more plentiful in America; it could also be the case that our markets are more billionaire niche creation friendly thanks to current policy conditions and so changing those conditions could destroy the billionaire niches without capturing the windfall (deadweight loss)
To use a trivial example, Europe really wishes that Alphabet/Apple/Microsoft/Meta/Amazon were headquartered there.
What is the value of having billionaires or billion dollar sized enterprises for the society as a whole? Wouldn't it be better to have 100 medium sized companies occupying the same field? This way there would be real natural competition, the profits would be distributed wider in the society and no single business has the power and money to influence legislation in their favor.
> There's a fundamental disconnect between people like me (and some others here) who see the kinds of people CAPABLE of creating billion-dollar enterprises as fundamentally rare and unusual, and most people who seem to imagine that anyone can do it...
One would think that once the resource is tapped and the profits start to flow, it would be possible to find someone to help with the details. Like scaling the business up, introducing relevant processes and so on.
But from what you wrote, it looks as if you believe that some people are somehow predisposed for this whole scaling up business and they must be matched with the opportunity via prospecting instead of labor market.
What leads you to this conclusion?
I have strong opinions about this actually. Maybe I'll expand it elsewhere. But basically Amazon is a monopoly not due to lock-in or network effects (neither of which exist as much as critics want it to) but because of blatant anti-competitive behavior being used as a way to extract rents from things other than value creation. Amazon Basics alone should be triggered anti-trust in my opinion.
Interesting! I'd love to read a treatment on that.
Amazon prime video is fairly obviously an example of anticompetitively bundling an unsuccessful video service with a successful delivery loyalty club.
It's actually an example of bundling a video service and a delivery loyalty club that's run below cost to drive out competition while being subsidized by a successful web services company. But largely you're correct. This is part of the argument.
I'm rather convinced that network effects are a large part of Amazon's success, but it network effects among the suppliers rather than network effects among the customers.
If you want to buy a book by a particular author, a particular vitamin, a pair of socks, and a keto-friendly snack, where else would you go? What if you don't have that list when you start, just the book in mind, but since you're there, you might as well order enough to get free shipping? I note that in India where WalMart had a head start, Amazon is having a tough time competing. I suspect that it's because WalMart is carrying a better selection of merchandise for that market, or perhaps has a better delivery system. Both of which are facilitated by being the first-mover (in that market).
This goes even further on the supplier side: We produce a special innovative food product so it's still quite a small niche. We have our own online shop, but there are so many people out there were online shopping means Amazon as people say 'to google' if they mean searching the web' generically. And for everyone else, finding something special is easiest on Amazon with it's vast amount of products and vendors. So we have little choice but to also sell through Amazon too. I can tell you it's not only quite expensive, but also complicated to use the back-end and real ban support. They can just afford not to care about my opinion because of their market share.
So one of their business models is selling customers to vendors and manufacturers not only by their regular fees, but also by nudging you into payed ads.
Technically no, but Amazon has such a decisive strategic advantage they may as well be described that way. It's not illegal to compete with Amazon, but in practice its basically impossible. Even a revolutionary retail technology that is potentially and eventually disruptive to Amazons business model is just going to be bought out by Amazon (or copied) long before any Amazon executive comes close to losing sleep.
And all of this has snowballed from having a slightly better website than its competitors 25 years ago. The brilliant people who built Amazon would have otherwise worked at Amazon's competitor.
Wait, "practically impossible"? I can only imagine you're thinking of Amazon's core business, and they have competitors now, whether you think of their core business as online retail or simply retail - the foremost among them being Wal-Mart. Despite having a fifth or sixth of Amazon's online market share, they are doing quite well and, more importantly, poised to jump on any sustained missteps
Shopify is an increasingly good competitor. I don’t use Amazon retail and these days I tend to buy things direct from niche brands and the service is as good and cheap as Amazon, and I know money goes to the brand to develop better products.
Bezos however, would not have worked at Amazon's competitors. We know that for sure. And quite possibly lots of other Amazon employees wouldn't either - they'd have preferred to do stuff in another industry than retail, or they'd have done their own thing, or they'd have joined a competitor and just been average because their boss didn't believe in their ideas or maybe a lot of them didn't have ideas and just executed well on what Bezos wanted, etc etc etc.
What field or fields do you think Amazon has locked down such that no one else can compete?
Walmart may not be your favorite alternative, but they have a very strong online presence and a complete logistics network.
It would be very difficult for another competitor to break into online retail sales right now, but I think you very much underestimate how hard it was for Amazon to break into that spot as well! The first 10-15 years of Amazon were certainly not an example of easy money from a first mover.
>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.
Given that those are both natural resources derived from land collectively owned by the people, is that really comparable with the value created in getting stuff to people more quickly and conveniently? There's probably an argument to be made but it'll require a lot of abstraction.
See my reply to Harold below downthread.
Mostly pointing out the structure of the argument that Scott is making here, undecided about whether it applies specifically to Amazon. The real test is whether Amazon (and Bezos) gets such a return because they're *SO DANG GOOD* or because others are effectively forbidden from competing with them, whether that's by natural or artificial means.
"Natural" means, when speaking about resources, usually refers to the resource's own scarcity, but there's a case to be made about natural lock-in effects and first mover advantages in Amazon's case (perhaps). "Artificial" usually means government regulation. A good example would be my Narcolepsy medication, which is a tightly regulated drug because it's also abused as a street drug. So the government in its infinite wisdom grants a monopoly to one company to manufacture it, and the list price is like $60K a year (in practice this is insurance fiction, but in a fair market it would be muuuuch cheaper).
>The real test is whether Amazon (and Bezos) gets such a return because they're *SO DANG GOOD* or because others are effectively forbidden from competing with them, whether that's by natural or artificial means.
Amazon has a lot of fairly successful competitors in their main sectors - in online retail you've got Walmart/Jet.com, Target, eBay, AliExpress, Shopify, etc., and in cloud computing there's Google Cloud and Azure.
None of them are quite as successful as Amazon but I don't think that's a consequence of them being forbidden from competing effectively, that plus personal experience makes me lean towards a combination of getting there first and the services just being better (on the retail side at least; AWS products can be pretty frustrating to deal with but I haven't worked with the competing products, they may just be worse).
Yeah the real test of a standard monopoly is, if this company just sits on its laurels for like a decade, is it still mostly fine and unthreatened. I think that's clearly not Amazon.
There's a more nuanced argument that Amazon gets a little monopoly power, as a treat, by virtue of sticky network effects and first-mover advantage, and so long as they put in a modicum of effort, their moat stays full of alligators, but everybody else has a much harder time, and it's always Amazon's game to lose. I guess it's a question about barriers to entry and if society should do anything to lower them or not, and if so, how much.
I don't know much about oil exploration and development, but I have direct experience with mineral exploration and if its anything like that, it's extremely costly and risky. Much exploration is done by dedicated exploration companies that frequently go broke and cost investors all their capital(or they hit something big and win big). The land may belong to the people, but the resources aren't just sitting there waiting to be produced.
You're correct!
So the Norwegian insight in particular acknowledges three things that makes it hard to fit into the the standard model of either capitalist / socialist thought with regards to mineral rights:
1) Scarce natural resources are prone to private monopolization, which has bad consequences
2) State ownership & management of natural resources (read: naive nationalization) leads to stagnation, underinvestment, and the flight of competence from the sector
3) Natural resource exploration usually has huge up front capital costs and large risks, but also huge potential windfall profits
The Norwegian model is to tax the monopoly and subsidize the exploration/development risk. Based on the results of the last century, it seems to work pretty well.
Here's an idea I have, let's call it gradual socialism, open to hear criticisms:
Have ownership degrade with time. It could mean something like: the company is completely owned by shareholders during the first 10 years of existence. Then every year the government gets 2.5% of the company, until after 50 years it becomes a government owned company. Of course we would need some checks to avoid government mismanagement.
Another milder possibility is have the transfer of ownership happen only when the company pays dividends. So, as long as the company is reinvesting the profits, they remain private. Whenever profits go to investors, the government gets a little bit of the company. I don't know how to calculate how much would be transfered in this scenario.
Or if you prefer have the transference be to a union, that would slowly become a worker's cooperative.
This addresses the problem at hand, of disincentiving rent seeking, while not disincentiving investment too much. And of course the numbers could be adjusted if investment is too penalized.
Could you perhaps first point to a large consumer-serving function that the government does very well, as a confidence booster? Let's see...the Post Office? Amtrak? The DMV (at the state level)? VA hospitals? Medicare? Project Artemis?
Your examples seem to be drawn from a specific region where half the population take it as an article of faith that it is impossible for organisations not built on the profit motive to effectively serve the public.
The thing is, without a profit motive, and competition, it is extremely difficult to say what is 'effective' and what 'serves the public'. We have very good theoretical models and empirical evidence for this. Theories of value, information and incentives, and evidence from every country that has ever tried to provide private goods without a market mechanism. (Spoiler alert, they failed miserably)
And so...? Why would the faith of the consumers be necessary for the organization to do a good job? That sounds more like a religion than a corporation (or government). I don't see how I need to have faith that Microsoft makes a good operating system for Windows 11 to work.
On the other hand, if one dwells in a region where people *do* take it as an article of faith that whatever government does it does well, then of course they will probably be at least partially blind to its failures, in the same way that the faithful of any religion are blind to its logical contradictions or practical failures.
So I would say, as is very often the case, it's skepticism that is the better guarantor of accurate evaluation.
I don't understand why your argument doesn't apply in both directions. If it's an important ideological marker of community membership that government does a bad job of running stuff, then government organisations won't get as many good opportunities, it'll struggle to get good talent to staff the opportunities it has, and when it does do a good job it won't be acknowledged, and will be reliably underfunded.
And that's leaving aside the most nefarious versions where being right about this topic is so important that people will deliberately try to sabotage any successful government run organisation.
Any kind of strong culture that government is bad, or that socialism is good will distort the ability of a government run organisation to succeed. To take examples only from a region that has an unusual approach to this topic (as your earlier post seemed to) is a great way to end up with poor conclusions.
Mostly because the fact that you can make an argument the English syntax of which scans doesn't mean it makes any empirical sense at all, and none of those you present here do. Nor can I think of any that aren't equally strained.
For example, the idea that if half the country thinks government does a poor job means they will sturggle to get good talent fails the test of common sense. The Federal government doesn't employ half the adult workforce in the US, it employs about 1.5% of it. The idea that it would "struggle" to find talent for its 2 million employees when it "only" has the 80 million who aren't skeptical about its success to pick from is just silly.
For that matter, people generally pick jobs based on how much money it pays, and their interest in their particular job -- perceptions of how well the whole organization is doing in random other fields have little effect. Why would they? If I'm a aero/astro engineer and decide to work for SpaceX, I'm going to do it because (1) the money is good, and (2) the problems I'll be working on are interesting. I might very well think Elon Musk is kind of a blowhard and FSD for the Tesla the biggest scam ever, but that isn't going to stop me -- not unless I'm some kind of diehard ideologue, and in that case it's not likely I'm an engineer in the first place.
And how exactly would people who distrust the government "sabotage" what it does? Someone is so passionate about making the point that government doesn't work well that, rather than, say, waiting for events to prove him right, he...puts his own career on hold, goes into government service, spend years climbing to a position of trust and influence -- and *then* craftily sabotages what government does? This is spy-thriller stuff, real people don't behave that way.
As I said, belief that the faith of the citizenry (or consumers) that the an organization is good is key to it actually doing good belongs in a church, as far as I am concerned, and I don't think it has much application outside of faith-healing and Ponzi schemes. If I hire a plumber, I may believe he'll do a good job, or I may be deeply skeptical -- and neither thing affects the factual outcome of whether he fixes the drains. The strength of my faith doesn't change the octane rating of the gas I buy, doesn't change whether my phone battery lasts 2 years or 6 months, doesn't affect whether FedEx reliably delivers my packages or loses it 20% of the time.
Not familiar with the USA-specific details. But in the UK, there were a lot of national industries and services privatised in the 1980s-1990s, and the general sense among large chunks of the population is that they work rather less well now they're privatised and were better when nationalised. Royal Mail are doing pretty well, but privatised rail, electricity, gas are a disaster. And of course we've doggedly held on to the NHS which, at least until COVID, was still delivering world-class, free healthcare.
My experience with both Amtrak and the Post office has been very positive over the years. Problems with Amtrak cross country for me were delays due to freight having priority. Medicare? Just fine. And then there's TVA. Also does a good job. Not so thrilled with the airlines. And since we're on the subject of Amazon, PO has never lost my packages. Can't say the same for Amazon.
Good for you. There has to be at least one good story out there, so I guess you're it. On the other hand, I have never taken an Amtrak train without it being 50% late (i.e. on one-hour trip it will be 30 min late, and on a 2-day trip it will be 24 hours late).
More interestingly, if we depart the realm of deueling anecdata, we have the difficult facts to explain that ever since it became possible (in ~1980 if memory serves) for private firms to compete with the Post Office, they have exploded in size and reach, and the USPS has lost huge amounts of money. If people generally thought the USPS was doing a fine job, why are they paying premium prices to use UPS or FedEx instead?
And the same can be said about the trains: who actually takes trains? Hardly anybody, even when the time it takes (including TSA and airport-parking time) is comparable to the time of flying, and cheaper, and faster than driving. Plus there's the view! Et cetera. Sounds great. And yet...outside of the Acela/NE Corridor, just about nobody is willing to take the train, even over the modest distances that are successful in Europe. For that matter, having taken trains in both Europe and the US, it's not hard to see why. I would quite happily take an SNCF or Bundesbahn train -- which will be almost always on time, speedy, efficient, safe, and well-run -- but you'd have to pay me to endure Amtrak, which as far as I can tell must have some secret upper (two-digit) IQ cutoff for hiring.
Is the post office in the USA having problems?
There are plenty of stories from at least all over Europe, that people regretting privatization of former municipal services like water supply, hospitals, local transport etc. First it looked like success, they saved a lot of money so they could keep the prices stable and still make profits, but after several years it came out that they were just under-investing and the infrastructure was starting to erode. So the people had the choice to subsidize the necessary investments or accept much higher consumer prices. This is an example were you only realize how good it was when you are shown otherwise.
Is Europe not generally filled with democracies? If a majority of people regretted those privatizations, why are they not voting to re-nationalize the industries in question?
Well, they all call it democracies, but it doesn't always work to the extent it should. If there is no one in the election that has this agenda, you can't vote for it, as referendums are hard to get and usually not legally binding.
Many municipalities are doing so or trying to do so, but at high losses as usually the only way is to buy it back, what does not feel fair and you still have to be able to afford it.
Hmm, well, I believe the more parsimonious explanation is that while there may well be stories all over Europe of people regretting privatization, there isn't actually a solid majority of people who think that way in any country. Else the laws would change, at least somewhere. I haven't noticed Europeans being reluctant to express themselves or politically incompetent, and we're not talking Russian politics where you might "fall" out of a window if you annoy the powers that be with your talk of reform.
>Of course we would need some checks to avoid government mismanagement.
Therein lies the rub. There were several such experiments in the past century in Russia and China, and they turned out terrible because they were inevitably mismanaged.
>Another milder possibility is have the transfer of ownership happen only when the company pays dividends. So, as long as the company is reinvesting the profits, they remain private. Whenever profits go to investors, the government gets a little bit of the company.
They already do, dividends are taxed.
> and they turned out terrible because they were inevitably mismanaged.
Lots of privately owned enterprises are mismanaged and that's OK because they get replaced by well managed alternatives as long as the barriers to entry are low. I quite like the idea of degrading ownership, and the possibility that it might lead to giants ultimately becoming poorly managed and opening up the niche for new competitors actually seems like a feature rather than a bug.
Disagree, having competent, well-run companies slowly get taken over by the government just so they would be worse run to encourage new competition would be awful for consumers.
Having competent well run companies become so large as to get significant political power and create barriers to entry is also bad for consumers. Where the balance lies is a tricky question. Besides, having worked in a few large private organisations, the idea that government owned organisations are necessarily run worse doesn't seem obviously true to me.
Yeah but here's an idea - use what political power you have to block other people from abusing their political power. Don't jump to abusing it yourself
A great idea here might be to actually prohibit government from picking winners and losers rather than accelerating the rate of their picking winners and losers.
The same case could be made with natural monopolies which have been privatized in the past. All over Europe lots of things have been privatized during the neoliberal agenda of the 90s. There is almost no sector which turned out to work better than before. The one exception being telecommunication services, and this is only due to strong anti-monopoly work being put in and technological advances which made it possible to untangle the physical line from the service sold over those physical connections.
Considering that dozens of countries have made that experiment for a few decades now; and that it failed in every single one of them, I wonder what the lesson we learn from this could be ;-)
Europe must be a very poor and backward place due to all these rampant failures across broad segments of vital services.
Well, level of service for all those I mentioned still surpasses what you can get in the US. It's just that they have become worse than before ;-)
So basically then if US now < Europe of today < Europe in the 70s, we should have some data which confirms this decades-long backwards slide into poverty, poor health outcomes, economic stagnation, and despair in both Europe and America, right? We should be able to compare say 70s era Europe and see on some objective measure that all of its services are far superior. Lives should be shorter, the trains run far behind time, wealth and standards of living lower, etc. Right?
Or are these assertions somehow intangible?
This already exists, only it's called capitalism. The returns we're seeing are to innovation, not to ownership of capital. As the ideas and models get older, the returns reduce.
Sweden tried this: https://en.wikipedia.org/wiki/Employee_funds
It was very unpopular, and the Social Democrats have never re-introduced the idea.
That's interesting. The linked page talks a bit about how controversial they were, but doesn't give much information on exactly what people were upset about. Do you have more information?
It had a crushing effects on small business-owners, and caused giant protests.
You need to understand that the Social Democratic party had a very odd view on corporations. It could stand the large ones, because those they felt that they could handle, through lawfare and indirect pressure. But they _hated_ small businesses. Post-war politics deliberately gave large corporations preferential treatment, and large corporations could (and did) handle the situation by restructuring their ownership and moving it abroad (which in turn hurt taxes), but small companies were brutally victimized. But since a _lot_ of people run small businesses, or know people who do, it was fairly easy to organize against. Then came the devastation of the 90's economic crisis, they were abolished, and since then only the lunatic fringe has talked about reinstating them.
It's not rocket science to realize that crushing businesses won't be a good thing for the economy.
Jeff Bezos only has billions of dollars because he owns a large portion of a company that's worth billions of dollars. If he doesn't actually own it, but is instead leasing it from the government (which I think is a fair way to look at this in the long run), then his incentives change. He can't sell it, because no one will buy a short term and diminishing product. His incentive becomes to wring it out for everything he can while he still controls it. Instead of making a company that will provide maximum long term value (and in the process raise the value of his stake in the company), he will pay himself as much of the profit as he can. This will cripple the company, so that in 50 years, the government will get a worthless hull, stripped of all value.
In fact, the best way to game this system would likely be to start killing off your own company after about 15-20 years and starting a new company in the same field that you can out-compete. If you set the seeds of failure well enough, you can hand the government a frustrating and incompetent organization right around the time your new-and-improved company is going into full swing.
Worst of all, this helps no one and is incredibly inefficient.
That would probably kill long term capital accumulation and would leave the firm undercapitalized by the time it is received by the government:
Shareholders would push management to pay out as much as soon as possible, revenue would not be reinvested. Even with the addition of "if dividents paid" it could be concentrated into the first couple of divident paying years, after which they may just close the company altogether.
It also does not solve the principal-agent problem better than older versions of socialism.
To "solve" socialism, I think this principal-agent alignment should be worked on, to have a solution that is approximately equal to the market solution. (which is not perfect either, but is much better for private goods than government solutions)
Instead of government owing in the long run why not distribute 2.5% of shares to all citizens directly?
Or what if the conversion were not to government control or citizen control but to employees as in a mandatory ESOP?
The state ownership was only supposed to be transitional phase to worker ownership.
I'm not a socialist nor a Marxist. Marx got so many things wrong, I am not sure why anyone would want to advocate for transition to "socialism". But I am also not a capitalist, worshipping neither the unbridled control of the means of production nor the parasitic rent seekers.
It would seem better to trace a better a theoretical framework from Rerum Novarem and the social and economic justice encyclicals coupled with Henry George's insights (before liberation crackpots started co-opting Progress and Poverty).
There has only been one successful worker led revolution: that was Solidarnosc. The theoretical underpinnings of the unionist movement were quite sophisticated.
If shareholders had 2.5% of their shares forcibly taken away every year and given to employees, then nobody would bother investing because in the long run they will own nothing. Wanting startup capital to fund innovation while also wanting the funders to keep nothing in the long run is fundamentally incompatible, it's wanting to have your cake and eat it too. If this kind of confiscatory policy is implemented it would serve to socialize existing businesses (the merit of which is also questionable - do worker owned businesses generally perform better? If not, what is the merit?), but also immediately put the brakes on any future investment.
Now, Amazon actually *voluntarily* distributes some shares to employees as part of their annual compensation, which won't ever turn the company into a fully worker owned coop, but does make the workers somewhat invested in the long term well being of the company. Interestingly, 1) some employees who are compensated with shares sell them immediately, with the logic that their financial wellbeing is already sufficiently tied to the company by virtue of their continued employment, and 2) warehouse workers lost the stock compensation when the starting wage was raised to $15/hr. These both suggest workers actually prefer a stable income rather than ownership in the company, which makes the government forcing them to be paid in ownership with the goal of eventually turning all businesses into worker coops even more questionable - do workers even *want* to be paid entirely in ownership such that they eventually end up taking on all the risks as well? To answer that we could imagine that today, workers take their paycheck and immediately convert most of their discretionary income into shares of the company they work for, regardless of how well it's performing. That seems like an exceedingly poor financial strategy, most people would rather diversify.
I wasn't advocating for mandatory ESOP conversion. I was suggesting it as alternative to proposal to state ownership conversion post.
I'm not a state socialist.
The average life span of SP500 company is down to 18 years! (In the 1950s I think it was 60 years).
If companies end up out of business (or delisted) in 20 years, then 40 year conversion to ESOP would hardly make a difference.
Would a 2.5% of valuation bonus to employees each year make a difference to capital formation?
It is hard to tell what the stock market is actually doing anymore. The market is a valuation machine but is it really a start up capital accumulation machine for reinvestment in future innovations? When companies are buying back stock?
Sure it's probably better than the state seizing all enterprises, but why propose it when it's still worse than what we already have, i.e. mostly just letting the market do its thing?
It's worse than just using taxation.
But letting the market do it's thing: that isn't so great if what the market is is just legalized gambling.
The success of generally raising the standard of living has been in spite of capitalism. That capitalism is better than state socialism may not be saying much. That both are better that anarcho-libertarianism is saying a lot.
That we seem to be stuck with three choices Is a doggone shame. The unbridled capitalist, the state socialist and the libertarian anarchist. All three failures.
We already have the far and away best solution - let the company earn money, and then tax it and use the funds for public spending. This isn't rocket science - we don't need to reinvent a worse wheel.
I think in the end this is the right idea. The power to tax is plenary.
The question then is one of political will to figure out what to tax and how much.
A good land value tax to start. No one made the land.
And then excessive returns from capital: usury.
And finally income from whatever source even including labor which is excessive. What is excessive: well we could start at more than 3 standard deviations from per capital income.
This was briefly done in Sweden under the name of "löntagarfonder". It was an absolute disaster - unsurprisingly, no-one is going to take risk and work their ass off to start a company that will just be confiscated by the government (or in this case. by the unions), even if slowly. Corporations reacted in the utterly predictable and rational way, by fleeing the country. It was a part of the massive economic malaise of the 1980s that lead to the severe economic crisis of the 90's.
As many commenters point out, this disincentives long term investment, so we would need some adjustments to set the incentives right:
1) we want to prevent monopolies, especially not by companies that are too big as they can defend their monopoly unfairly by subsidising from another field, buying emerging compeditors before they get dangerous or even by corruption or influencing legislation.
We could counter this, if we allow only a certain market share beeing in the hand of one set of investors. And this only kicks in for big companies e.g. worth more than 100,000 $. So a small company can have a monopoly. Companies also can grow big, but they'll not crush their competitors, because as soon as they dominate the market they have to give shares to the state or some other form of public ownership.
2) we want to encourage entrepreneurs, not building of family fortunes ever growing. So I would propose to introduce a high inheritance tax of e.g. 50% for fortunes bigger than 100,000 $ but it does not have to be payed in actual money but the state also accepts shares. So the company can work on like before but a company working well over generations will end up in public ownership.
> to explore and invest, you can just subsidize those directly
We have that here in Europe. Companies can apply for subsidies from the European Union when they do innovative work. Inside such companies we tend to be rather cynical about the value of those subsidies.
For starters, the subsidies mostly go to large established corporations, because those are the ones that can handle the administrative bureaucracy needed to qualify for those grants. People running small startup companies mostly aren't even aware that those subsidies exist, and even if they did, they have too many other things on their hands to make time for filling out the million forms needed to qualify. So it's mostly a free bonus for companies which should already be large and self-sufficient enough to bankroll their own research projects without taxpayer help.
And of course there's a lot of grift, with companies doing pointless proof-of-concept projects just to grab the subsidies, while the *actually* innovative and speculative ideas don't qualify for subsidies because it's too hard to convince the government bureaucrat of their value.
You described the situation in Europe but it's also the case up in Canada with the SR&ED program. It ends up a mix of keeping broken businesses alive (those whose research hasn't and won't go anywhere) and and subsidizing shareholders of successful ones (because we don't have to raise as much outside funding and get diluted when the government is paying for 1/3 of applicable salaries).
To be clear, this is not a general argument for "subsidies good."
The situation I'm talking about specifically is in industries prone to monopolization, where the barriers to entry are so naturally high that only extremely capital-intensive efforts are able to get people to engage in the business, and without them you don't get the exploration, and, once success has been achieved, absent severance taxes the companies achieve massive windfall profits based on limited access granted either by nature of by regulation.
I think we have good evidence that Amazon doesn't count as "discovering" a "naturally profitable" niche, because Amazon needed lots of very expensive investment in warehouse automation and many other system to build their niche, and their reward for all of that was a still fairly low profit margin on that core business. A different tax policy that was less friendly to investment could have prevented that complex warehouse automation machine from forming.
By contrast, search engines to appear to be "naturally profitable" niches since Google was massively profitable from very early in its existence without much work after the "core idea" that gave them first mover advantage.
How does this analysis apply to businesses like Apple, which are clearly not monopolies (too small a market share of the global smartphone market) but rather some combination of ultra-strong brand stacked on top of internal-to-the-brand monopoly markets (30% fee to access the app store)?
By George!
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?
You could maybe come up with some probabilistic argument based on the frequency of Multiple Discovery (https://en.wikipedia.org/wiki/Multiple_discovery).
It does seem intuitively correct to me, though: most progress is about being on the shoulders of giants and a slow progression of collective knowledge, and individuals serve more to jump the process forward and affect its trajectory (e.g. which of multiple solutions to a given problem becomes widespread seems to often to just depend on historical quirks), more than unlocking technologies through unique esoteric insights.
The time when one invention corresponded to a product ended, I don't know, 100 years ago, around the time that single inventors ended and industrial labs took over.
Amateurs think that "one single discovery" corresponds to WiFi or flatscreens or the iPhone. This is absolute nonsense. In the modern world it's about tying together a vast network of inventions, and the extent to which single inventions are duplicated is absolutely uninteresting, since the critical resource is not the isolated inventions, it's all the pieces required to tie them together. Which has technical elements, yes, but also personal elements, business elements, political elements, etc.
That's irrelevant as well, the *network* itself, considered as a single entity, is an artifact that evolves piece-wise and independently in parallel, in a way that plausibly doesn't depend on personally-unique ingenuity.
To take the example I'm most knowledgeable about, the iPhone didn't spring from the mind of Apple's engineers or business execs fully formed. Smartphones trace back to the PDAs of the 1990s, a long lineage of smartish phones follow, most notably the blackberries. Every single idea that the iPhone uses but was originally developed by those predecessors is an unfairness as well as a market inefficiency, they are information gone unrewarded, pieces of the puzzle solved for Apple's benefit but met with ingratitude. Android was originally intended for digital cameras but Google bought the startup in 2005 and by 2006 they were already taking about a "handset alliance".
The iPhone, considered as a network of ideas and artifacts as components, wasn't original, plenty of similar networks preceded it, the components and all the ways they can be brought together were fairly obvious to those who thought about it (1960s scifi, at least), what made it the first successful?
The single biggest idea that made the iPhone the iPhone is, I humbly think, probably the app store, and it was, wait for it, not an original idea, and was refused at first by none other than Jobs himself, so not only did Apple hit luck by chance, they didn't even recognize the luck they hit in the face. Add in all the countless other effects : computers in 2007 hitting *just* the right point in the cost-mobility-power consumption-performance curve (as well as a myriad of other factors), the rise of social media just a 3-5 years before making a good killer app for the new, very inferior still, computing platform, etc. It would be preposterous to suggest that all of this was due to Jobs or his engineers or even the entirety of Apple, they probably didn't even recognize it was happening as it was happening.
The iPhone launched without an app store and was still very successful before that.
Reality is, smartphones before iPhone looked and worked quite differently. Apple contributed plenty of ideas there. I think this thread would be a lot stronger if people built their arguments around companies that run infrastructure in the ground rather than companies like Amazon and Apple which are widely regarded as being hotbeds of innovation and effort.
To add insult to injury: the Apple appstore wasn't even the first of its kind. There were dozens out there already. I even wrote my diploma thesis on how dependencies could be managed in those app stores to avoid installing them twice before the iPhone was even announced. The iPhone is simply a better executed version of the Openmoko platform. Even the phone design is strikingly similar. Apple simply happened to have the resources (due to booming iPod sales) and confidence to execute it. There isn't a single original idea build into the iPhone 1; and if we are being serious here, the first version wasn't even usable. It became a functional device with version 3 only. But it rode on the wave of the iPod and was a lifestyle product which people wanted to have to flex with out, so it became successful despite all its shortcomings.
The iPhone was introduced in January 2007 and released in June 2007. The first Openmoko device released in July 2007, but the “consumer launch” was really half a year later.
This was “kinetic scrolling” on the Openmoko device:
https://www.youtube.com/watch?v=sOnvyXowa1U
This was scrolling on an iPhone:
https://www.youtube.com/watch?v=FSv5x3V_KHY
I was a Symbian developer at that time and every other smartphone sucked.
It became available in Nov. 2006.
And no: I didn't insinuate that Apple "stole" from that platform. Nor did I insinuate that Openmoko was as well executed UI wise.
But a smooth UI, while important for usability, on its own is literally just that: life style. You couldn't even copy&paste on that supposed "smart" phone.
Apple engaged in innovation when it comes to creating a keyboard on a touchscreen that's useable without a stylus. Ideas such as making the clickable area of letters you are likely to type next bigger while letting the visible area of the letter stay the same aren't very intuitive.
Providing haptic feedback that people don't notice consciously but that makes it more clear that one presses a button makes a phone easier to use.
There are likely lots of other ideas that went into the iPhone that were new and nonobvious.
The fact that to launch the iPhone without an app store was a conscious decision and it might have been a good decision by Jobs as it made the first iPhone a lot more straightforward to use (even when it reduced choices).
Honestly: swipe was a lot more revolutionary to make keyboards on touch screens useful ...
"How revolutionary is X" is not a metric that matters. What matters is solving the bottlenecks that prevent a new technology from being viable.
The thing that's new with the iPhone was that it was entirely centered on a touchscreen that's used with the fingers and without a stylus.
Apple made the bet that this is how you are supposed to build a phone and managed to work through the bottlenecks that prevented that approach from working.
"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 don't know how to TEST it, but there are a number of examples of the same thing getting independently discovered:
*) Edison and Swan for light bulbs.
*) Bell and Gray for the telephone
*) The Wright Brothers and Santos-Dumont for flight
*) There are several credible inventors of the microprocessor (including some folks working on a classified implementation for the F-14 aircraft).
*) Newton and Liebniz for calculus
*) Writing seems to have been invented independently multiple times (but also NOT invented in some places/times ...)
But I don't know how to test ...
But there was actually nothing "discovered" here per se, was there? There was just fantastically good execution and management. Jobs didn't really invent anything as far as I know, he just built a trillion dollar company because he was so good at management, essentially, right? If we waited long enough would another person have come along and built Apple? I doubt it. Without him Apple didn't find another Jobs, it just failed.
Freedom: "But there was actually nothing "discovered" here per se, was there?"
Pepe wrote, "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 responded to that.
To what "here" has nothing been discovered are you referring?
Amazon
Ah. I don't consider Amazon to have been invented or discovered. Selling things via a catalog was quite old. And lots of other companies tried to sell things over the internet. Without Amazon we'd still have those.
Would they have been as SUCCESSFUL???? That is a separate question. One could make a good argument that the answer is, "no." Logistics is difficult and non-sexy. Sears couldn't pull this off (on the internet). Wal-mart is awesome at logistics but pretty late to the party.
Inventions often are "in the air." But a particular good implementation most certainly does not have to be.
Based on a very cursory search, it looks like Steve Jobs had about 150 patents.
Are there any that are not design patents? Although in the U.S. designers are called "inventors" this to me does not seem to be true invention in the normal use of the word. He may have been a great designer, and no doubt design contributed to Apple's success, but I think his management was more important.
There are also examples of stuff remaining weirdly uninvented for many years after it could have been invented. Stirrups, horse collars that didn't choike the horse, the wheel in the Americas (they had toys with wheels but no tools with them), etc. It seems like the cases where something waited aroumd amother century or two waiting to be invented are examples of what happens with the Bezos or Jobs or whomever doesn't show up.
The best example of this is the compound bow. The bow has been around for 10,000 years before someone thought of putting pulleys on the limbs to significantly increase power generation.
There are good reasons not to do that. Many native tribes to this day don't use them and are better off without it. The problem wasn't that the compound bow would have been too difficult to invent; but that it has serious short comings which weren't balanced with actual advantages back then. They became useful due to other advancements in weapons technology.
They didn't use wheels outside of toys in Pre-Columbian Americas because they didn't have a draft animal large enough to pull carts. The larger animal domesticated was the lama, which is very small and weak compared to the horse, and was used in the Andeans mountains. It can't be mounted or pull a cart, especially in the mountains.
How on Earth did that happen man? I've seen double posts but this seems like a little much
Wheelbarrows and dollies are extremely useful, especially in the mountains -- also carts can be pulled by, y'know, *people*; this is very handy if you are trying to move something too heavy to be carried by that same amount of people. Large stone blocks maybe?
Wheelbarrows and wagons are useful even with only human power. You can tell because all kinds of worksites now with only muscle power are using wheelbarrows.
"The current consensus among technology historians is that the wheelbarrow was invented in China around 100 AD and spread to the rest of world"
"The first wheelbarrows in medieval Europe appeared sometime between 1170 and 1250" https://en.wikipedia.org/wiki/Wheelbarrow
Today a wheelbarrow seems obvious, like a bicycle, but for this technology to take 1,000 years to spread from China to Europe shows that, like for the bicycle, there are hidden complexities that prevented it to be invented easily.
If the Europeans didn't have the wheelbarrow before the 12th century, it seems plausible that the Mayas, Aztecs and Incas just didn't get the idea.
As for the hand carts, I agree with you, it's a mystery why they didn't use them...
Stirrups aren't as simple as they seem. Well, the stirrup itself is simple, but it's only useful in combination with a good saddle tree. The saddle tree is the part of the saddle that fits properly over the horse's spine to keep the saddle in place and to distribute the rider's weight. Without it, as soon as you put your weight on the stirrup, the saddle would slide off and you'd be lying on the ground if you're lucky, or dragged behind a bolting horse if you're not. Or even if you manage to avoid that, you'll be creating unpleasant friction and pressure points which will irritate the horse and could even cause permanent injuries.
Inventing a good saddle tree required some nontrivial wood- and leatherworking techniques, and was probably a process of incremental improvement with long feedback cycles. Once a sufficiently sturdy and comfortable (for the horse) saddle tree existed, probably the stirrup was invented later that same week.
This is a bit easier to see with software, where the underlying technical foundations are so consistent and shared.
For example, CompuServe and AOL existed as large shared networks in the 1990s, Encarta existed in 1995, the web existed since 1991, but it wasn't until 2001 that Wikipedia was born. It relied on no new technology - wikis had been around for ages by that point - and could have been created at any point in the previous 10 years. But it took Jimmy Wales and Larry Sanger to have the idea and actually sit down to create it.
And seeing as we're talking about Amazon, AWS could probably have been started much earlier. Google had drastically more advanced cloud tech than Amazon years before AWS was born. One reason AWS is in the lead now is because for a very long time Google's chief execs (mostly Urs Hölzle) blocked attempts at an AWS-style cloud product on the grounds that it was an uninteresting low margin business! So for a long time there was this unmet need for a product that hadn't been "invented" (or had, but wasn't on sale).
That's actually not true. Before 2001 the internet lacked the critical mass for wikipedia to become useful. Wikis have actual draw backs, whereas their advantages only become apparent when the amount of users surpasses a certain point.
Also, Wikipedia only became feasible once server costs, bandwidth, storage space, etc, became cheap enough for a nonprofit to run a project at that scale.
True
That's an extremely vague assertion for a statement as strong as "not actually true". I could equally argue that the level of critical mass for a wiki encyclopedia existed long before then - AOL alone had more than 10 million users and couldn't keep up with demand it was growing so fast. Wikipedia never needed even a fraction of that number of people taking part to become a well known phenomenon.
Your counterargument only makes sense if we assume that all those 10 million users were potential Wikipedia contributors. Which they were clearly not.
Wikipedia came about when the combination "number of people browsing the web, but ignoring news groups", "costs for servers and storage" and "people with a vision" was just right. The vision alone didn't change the world.
I don't want to diminish the amount of work that went into setting up what eventually became Wikipedia. But a lot of such projects popped up around this time. I myself maintained several of them. It simply became feasible around that time; and that's why people with a vision could do it.
I draw a distinction between "could have been invented and wasn't" which would include horse collars and stirrups and "was invented but no one could see the point other than as a toy" which includes the wheel in the Americas and the steam engine in classical Greece.
The latter usually has a story around it. The former tends not to because how can you explain how nobody noticed a possibility.
Then we have things that we invented or *almost* invented and then forgotten. Calculus is an example of this.
The Wright Brothers' plane (when demonstrated in France) was much more maneuverable than anything else, including Santos-Dumont. However, they never didn't really manage to make a big successful business out of their invention. Aircraft production today is dominated by totally different corporations than those founded prior WW1.
Edison's competition with all the other light bulbs and electricity companies contributed to consumer value from light bulbs, and general overall electrification. The first iteration of light bulb and means to provide electricity to power it would have been unimpressive to us. (Edison was a proponent of DC.)
Or, let's take cars. Ford Model T wasn't the first car. Ford wasn't even first to use assembly line (which go back to Marc Isambard Brunel) nor first to use it for making cars (that was Oldsmobile). Ford was the first one who could make the assembly line car production work and immensely profitable at scale. Billionaires are not made by inventions but success at industrial production of value to consumers.
More examples from computer science: the FFT algorithm, LZW compression, and public key cryptography were all independently reinvented multiple times.
The idea that you could let inventors be paid only for their labor and that progress would occur regardless of the specific individual was the explicit theory of Soviet Marxism and was put into practice in the Soviet Union and other Communist states. It did not work out. And while I'm not sure this is the last word, "The Soviets had this as official doctrine for almost a century" seems like it's at least gesturing towards being a huge empirical experiment.
There are plenty of inventions that didn’t happen, or at least not until too late.
China didn’t have the wheelbarrow (at least not the nice stable 3-point one you push from behind).
If you row like a water bug swims, instead of all pulling at once, you go faster. Nobody ever does this.
The compound bow wasn’t invented until 1966.
I hear the Aztecs didn’t even have wheeled transport or hauling at all.
Somebody in North America discovered how to work bronze, and spread nice bronze artifacts all over the place, but by the time Columbus arrived, the art had been lost.
Sometimes, we just don’t invent the thing at all — or the “some other inventor” is hundreds of years later, or in another civilization.
I am not 100% sure of any of these, except for the compound bow, which I just Googled.
Hah, I see you beat me to this example. Well done.
Many of these examples simply do not analogize to modern day innovations, whether it be due to material conditions (Aztecs did not live in a place that would have made wheeled transport useful enough early on to then invest into the sorts of roads wheeled transport demands in order to be effective) or using alternative versions (the traditional Chinese wheelbarrow has the wheel in the middle of the platform, which is less stable when set down, but easier to carry very large loads with thanks to a balance weight distribution relative to ground contact area), but most importantly because modern innovations take place in a vastly different informational environment, and many of the low-hanging fruit have already been picked.
I suspect virtually all of those there's some other obstacle other than just a lack of an inventor with the Spark of Genius to come up with the idea - either a missing technological prerequisite or some aspect of the context of their situation where the invention is less helpful.
For the first (missing technological prerequisite): compound bows are made of fiberglass - the concept of a pulley wasn't hard, but a material that could take that much stress and not break is a pretty recent development. Also "expensive, complex bow" might be good for an archery contest, but less good for the historically common usages of bows: equipping an army or a peasant hunting for dinner.
For the second (wrong context), it seems Aztecs didn't use wheeled transport much because the geography was wrong (they lived on a giant lake surrounded by mountains: neither is a good place to use a wheel), and because the Americas lacked beasts of burden, like oxen and horses, which were a big driver of wheeled transport.
I'd also take "nobody ever rowed a boat this way" with a huge grain of salt: we often have less knowledge about how people used to do things than we think. How would we know if people used to row boats that way? A big problem is that people tended to not write books about "obvious, daily life" things. (Or at least not ones that survive to today)
You can make the pulley wheel out of metal. You don't need polymers. As for the limbs, you can make them out of wood. Google "all wood compound bow."
Yes, bows with pulleys could have been around forever, and if you count catapults they have been. I wonder why nobody invented the velocipede in Ancient Egypt for that matter.
TIL you can make a compound bow out of wood: but isn't the limiting factor of a bow the strength of its limbs? If I understand the physics, a pulley doesn't add power to the bow, it just makes it easier to draw.
And easier to draw is an advantage, but I also suspect even wooden compound bows are a lot harder to mass produce to make an army of them. It's possible in the past 4000 years of using pulleys and bows nobody ever thought to combine them... but it seems more likely that somebody did and it turned out to not be a good idea.
I've got some experience making bows and one important principle you need to follow is to minimise the mass at the tips of the limbs, otherwise the bow wastes a lot of energy propelling itself and not the arrow. Metal pulleys would be very heavy, so I'm sceptical you those kind of compounds would outperform normal self bows.
There are videos on YouTube where not only are tribes in Africa presented with compound bows, but where their hunters also demonstrate how those bows are cool for trick shooters, but actually inferior when hunting ...
I shoot a recurve, but also have a compound bow. My recurve is 55 lbs, which is hunting weight but by no means comparable to the 100 lbs war bows used in the middle ages (which took years of training to be able to shoot). Nevertheless, the range of the compound is so much farther than my recurve, that the hunting advantage is obvious. There is a reason most hunters use compound bows these days and why traditional bows are viewed as a specialist pursuit for masochists (even though I personally prefer them for aesthetic reasons).
Well, you should see those tribes hunt. Nobody cares about the better range when hunting for rabbits. What they do care about is how fast they can acquire their target and shoot after wandering around for minutes or hours searching for something to shoot at.
"There is a reason most hunters use compound bows these days and why traditional bows are viewed as a specialist pursuit for masochists (even though I personally prefer them for aesthetic reasons)."
You mean "people hunting for sports". Because I don't know of a single hunter tribe, still living a traditional live, which would have adopted them. And it's not for a lack of knowing about them. Granted: I'm no expert and such tribes could exist. I've just never heard about those.
The excuses for the Aztecs I've heard before, and have always rung hollow to me. Didn't they build really big pyramids out of stone? Even on the side of a mountain or near a lake, I'd much rather have the wheel than not, if I had to build one of those. They moved a lot of stone, without wheels; I don't see how we wouldn't consider that a huge hundred-dollar bill left on the table.
> If you row like a water bug swims, instead of all pulling at once, you go faster. Nobody ever does this.
There *has* to be something missing from this story. Are you saying that a rowing team which would adopt this technique, would easily beat its rivals -- turning a mediocre team into a national champion team, or a national champion team into Olympic Gold -- and they just ... don't?
People know about this technique (after all, *you* know about it) and they just leave the hundred-dollar bill on the table without bothering to stretch out their hand and grab it?
I am not an expert in this; I heard it in a lecture long ago. I think you’d need different oars and it requires more fine coordination?
But yes, it seems like there are often lots of hundred-dollar bills lying on tables, technology-wise, that people don’t take, and to assert otherwise involves making a lot of unlikely-sounding excuses.
Has that technique ever been demonstrated in practice? Or did some mathematician or physicist just calculate that it would work in theory, given a bunch of simplifying assumptions such as assuming finer coordination than any team of real-world humans will ever be capable of?
If a large number of smart and greedy people have walked past the table without picking up the $100 bill, and your evidence for the bill’s existence is a lecture you heard once but can’t remember the details of, I’m going to go with "the bill doesn’t actually exist" as my default assumption..
"But yes, it seems like there are often lots of hundred-dollar bills lying on tables, technology-wise, that people don’t take, and to assert otherwise involves making a lot of unlikely-sounding excuses."
My (limited) experience with obvious technological improvements that people don't take in a competitive environment are that the improvements often aren't. Frequently because of implementation details or path dependencies.
One example of this is designing chips with asynchronous logic. Everyone agrees that the chips would be either faster or use less power. The catch is that getting them to actually WORK is much harder because we have so much accumulated knowledge and tooling to debug clocked logic. So almost no one actually does this in practice.
I tend to be skeptical about low-hanging fruit in a competitive environment. Occasionally you will find some, but often the benefits are less than expected and often non-existent when everything else is considered.
I tried it (in my horse rotator) and the problem is that the oars clash. The reason the vikings in my imagination row in unison is because there are too many oars along the side of the boat for them to go out of sync; they will simply tangle. But I'm just an idle ponderer so I welcome your input on this - how are you even imagining out of sync rowing? Is the boat just awesomely long, giving each set enough room to wag back and forth?
Think about it. Air and water resistance vary with the cube of velocity. So you want a more constant velocity. If all of the rows go at once followed by a long delay then you have a large peak of velocity followed by a decay down to some final velocity. The midpoint is the average speed.
This ripple (peak speed minus trough speed) is proportional to the time between strokes and the strength of strokes. If every oar goes independently then (for 6 oars operated in pairs) it would be 1/3 the strength and 1/3 the delay between strokes. (If you could actually do 1 oar a time it would be 1/6 and 1/6. (It seems like the wiggle from this would outweigh the benefits)
It seems like this might force your boat to be longer or perhaps you could find some low-loss energy storage method that allowed simultaneous rowing but the oars moved sequentially....
Beautiful theory. So what's the reason that professional-level competition rowers do not actually use this method in reality?
I agree skepticism is a natural reaction here, but a word of caution in using professional competitions as a evidence: in most sports rules have become fossilized over the centuries, to ensure I suppose that the winners get there by human factors -- training, strength, et cetera -- and not by technological invention.
Examples abound: it's well known recumbent bikes (particularly with windshields) can go faster than standard bicycles, and use human power more efficient, but you will absolutely never see one in the Tour de France. Certified "Ironman" triathlons ban drafting (even off team-mate) in the cycling leg, even though drafting is a major strategy in regular road racing and would be a considerable advantage over such a long course. Sailboat and motor-car racing have very strict rules, which typically ban any significant technological innovations, e.g. you can't use electric motors in a drag race in part because they would always win. The international body that governs swimming banned "low drag" technical swimsuits as soon as they were invented. Et cetera.
So I would guess the rules for international competition in rowing are likewise fossilized, and any significant departure from the way it's done now would be prohibited.
But your point still stands at least partially, in that you'd expect to see some brilliant innovation in rowing in various unofficial competitions, just like you see recumbent bikes and electric cars in unofficial competitions, and technical suits in non-FINA events.
Indeed that's a plausible answer to my question of why this technique isn't used if it is known to be objectively better. Maybe an even more relevant example in swimming is the underwater dolphin kick, which broke world records when people started using it and which led to the introduction of rules on how long you are allowed to stay underwater after the start.
But still, if the answer is "people agree it's faster but the standard rules for competition rowing forbid it", then it doesn't really fit in a list of inventions like the stirrup and the compound bow, for which the (very debatable) claim is that they could have been introduced centuries earlier, but nobody thought of them even though the necessary preconditions were already in place.
The original claim was just "nobody ever does this", like it's a hundred-dollar bill just lying there on the table and nobody bothers to walk up and grab it. If it's actually a case of "people tried it and it works, but it's not allowed by standard competition rules", that's a very different matter, and less relevant for the current topic of discussion.
It would be relevant to deciding whether the reason we seem to need Bezos types is that they think up the invention, or whether what they actually do is grab an existing unused efficiency and break the rules (or other factors) preventing its use. Which might help decide whether any particular Bezos type person was just lucky and another will come along any minute if he fails, or if each Bezos type is a once in a thousand years chance for humanity to advance.
Yes, I generally agree with you, but I would still suggest a little caution. It's possible for things to get fossilized on a culture-wide basis, sort of a autologous version of the FINA rule-making, and sometimes you do need some kind of visionary to break This Is How We've Always Done It.
I'm reminded of Henry Ford supposedly saying that if he'd *asked* people what they wanted, they'd have said "faster horses." Sometimes the market, and people, just lack imagination. Consider Tesla: one would have thought naively that they could never have succeeded without a network of dealerships, which they could never have built up in a short enough time to avoid burning up all Elon Musk's cash -- and maybe this is one of the best reasons why it took so long for anyone to even imagine inventing a whole new car and a new way of buying them.
But it turned out there wasn't any technical limitation stopping it from being done another way (at least not after the Web became ubiquitous), it just took someone visionary who said screw all the voices of experience who say no can do, I'm going to make it work anyway.
As I said, I would generally agree with you that if it were possible to do better, in almost any random area well within the current scope of technology, than the reasonable default assumption is someone would have done it. Humans are inquisitive, energetic, and greedy. But...not *always*. There's enough contingency to keep things interesting.
Seems to be a lot of interest in this point, so I’ll record what I know in case anybody wants to research further.
There’s an insect that swims on water and has many legs, where the legs don’t all stroke at once, but the stroke starts at the front and propagates back. I’ve seen it many times in creeks on the east coast of the US, around Maryland, but can’t seem to find it on Google.
The lecture was at St. John’s College in Annapolis, MD, one of the Friday lectures, sometime from 2001-2005. The topic was inventions that the ancients could have invented, but didn’t. The lecturer described this hypothetical method of rowing, the compound bow, and at least one other which I don’t remember.
It seemed reasonable to me because of having seen the water bug in action myself. The librarians at the St. John’s College library would be able to supply more details about the lecture; they keep good records.
It sounds a little speculative. The first objection that comes to my mind is that insects act in a regime of much lower Reynolds number than human rowers, and we already know the best propulsive method varies radically with Reynolds number -- this is why bacteria use corkscrewing flagella instead of an oar or swimming motion.
The other version of this is that sometimes the idea is all that's needed. Sequoyeh didn't know how to read or write in any language, but had the idea of phonetic languages explained to him, and he invented a phonetic writing system for Cherokee. Presumably someone with the right insight for this 5000 years earlier could have done the same thing, but nobody with the right insight/opportunity managed it anywhere close to there. (There were writing systems in South and Central America, but they weren't phonetic and they didn't reach nearly that far north.)
Another classic example: Left and right shoes. Presumably, they could have been invented soon after the invention of shoes, but they weren't.
Also, we have no idea how much "obvious" stuff we're failing to see, but I'm willing to bet future people will be sneering at us, not that the bet can be judged.
Looks like they actually were invented many times throughout history: https://hsm.stackexchange.com/a/13734. I'm hardly an expert on footwear, but it seems unlikely to me that this was a case of "this is a great idea just waiting for a visionary to imagine it".
Instead, I would guess that there's a balance between the type of shoe you're making, the material you're making it out of, and how sophisticated your ability to make them is. If the shoe is simple or soft enough, there's not enough advantage to bother making them asymmetrical.
>If you row like a water bug swims, instead of all pulling at once, you go faster. Nobody ever does this.
Assuming it is so (I really have no idea), I'd wager you go faster *for a given amount of rowers*. But the number of rowers you can fit on a boat is much greater if they row all at once, so that the rows are parrallels, rather than like a water bug, which would require considerable space between rowers to avoid hitting each other's rows.
My recollection is that anthropologists believe fire was discovered once. Some isolated people group lost the ability to make fire a long time ago, and never rediscovered on their own how to make it again.
Lots of things that seem obvious in retrospect, aren't.
At the same time, there are instances of parallel development (calculus, maybe pyramids?).
In short, I don't think we can know which inventions would have been invented counterfactually with any kind of certainty.
I don't think this is correct, at least as far as ancient fire starting technology is concerned. For example, Asian tribes used the fire saw, while Native Americans used the hand drill or the bow drill. Lest you think the boomerang is another good example, wiki says: "Although traditionally thought of as Australian, boomerangs have been found also in ancient Europe, Egypt, and North America."
Innovations on better fire-starting mechanisms (or better suited to your new environment) is much easier than inventing man-made fire from scratch.
Given how long fire has been with us, and given that there is at least once instance of people losing the ability to make fire, it seems more plausible to me that man-made fire was not invented multiple times in different places.
As I understand it, the current thinking is that human harnessing of fire came in three stages: opportunistic use and redirection of natural fires, maintaining long-term hearth fires originally kindled with brands or embers from natural fires (similar in operation to, and possibly ancestral to Zoroastrian fire temples), and finally techniques for deliberate fire-starting. It could have been the first or second stage that's thought to have occurred only once (the second stage feels more likely to me, since opportunistic use in inherently situational) rather than the third.
Your position is not unreasonable, but I do think the third stage is most likely the unique event. I think this for a few reasons:
1. I don't thinks humans could have successfully migrated to colder climates without the ability to deliberately make fires.
2. The relationship between friction and fires does not strike me as obvious, and not likely something that would be asily replicated. However once this relationship was understood, finding better ways to create that friction seems reasonable.
Isn't it obvious? Anyone who has rubbed something on themselves hard knows that friction creates heat, and fire is hot.
People underestimate what it actually means that ancient people weren't less intelligent than we were, but less knowledgeable about the world and technologies. But they had a LOT of time at their hands. That's why a lot of stuff certainly has been invented over and over again as people had to adapt to their environment.
I've read through a lot of comments about why certain things weren't invented in culture X. People seem to not understand that those things didn't exist for a reason. The most obvious example being the compound bow, which is very nice for archery competitions, but inferior in actual day to day use to people who actually use bows to survive to this day. The same goes for the wheel in an environment, where no infrastructure existed to make use of it, or where the geography made it outright useless.
That we see the connection now, given that we grew up in a society with that knowledge, does not mean that our ancestors would have made that connection.
I think it is quite obvious how much of a creative leap (or an extraordinary coincidence if discovered accidentally) it had to have been for them to start fire with friction.
There is a big jump from friction that creates heat and a usable coal. If you've ever tried to make a hand drill fire, you can appreciate the difference.
How do they know they made their first fires themselves rather than using a tree that had been struck by lightning or something? Starting a fire is a lot more nonobvious and difficult than keeping one going.
I'm suppose I wasn't clear, but when I said "discovered fire" I was thinking of when we discovered how to make fire.
I don't think so, but i don't think this is important.
And as we have no chance to find out what inventions were not made or used by now because of the way our society and economy works. Who knows what people in the future see what could have been invented by now.
In the context of this discussion, his implies that
1) the inventors are the people that get rich from application of the inventions
2) the inventions would not have been made if you coudn't get rich from them
which i think both is not necessarily true.
What we can do not to miss any fist or second inventors, are giving everyone the chance to develop, publish and test their new ideas without too many obstacles like access to funding and workshops. Most real inventors are intrinsically motivated not by getting rich, but they fave to have the resources (and be it only time) to work on it and here it starts were the prospect of getting rich is important to get the funding. So its not the inventor that needs the hope to get rich, but the investors that usually are well of already and are a completely different kind of person.
Of cause the big things happen when the inventor also has the economic talent and resouces themselves. Examples include Edison, Robert Bosch or Arthur Fischer (https://en.wikipedia.org/wiki/Artur_Fischer). But if we wait for these types to appear, chances are high that we miss many inventions. It is important also to use the ideas of all other people even if they lack the resources and the marketing talent to convince some VC to invest.
"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.
I disagree. I can’t imagine a way for Northrop to get to fail early and often. That takes nearly messianic levels of leadership ability and salesmanship.
> takes nearly messianic levels of leadership ability and salesmanship.
No it doesn't, almost the entirety of the tech industry works this way.
But we’re talking about the aerospace industry.
While I 100% agree with BZC here, I also think it's noting that "fail early, fail often" is a lot easier when the capital stock of the company is a bunch of code rather than $BIGNUM rocket engines, parts, infrastructure and fuel. The cost of failure really is much higher in aerospace, it just turns out that Musk (correctly) determined that making spaceflight sexy and running it like a startup in spite of the capital losses risked by failure paid dividends greater than the costs. All the other private spaceflight initiatives appear to be both slower and more in the vein of pure vanity projects (Virgin Galactic, Blue Origin) or else poster children for the feather-bedding, slow, plodding, overpromise-and-under-deliver spaceflight industrial complex (Boeing,, Northrop Grumman).
There were earlier attempts. Beal Aerospace tried to drive costs down by making expendable vehicles light & cheap using composites & plastic, but the tech wasn't mature enough and the then-eyepopping $250M check from its founder turned out to still be far too small.
Back in the Space Race, when time was actually considered an important cost, national aerospace agencies were willing to fail occasionally and made much more progress as a result. The monetary cost of taking a mission form a 90% chance of success to a 99% chance of success is often larger than the cost of launching 2 of them, but NASA became unwilling to suffer the PR hit of rockets blowing up (perhaps correctly - the irrationality could lie with congress or the public rather than NASA leadership and still explain the results)
I agree - it's very hard to imagine spaceflight stays public-only forever: even if we take a fairly dismal view on spaceflight and don't assume that things like astroid mining will eventually be a very profitable business, it seems like it's already a profitable economic niche from things government contracts alone.
It may be the case that this is above-average acceleration: maybe Bezos invented Amazon 2 years earlier than Bezos Prime, but Musk invented SpaceX a decade before someone else would have invented SpaceY, but private-space-flight is an incredibly obvious (if difficult) economic niche.
"If Musk hadn't started SpaceX, Blue Origin or Northrop Grumman or someone else would have filled that natural niche."
Blue Origin was started BEFORE SpaceX (year 2000 vs 2002) so Blue Origin doesn't seem like a good example of a SpaceX replacement. Northrop Grumman is even older.
As nearly as I can tell, almost everyone believed that re-usable rockets could not be made to work economically. Now ... it is clear that disposable rockets are tough to make competitive with a rival who doesn't throw out his rocket after one use. But until SpaceX made it work it was almost heretical. No, I don't know why ... re-use of the expensive thing seems pretty obvious ...
Lol, what "natural niche"? Sure someone has to be the "most successful" but the reality is if Musk wasn't here, SpaceX wouldn't be here either and those other companies would be just like they are now but shittier because they would have less competition.
There's no real reason to believe they'd be shitter. It's just as plausible that whatever subsidies or contracts SpaceX has received might have gone to them instead, allowing them sufficient funding to improve in possible quite substantial ways. Quality of product/service is only one element of a company's success - the ability to acquire funding is huge and largely unrelated to actual market-oriented quality early on in a company's life, with present financial institutions and investment practices being what they are - capacity for monetization (that is, theoretical profitability if the product quality is good), charisma/persuasiveness, and plain old luck all factor into it as well.
But the companies named in this thread's OP ("Blue Origin", "Northrop Grumman") *were* there before SpaceX, Northrop Grumman long before. They had far more funding than SpaceX did and they were free to compete for the same subsidies and contracts that SpaceX won.
Of course it's plausible that if SpaceX hadn't been around, another company would have won the contracts it did—someone had to win them. But private companies had been given aerospace contracts for many years without any resultant improvement in the cost of spaceflight. Part of the problem was the "cost plus" system of contracting, where the contractors were free to pass along any unexpected costs to their clients with no accountability—but without a competitor to prove that a fixed-cost model could work, and work much better, I believe the fixed-cost experiment would have failed and the government would have returned to cost-plus.
In short, it's your second step, "allowing them sufficient funding to improve in possible quite substantial ways", that I find implausible. The incumbents for decades had all the government funding to themselves, profiting handsomely from it, but not improving, which goes to show that funding isn't the only ingredient in the recipe for improvement.
I don't think date of founding affects my point. SpaceX outcompeted Blue Origin despite being founded later. There were several online stores before Amazon; Amazon was just more successful. If SpaceX hadn't existed, maybe Blue Origin would have been able to do more of what SpaceX did, without SpaceX eating their lunch.
The re-usable rockets example is a great point, and makes me think Musk/SpaceX advanced things significantly. But still, if SpaceX hadn't existed, maybe it would have taken 10, 20 years for someone else to do something similar? Not forever.
Rocketry and space in general needs a big upfront capital investment. Musk was willing to make that, and to make it in an industry regarded as unprofitable. So basically you need someone else who is rich enough and willing to do it. Bezos has, Richard Branson kind of has. So its not unreasonable to think someone else would have done similar within a few years anyway.
The development cost of the Falcon 1, SpaceX's first orbital rocket, was about $100M. That's a lot of money, but I notice that Virgin Galactic (founded 18 years ago) and Blue Origin (founded 22 years ago) have each spent many times more than that without reaching orbit. There's more going on here than just being able to pay big up-front capex.
Virgin Galactic spawned Virgin Orbit, which has launched satellites into orbit. But both Virgin and Blue took a detour into the suborbital tourism business, which costsl ~$100M on its own and doesn't run entirely in parallel with orbital launch.
Also, neither of them hired Gwynne Shotwell, and there were some other questionable decisions along the way. $100M gets you a seat at the table, it doesn't guarantee success.
A lot of it hinges on what if call industry inertia. If the industry is built on the idea that everything has to go perfectly the first time and the only way to get reusability to work is to fail early and often, then that road block could stick around for a while.
SpaceX would be completely bankrupt without government contracts (and they are not cheap in that regard), they were so behind on their launch schedules that a lot of private customers jumped ship. And reusable rockets are still not the great success everyone claims. They are not as cheap as promised, the savings are generally not that much when compared to the whole costs of a launch and satellite operation, and it lowers productivity (because you have to keep your rocket engineers on a paycheck, but they build fewer rocket stages because of lower demand thanks to refurbished rockets). SpaceX is - despite the few successes - not the great shining example of a profitable private space company.
Honestly it's completely absurd that people are still running with this line now. 2013 wants its talking points back.
SpaceX is *selling* their launches for $60M. That's building in a massive profit margin to pay back their engineering work on reusability; their costs on a Falcon 9 launch are probably more like $30M. The best available competitors are still over $100M, IIRC.
SpaceX is probably the leading space power in the world right now, on its own, beating out every other space company and every other *country*. They are the shining example if anything ever was.
It's not clear that SpaceX is profitable. The rocket industry in general is small and hard to make much money from. SpaceX have captured most of that market, but it does not seem to be growing by much. SpaceX do launch a lot, but the majority of their launches are for Starlink, which is an internal project. Indeed, Starlink is where the potential profits lie, not in rockets. As for leading space power, by the numbers it is China (if you separate the US and SpaceX as individual powers). The US with SpaceX is still number one, but SpaceX does not beat China by itself.
To be honest its all a bit moot: the vast majority of Musk's wealth comes from Tesla, not SpaceX.
"By the numbers" depends on which number you look at. In the last four quarters China beats SpaceX in number of orbital launches, but SpaceX launches put up more than twice as much mass with nearly an order of magnitude more independent satellites. Imagine SpaceX retires the Falcon 9 but resumes launching Falcon 1, and does so twice as often. Would it be beating China, then? If not, then it's beating China now. China is improving fast enough that I'll expect them to pass SpaceX if Starship doesn't work out, though.
SpaceX almost certainly has grossly negative cash flow right now when you count Starship R&D and Starlink buildout, despite marginal profit margins on each Falcon launch. That could be a problem for them later, depending on what happens with the business cycle and how well those investments turn out. But that brings us back to Bezos, in a way - the first time I heard the "they're not *really* making a profit, they're just dumping all their revenue back into the business" argument was 25 years ago with respect to Amazon, and in hindsight I probably shouldn't have paid attention to it back then.
It's certain that the Falcon 9 line, as of now, is massively profitable on a marginal basis (probably something like 100% margin). This can't tell you much about profitability on a whole-company basis, because we don't know fixed costs, full R&D costs, etc.
Indeed, it would be surprising if SpaceX were profitable on a whole-company basis at this point, because they're currently plowing every bit of money they can find into Starship R&D, and raising more money as they can. But this is kind of a distortion of what we mean by "profitable". The service that SpaceX provides to outsiders is generating revenue massively over its costs; the fact that they're using that money internally on other projects, rather than keeping it in a bank account or returning a dividend, doesn't change the fact that they are "profitable" in a colloquial sense.
Re: China, I'm pretty sure SpaceX is ahead of them by many metrics, at least. For instance, in 2Q 2022 SpaceX launched about 4X what China did (in terms of mass), and in fact about double what *the entire rest of the world* did. https://twitter.com/SciGuySpace/status/1557083663120072705
And, re: Tesla, it's true that most of Musk's paper net worth is Tesla stock; however, this is honestly kind of silly. It's driven by (kindly) large-scale very speculative demand, or (unkindly) a bubble. Tesla is subject to this happening, because it's a publicly traded stock; SpaceX isn't. But that isn't a commentary on the actual objective relative worth of the two companies.
Wait till you find out about Boeing...
>But still, if SpaceX hadn't existed, maybe it would have taken 10, 20 years for someone else to do something similar?
Or maybe 100, 200 years, if everyone knows that if they make the reusable rocket finally *work*, lion's share of all the profits will be distributed to those who didn't make it work, but maybe could have made it work later?
There's an awful lot hiding in the phrase "just more successful." In context it reads like you're saying they got lucky. In practice, it reads like really intelligent people spending countless hours working on a tough problem and coming up with a novel solution. At the very least the catalyst of "bring a bunch of really intelligent people together and incentivize them to work wholly on [particular goal/challenge]" would be necessary to make it work. That takes money and vision, neither of which are a given in any particular field.
> As nearly as I can tell, almost everyone believed that re-usable rockets could not be made to work economically
People have absolutely believed that reusable rockets could be made to work economically *someday* - Musk's bet was just that "someday" was actually "today". The idea that if not for Musk, nobody would ever have tried reusable rockets just seems absurd.
(Or rather, tried reusable rockets *again*. If you Endeavor to remember you may Discover that Musk was not the first to Challenge the Enterprise of reusable rockets... atlantiscolumbia)
"(Or rather, tried reusable rockets *again*. If you Endeavor to remember you may Discover that Musk was not the first to Challenge the Enterprise of reusable rockets... atlantiscolumbia)"
Many Thanks! I kept reading comment after comment in this thread and was wondering how everyone had forgotten about the shuttle...
Agreed. I was just citing it as a precedent on attempting reusable space vehicles. As you said, it wound up failing to improve the economics of space flight. ( I vaguely recall that when all was said and done, the full cost of each shuttle launch wound up in the hundreds of millions of dollars - in the same ballpark as a Saturn V launch. )
That's why they made the space shuttle. It's pretty hard to sell an idea as revolutionary which just failed and didn't deliver on its promises ;-)
I think you're discounting how hard rocket science is in your analysis (I mean, it's the one thing that you can't say isn't rocket science). Musk's team was really inspired on the business, engineering and science. When you look at how Northrup and Blue Origin have attempted to compete with them it really comes out clear. Those guys said that what SpaceX did could not be done, until they did it.
Those companies are older than SpaceX. There is no "natural niche". The only reason they're doing anything noteworthy today is because SpaceX proved this was all economically possible which made investments by those companies feasible. I dont think things would have stayed underdeveloped forever but SpaceX absolutely moved things along in a huge way.
I think you underestimate how hard the early days of SpaceX were and how much Musk's vision and leadership were crucial. Read Eric Berger's book _Liftoff!_, about the Falcon 1: even before they tried to make their rockets reusable, they'd taken on an incredible challenge by founding a rocket startup. Before SpaceX, there were three types of rocket company:
- big government contractors like Northrop Grumman, high on cost-plus contracts;
- hobby businesses like Blue Origin;
- failures.
"Successful rocket startup" didn't exist as a category before SpaceX, and even since then, no company has got to orbit as quickly as them. Yes, SpaceX succeeded through an enormous amount of work by extremely talented engineers. But without Musk's vision, intense focus and ability to recognise and inspire talent, those engineers would never have been gathered together in one place and enabled/forced to do such high-impact work. Seriously, read the book.
I don't think anyone knowledgeable in this field agrees with this.
There were many other failed companies as evidence .. Andrew Biel's co, Blue Origin, Virgin Galactic ... SpaceX succeeded where many others failed.
NOW there are many private space companies, *but they are offshoots of the SpaceX example* (and often founded by former SpaceXers). Firefly, Relativity, RocketLab. These companies all have copied various examples set by SpaceX.
I'm quite familiar with the list of private spaceflight companies. It's a long list of companies that have all failed to demonstrate a semi-reusable orbital launch system, even though some of them were trying long before Elon Musk got into that business.
And the reason they all failed, is that none of them were run by billionaires (well, except for Andy Beal but he was trying something different and he wimped out anyway). Building a reusable of semi-reusable orbital launch system requires hundreds of millions of dollars, spent over a decade or more during which you will have many spectacular failures, and during which almost every respected expert in the aerospace will tell all your potential investors or patrons that what you are doing is stupid and can't work and wouldn't have a viable market even if it did work.
Now that SpaceX has actually *done it*, the respected experts are changing their tune, and the investors are following suit.
But Northrop Grumman was never going to "fill that natural niche", because Northrop Grumman is run by a committee which will follow expert opinion and pre-SpaceX expert opinion was that the niche didn't exist. Blue Origin has been around for twenty-two years and still hasn't managed even an expendable orbital launch system. And the rest, could never have afforded it.
Building the first reusable orbital launch system, in the world created by the godawful "space race" of the 1960s, requires a person capable of writing checks for hundreds of millions of dollars without asking permission. Because the people you would have to ask for permission, will have been told by the experts that this was a stupid idea that you should never be allowed to waste the taxpayers/investors/whoever's money on.
I was there. This is how it was. The options were Elon Musk, or some other billionaire, or *maybe* a tight group of hundred-millionaire venture capitalists with a common vision. Or being stuck on Earth watching a handful of designated Space Hero Astronauts flying propaganda missions at exorbitant public expense.
I think it may be important to realize the Musk was NOT a billionaire when he founded SpaceX. Estimates of his share of the PayPal sale seem to hover around $180M. Some of the $180M went into Tesla (which was also not profitable ...) and Musk was pretty close to bankruptcy just before SpaceX had its first successful Falcon-1 (not 9!) launch which resulted in enough NASA money to survive.
So a mere hundred millionaire who is/was willing to bet EVERYTHING pulled this off. I'm not convinced that "some other billionaire" would have made this work. Musk did the equivalent of burning his boats with the money he poured into SpaceX compared to how much he had at the time. More sane billionaires would have bailed earlier ...
Wow ... you beat me to it!
I'm hoping John Schilling doesn't feel picked on.
John is correct in that you can't do this on the cheap.
For the record, Elon was a low-hundred-millionaire when he founded SpaceX (& heavily invested in starting Tesla at the same time). He didn't become a billionaire until 2012.
Of course, I'm sure some other investors helped over time; still, the man is quite capital-efficient, compared to the competition 😁
And Falcon 1 wasn't a reusable orbital launch vehicle. In order to develop a reusable orbital launch vehicle, Elon had to invest a hundred million or so dollars developing a minimum viable product that would put him in a position to invest billions of dollars while laughing off the experts telling him to just stick to launching satellites and stop wasting money on those stupid droneship-landing experiments that kept failing.
If he'd been capped at or taxed into oblivion at say half a billion, lest we ever have any unsightly billionaires in our economy, SpaceX would just be another small launch provider.
That's the part Scott and so many others miss. It isn't "lone genius has a clever idea, hires a bunch of people to Make It So under his management, and collects his billions". It's an iterative process, with each step increasing revenues, increasing costs, and increasing benefits. The no-billionaires version means SpaceX exists, but it never built anything bigger than the Falcon 5. Tesla exists, and produces a few thousand Roadsters a year. Amazon exists, and sells books. Apple exists, and sells Macintosh desktop computers.
This is a very important point , and to expand on a bit, I think most people fail to understand that very rich people don't think the same way as the rest of us do about money. For us, it's a consumption good. Oh yay! I can not owe the bank money, I can eat Wagyu steak every night, ski St. Moritz. For the very rich, money represents the power to do things, to call their visions into life -- and they wouldn't *be* wealthy unless they were stuffed with visions, unless they had an unholy drive to see something new brought to life. So without the ability to accumulate enormous capital, you are shutting off some very creative people from toying around with trying to create entire new industries, or ways of doing things -- stuff that no committee, and no government agency responsive to the Conventional Wisdom and the wishes of the political majority, could even think about. What is the value of that?
Great point and something that I haven’t often heard in the conversations.
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.
walmart has spent what 20 billion trying to replicate amazon and they have a knockoff version that isn't horrible. no other company has come close, because most companies don't have 20 billion laying around to try. not sure if this is an argument for amazon being special or an argument they need to be regulated out of existence
The giant retailers have that kind of money. There's no monopoly here, Amazon just does online retail well and they do it not so well.
Can't say that I find Walmart's website any worse than Amazon. Then again, I never buy anything from Amazon.
Was gonna say the same thing. I know it’s kinda beside the point to this post, but from a usability perspective Amazon definitely wins in recommendations but isn’t that much better / more intuitive to me. And Walmart is catching up heavily to Amazon in e-commerce as some evidence it’s not really quite true (will presumably catch up and surpass within 5-10’years)
Again: kinda beside the point of the post. No one else did create it per se. But I’d argue that’s more because economics to scale is hard to hit in this space, and really only Amazon & Walmart can conceivably compete (and Walmart is catching up)
Because they started with books, Amazon's website has taken over library catalogs. As a library catalog, Amazon's website really sucks. Now all library catalogs feel they have to imitate Amazon because that's what people are used to, so now they suck too.
Huh. I used to be really impressed with Amazon's awesome book search. For the last couple years at least it just plain sucks.
I agree. I will sometimes type in the name of a specific (albeit obscure) book and have to click through multiple pages in order to find that book listed on the site. This is after checking "Book" for the category!
I am frankly astonished that Amazon has been so unassailable for so long with such a poor UI and search functionality. However, given the recent news about Bed Bath and Beyond crippling itself because it minimized search friction and streamlined offerings -- not understanding that its customers preferred the "treasure hunt" of expending effort to find what they wanted -- I wonder whether a similar dynamic doesn't apply to Amazon.
> ...recent news about Bed Bath and Beyond crippling itself because it minimized search friction and streamlined offerings -- not understanding that its customers preferred the "treasure hunt" of expending effort to find what they wanted...
Where is the best place to read about this? I found two recent articles but wasn't entirely able to connect their contents to your interpretation.
This is very got but not so obvious point in the economics of scale, Thank you for that.
I've seen this pattern before but didn't connect to economics of scale: when there is one big successful company in the market the others and the newcommers tend to imitate it because it obviously worked. But perhaps the secret to success was something completely different than the UI they imitate. This way there is a standard established, the people get used to it and soon will expect it not because it is the best, but simply because it was the choice of the first successful company.
If people have the choice between good service and good UI of cause they learn to deal with the bad UI and the next generation of customers get used to that bad UI so much, that learning something else seems like a considerable effort especially if you have low reason to expect it to be better once you are used to it.
Yea, Amazon and Bezos aren't rich so much because they were first, but because they have remained dominant in that field over a long period of time.
I think this is actually a significant problem w/ Scott's last argument - the founders of Friendster and Myspace aren't infamously super-rich, because unlike Zuck, they were not able to keep their thing going strong, in the face of competition, over a long period of time. Getting in first is a huge advantage - but then competition comes in and challenges you. If you don't rise to that challenge, you may walk away with some I-did-it-first money, but the competition will wind up getting the big pot. If you consistently whoop the competition, it's either because you're providing better value, or because you're shrewder at business (this latter part is something the left can perhaps legit complain about, but it's a hard thing to correct accurately). To the extent you're providing better value than all the other competitors who come along over the years, you should reap proportionate rewards. So it is w/ amazon - no one else has 2 day shipping afaik. This accords w/ a general statement about profit margins and competition - low competition should naturally lead to high profit margins, because you're apparently doing something so hard or risky that hardly anyone else can manage to pull it off (this argument falls apart completely when you have low competition because you're exploiting regulation, e.g. IP laws, or when you have a true monopoly).
Speaking of monopolies, they're the big exception to all this - true monopolies can win forever against any competition despite having a mediocre product. FB has a true monopoly because of network effects (a social network has no value unless everyone is on it, so it's hard for there to be two dominant social networks in the same space, winner takes all), but I dont think any of the other big tech companies have that. Amazon has a lot of competitors, they just haven't made themselves as attractive to customers as amazon has. And FB faces the Thielian issue of serial monopoly, where the true monopoly gets free cash for a long time but eventually gets beat out by a new monopoly in an adjacent, but different space (e.g. snapchat or tiktok).
They became dominant because of their early success. They had a slightly better website than their competitors 20 something years ago, and its all snowballed from there. Yeah, it took a lot of work from a lot of brilliant people, but Amazon were only able to hire said people because of their early success. If they didn't, these people would have worked somewhere else.
This doesn't explain why Walmart (or any other large retailer) didn't kick their ass. Amazon was not rich in 2001.
Facebook is a terrible example of a monopolist, practically the textbook example of why so many arguments about tech monopolies are wrong. They are SO not monopolists that they had to buy Instagram and WhatsApp just to stay relevant, and now there's Tiktok which they can't/won't buy and so they've just given up on social networking completely. Hence the Metaverse stuff. Presumably Zuck got tired of the social networking rat race in which people are constantly hopping between technically uninteresting networks that have slightly but crucially different takes on what exact social idioms people want this year.
This even proves that (monolithic) social networks are kind of a natural monopoly. If there is no space for Facebook, Instagram, WhatsApp, Tiktok and Snapchat, to live well along each other, but if it is always an existential question to dominate or to give up. Perhaps the market of social networks doesn't have to be like this and could be organized differently with working competition when there would be federation and no user lock in. But the reactions of facebook you described, proof that at least facebook sees this as a monopoly market.
How does a thriving marketplace of competitors prove it's a natural monopoly? Quite the opposite I'm afraid. Facebook kept buying its competitors exactly because social networking turned out to be the opposite of a natural monopoly - it's very easy for people to switch between networks and they often do.
"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."
Also, Sears started with a successful mail order business. You can't put your catalog on the internet????? For Sears, the answer was, "no, we can't."
Sears started with a successful mail order business *and its own ISP*. And then instead of Prodigy becoming their new mail order storefront, they tried to increase revenues by charging $0.25 (in early 1990s dollars, even!) per *email*.
Yeah. Sears *could* have become Amazon (in some other universe ...). Sears/Prodigy could have become AOL. Sony should have been the one to invent the iPod ...
IBM figuring out that it needed to do a personal computer is kinda an outlier of an successful entrenched player realizing that the game was changing and they needed to change with it.
The Innovators Dilemma is real :-)
I agree with your point, but I'd add an additional point:
Is AMZ's website good? No, OMG no, it is TERRIBLE. It was amazing in 2000, it was dated in 2010, it's embarrassing in 2020.
Some examples:
- try to order anything technical, like a hard drive. The categories it offers to clarify your search are insane. In 2022, would you like to buy hard drive between 81 and 120GB? Well, then, AMZ is your site!
- have you ever tried to buy anything by color (clothes? soft furnishings?) or by size (furniture?). It's endless frustration.
It's simple. AMZ is not interested in applying ML technology to their site. They SHOULD be weighing and photographing (from multiple angles) EVERYTHING they sell, so that searches by color/size/weight are trivial. They should be learning natural clusters of objects (like hard drives) so that ways to clarify your search are based on constantly evolving criteria, not what some human thought were a good set of categories somewhere around 2007.
So it's certainly FEASIBLE for someone to disrupt AMZ, for example by creating a vastly superior shopping engine (think Google vs Alta Vista) and selling it to someone with the capital to do the retail part (possibly an existing retailer like Target, possibly an unexpected competitor like Facebook). But that hasn't happened. Yet. Why? Because the kinds of people who can make these sorts of huge changes, who have all the elements concentrated in one person (or perhaps two close friends), both the technical skills and the rest of the business-side package, are very very very rare.
'the rest of the business-side package' is doing an egregious amount of heavy lifting in your claim there, because a not insignificant part of said package is 'sufficient wealth and/or connections to wealthy individuals to get the business off the ground and overcome significant barriers to entry due to network effects, a situation in which they're comfortable risking failure if they try, and enough interest to think making the attempt would be worth it, over the multiple years it would take to even get a real test of viability'. And sure, people with all those things are rare, but that's in part because of how concentrated wealth is. Honestly for all we know maybe someone *is* already trying, and it'll just be another few years til we see results, or maybe Bezos will do something financially shady to sabotage or consume that nascent business. It's impossible to say - which means any claim that it's just because Bezos is personally exceptional is itself an exceptional claim.
Amazon's website is not their moat. Their moats are
- extreme logistical competency
- oceans of cash from AWS
- everyone already thinks of them as the place where you can find whatever you're looking for.
Dunno, I buy all my furniture from Ikea and many clothes from Zalando, both provide better experience than Amazon for their respective products.
Amazon's website is also awful from a usability perspective (though less bad since Bezos relinquished personal control over every pixel on the front page). I don't go there because I expect a pleasant user experience, I go there because I expect that I'll (eventually) be able to find any random item I want at a reasonable price.
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.
Non competes absolutely discourage competition and are inherently anti-competitive. the FTC is working on curtailing them.
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)
Jobs died, and Apple has continued to be profitable and successful, but it seems clear that it will probably never again achieve the innovation and insight of its glory days.
And the "if all workers quit" argument is kind of weak, because it assumes like, all workers _worldwide_ quit. If all _current employees_ quit, there would be chaos for a few weeks, and then all the positions would be filled from the millions of people whose job opportunities are generally much worse than those at amazon, generally people from less affluent countries.
I'm willing to bet that even given these stipulations, the loss in value for the "workers quit" case is orders of magnitude greater than that for the "Bezos quits" case. And it's relative value that we're talking about.
All workers quitting would pretty much necessarily be a political boycott. If Bezos were to quit as part of a political boycott, the numbers change again.
That's an odd argument to make, because it's definitely true that 1.6 million people all quitting is more important than one person quitting, but that doesn't lead to the kind of conclusion you seem to think. Those 1.6 million people make a *lot* more money than Jeff Bezos does, collectively. They are already valued at many multiples of what Jeff is valued. One for one, almost every other employee in the company can quit any time and nobody beyond their closest coworkers would even notice. Jeff quitting is major international news.
My friends and I have run into this question so often we have a name for it: the left foot problem. How much of a sprinter's speed is the left foot responsible for? If you cut it off, he can barely walk, so in some sense 90+%. But if you cut off the right foot, or the head, you get similarly huge drop-offs.
You can try to square this by giving every remove-it-and-we-can't-operate part an equal share, but then this turns into a gerrymandering game. What's the smallest part you can (cut off, unionize) that's critical enough to threaten the whole system? A toe wouldn't do it, but half a foot might. Just bezos wouldn't do it, but ten properly chosen execs at the top might.
Some folks in our indefinite politics chat are still trying to derive a fair distribution based on how much slower you run if you cut it off, but I came down on "pay market value."
Shapley Value is the best answer to this question I’ve seen.
I think not quite, JT makes this problem more interesting than attributing value to a set of agents: if you consider "brain and feet" they would get 0.5 each, but if you decide to think of brain, left foot and right foot, brain gets less credit.
I do not know of a framework that generalized Shapley Values to such case. (And would love to hear if there is something)
It’s true one executive could quit and then be replaced, but the same is true of workers.
If all executives quit, and weren’t replaced, the company would cease to exist just as surely as if all the workers quit. There might be exceptions to this, like small worker’s co-ops, but without authoritative decision makers any reasonable-sized company would collapse.
This is fair. So seeing as the initial discussion was about distribution of profits, a better argument would be to 1) bucket groups of employees/execs by total remuneration then 2) measure the effect of losing say 100M/y of warehouse staff vs. ~100M/y of execs. Interestingly, because of externalities, the relative effect might shift quite a lot depending on the size of the bucket - e.g. thousands of warehouse staff would probably have a greater effect on the national warehouse-staff employment market than a few execs would have on the large-corp-exec market.
That’s a really interesting point. I’ll have to think about it more.
My gut reaction was that the higher cost of the execs was just a function of supply demand, but I’m not really sure how that fits in.
I don't think "all the workers combined are generating more value than Bezos" is a surprising result, and I think it's already priced in to the salaries.
How much does Bezos make? A quick google says Bezos makes ~1.6 million dollars a year, total compensation. Alternatively, if we divide his total net worth ~150 billion over 30 years of being CEO, we could also say he's made about 5 billion a year, historically: if you think that is a more fair "income".
How much do Amazon warehouse workers make as a whole? Google tells me that Amazon has ~1.5 million employees worldwide. Not all of those are warehouse workers: apparently Amazon has 185 of those globally, and "more than 1,500 full-time employees" is what their docs say (https://www.aboutamazon.com/workplace/facilities), and Glassdoor says ~$40K is an average annual salary. 40K * 1500 * 185 is $11 Billion.
In other words, $11 Billion for warehouse workers, which is more than double the high-ball estimate for Bezos's annual "earnings", and 7000 times his actual total compensation.
So, yeah, firing 11 Billion dollars worth of employees, unsurprisingly would do more damage than firing a single 2 Million dollar employee. The sleight of hand is, of course, to treat the value of the individual workers collectively, but compare their salaries individually.
Thanks for doing the maths! I think my comment to SS covers a more nuanced take. But I do absolutely count the rise in his net worth held as Amazon stock as income for these purposes (otherwise any argument about billionaires is worthless, because how many billionaires got there on salary alone?). So we're comparing $5B with $11B, which are the same order-of-magnitude. I still suspect the difference in effect would be orders of magnitude apart.
I gave the $5 Billion for the sake of having an upper bound, but it is a pretty extreme figure to actually use: it's 100% of his net worth, which includes, among other things, founding two other companies, and all other investments that he's made.
But more importantly, I *don't* think counting stock appreciation is relevant here: we're talking about how much he's worth to Amazon as reflected in how much they compensate him. If they pay him a million dollars worth of stock in 1998, then the price increases 100x by 2020... yes, he has 100 million dollars of net worth, but Amazon didn't value him at a hundred million, they valued him at one million.
In essence, the other 99 million dollars came from other people who thought that stock was worth 100x more than what it used to be worth, not from Amazon.
> we're talking about how much he's worth to Amazon as reflected in how much they compensate him
That's not how I read it - all that Scott talks about the proportion of the total value of Amazon that Bezos owns. He consistently talks about Bezos' net worth, not some imaginary number which is "that part of his net worth which is due to his salary rather than his stock holdings".
I guess I'm just not sure how you can make any useful comparisons between Bezos and warehouse workers if you include stock appreciation.
If the argument you want to make is "the government should try to stop people from making significant money from the stock market", well, that's a whole different conversation and I'm not sure where the warehouse workers in Amazon distribution centers come into it.
If, on the other hand, you want to have an apples-to-apples comparison of how much Amazon compensates its CEO vis-a-vis its warehouse workers, it seems you have to talk about how much Amazon actually pays, and not factor in three decades of extreme stock appreciation. That's not the framing of Scotts whole argument, but it was the framing of this comment chain, as I understood it.
Easier to destroy than to build. By that logic, armies create all value.
That's part of the issue here - amount of the value you can destroy is a proxy for how much you can negotiate for. Amount you can destroy legally is maybe a better proxy. Armies certainly can negotiate for a lot more value than they can create, especially if we're discounting "creating value" by providing for defense.
> if Jeff Bezos were to stop doing any work now, then Amazon's share price might drop a bit...but it would otherwise continue to function and produce value
This argument assumes that the only thing Bezos brings to the table is his work, but that's not true. What Bezos brings to the table is also the capital the owns. "Taking his ball and going home" for Bezos would be to deprive Amazon of that capital.
I don't know how that would work in the context of abstract stock ownership, but certainly we could imagine a 19th century capitalist burning their own factory to the ground (just the factory, not the workers).
The problem is that “should Bezos own this much” is exactly the issue being discussed.
To put in another way, there’s no inherent merit in owning something. If Bezos could give away everything at no cost to the company or society, then that would be a strong reason to say Bezos shouldn’t have that stuff to begin with. I don’t think anyone really agrees with that, though.
The ability for him to quit with the business being able to continue is of extreme value that he engineered.
All parts of a business ceasing to function (you just picked employees but you could have said all of their vans suddenly cease working and need a 1 to 1 replacement) will make the business stop earning money. But all of those things working together Bezos can take a lot of credit for.
The majority of the value remains with Bezos.
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.
Yes. There is a very important role for government - Step 1. Create the fair and transparent rule based system that curtails use of power and allows markets to function. Step 2. Don't try to game it afterwards.
Step 3. Watch as society becomes prosperous
"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."
That statement is trying to do a lot of work without the definitions and evidence to back it up. I think you need to at least define what you mean by "innovator" and the time period you claim. For example, in this ranking, "socialist" Sweden beats out the US: https://www.visualcapitalist.com/national-innovation-the-most-innovative-countries-by-income/
Hmm, an interesting assertion. Off the top of my head, the most consequential inventions of the 20th century and their country of origin:
airplane (US)
jet engines (Britain)
radar (Britain)
the laser (US)
radio (Italy)
transistor radio (Japan)
TV (US)
transistor (US)
integrated circuit (US)
computer (US)
TCP/IP (US)
HTTP (Britain)
nylon (US)
antibiotics (Britain)
genetic engineering (US)
immunosuppressive drugs for transplants (US)
balloon angioplasty (Germany)
MOSFET (US)
cell phones (Japan)
smartphone (US)
Haber process (Germany)
fission power (US)
(practical) lithium-ion battery (Japan)
(practical) solar cell (US)
CCD (US)
Unix (US)
Linux (Finland aha!)
compilers (US)
Algol 60 (Netherlands)
C (US)
So my personal invention index count is US 18, Britain 4, Japan 3, Germany 2, everyone else 1.
Having a hard time coming up with anything really big out of Sweden on my own, but sweden.se says the zipper and pacemaker, so there's that.
"Television" and "computer" were both arguably invented in the UK (Logie Baird's TV in 1926; the first stored-program computer was the Manchester Baby, and the first commercially-available general-purpose digital computer was the Ferranti Mark 1).
The computer was co-invented in a lot of countries. Google for Zuse, and why Germany claims the invention of the (digital) computer for itself ;-)
Carl's list is highly debatable anyways. Attributing the plane to the US for example is a gross oversimplification of what actually happened.
Edit (the following statement is non-sense. I only leave it here, so that the following thread still makes sense to future readers): Even more grotesque is the idea of Carl to attribute Nylon to the US only. I mean: it's literally in the name "New York London => nylon" ...
> Google for Zuse, and why Germany claims the invention of the (digital) computer for itself ;-)
You're right, I should have mentioned Zuse. But if we're going to allow partial credit, the first design for a digital programmable computer was Babbage's Analytical Engine in the 1830s :-)
> Even more grotesque is the idea of Carl to attribute Nylon to the US only. I mean: it's literally in the name "New York London => nylon" ...
This is an urban myth, sadly: https://en.wikipedia.org/wiki/Nylon#Origin_of_the_name
My bad. Thanks for correcting me on this one. I never questioned it and had it in the back of my had for decades now.
Oh come on. Nylon 66 was invented by Wallace Carothers at Du Pont in 1935, as part of a long-standing research project in polymers. The name has absolutely nothing to do with either New York or London, I can't imagine why you think it might.
It's a widespread urban myth - I think I first saw it in Ripley's Believe It Or Not! in about 1989.
How about a count of Nobel prizes by country as a proxy for innovation? On a per capita basis it would be a useful metric.
It's certainly not the worst idea I've ever heard of, even though it comes with its own challenges. Not the least of it being that making an invention and successfully commercializing it not being the same thing. Nobel prizes often acknowledging achievements only decades later being another issue.
And regardless of the metric chosen: the US will likely come out on top, due to it being an economic powerhouse. And rightfully so, I'm not disputing that.
However: I'd argue that there would be little to learn here, as an experiment with a sample size of one is of little use. I'd argue for example that the US was as least as innovative in the 40th, 50th and 60th; despite having had various issues back then and also having had a wide variety of fiscal policies back then as well as a much stronger antitrust law enforcement than today.
Per-capita the USA is fifteenth, behind noted innovation powerhouses like the Faroe Islands and Saint Lucia (and also the UK, Denmark, Germany, Sweden etc): https://en.m.wikipedia.org/wiki/List_of_countries_by_Nobel_laureates_per_capita Restricting to scientific prizes only bumps them up to twelfth. Where a laureate was born in one country, has citizenship in another, and is resident in a third, that's counted for all three countries; it would be interesting to see a table ranked by country of birth only.
No, they're not. I'm not straining at weird little precursors, I'm choosing the people and places that made the invention broadly successful. For both the TV and computer, that was the US. It's the same reason I credit antibiotics to the Brits, although some Germans had been using a few compounds in a few cases earlier. Fleming and penicillin were the first widespread clear success.
You clearly did, as demonstrated by attributing planes to the US, even though they were made broadly successful by WW1 before the US ever decided to take part in it ;-)
Logie Baird's TV is a weird precursor, sure. But I think the Ferranti Mark 1 is a good argument that a lot of innovations that happened in the USA would have happened elsewhere without the USA. Univac won thanks to the USA's larger internal market and some boneheaded decisions by the British government - without that, Ferranti (or some later imitator) could well have won.
Also HTTP was invented by a Brit, but he did it when working for the CERN. Now: do we attribute that to Britain, or to whatever entity one wants to attribute CERN to ;-)
Those lists are pretty pointless as they remove too much context to learn anything from them ...
But "making commercially viable" isn't what usually meant by invention, cd..patent law.
Also the steam-engine, spinning Jenny (and a bunch of other agriculltural machinery) vaccination, hovercraft.
Also ,three people,all British invented the light bulb before Edison.
True, but Carl did specify "twentieth century"; that excludes everything on your list apart from the hovercraft, which has alas not lived up to early predictions that it would change the world.
(I took a hovercraft ferry across the English Channel once. It was awesome.)
I'm not sure listing Unix and then Linux is a good argument for innovation being worth money. Linux is just a clone of commercial Unix.
Initially, sure, but it's now surpassed it. I'd argue that "open-source software" was the more fundamental innovation, and that's American (RMS at MIT).
Thank you for taking the time to read and reply. In my view, the USA has strayed far from a market-based economy in the last fifty years, and the government has been increasingly responsible for stifling creativity through growing and contorted forms of regulation and taxation. I also do not see an easy comparison between a resource-rich, highly homogeneous country the population of New York City and one 35 times its size. That graphic doesn’t do a great job in my view of defining its measurements, and despite all that the US still ranks as high, which I find remarkable given its size and relative complexity.
The larger country should have a huge advantage due to network effects. And the USA is not exactly resource-poor!
I’m not convinced there are that much greater intra-country network effects vs inter-country between like-minded individuals and companies. The USA is a huge and diverse place and while interstate commerce works very well, we also work very well with many other countries.
I'm guessing you've never tried to sell a good or service across an international border :-) Look at the chaos being caused by Brexit to see how damaging it can be to leave a shared customs/regulatory area, and by implication how beneficial it can be to be part of one. But you're right that varying laws, taxes etc between States blunt the US's potential advantage here compared to a completely uniform internal market.
I have, at a startup no less. It’s not that bad, though the red tape exists and is growing.
In terms of founding valuable companies, Sweden does well but is still easily bested by the US after controlling for population size and GDP:
(data from https://www.cbinsights.com/research-unicorn-companies)
-------------------------------------------------
Number of unicorns per 100 million people
-------------------------------------------------
1. Israel: 247
2. Singapore: 230
3. United States: 194
4. Ireland: 123
5. Norway: 94
6. Hong Kong: 93
7. Sweden: 78
8. Finland: 72
9. Switzerland: 70
10. United Kingdom: 69
----------------------------------------------
Number of unicorns per $1 trillion GDP
----------------------------------------------
1. Israel: 69
2. Singapore: 43
3. United States: 34
4. India: 30
5. Hong Kong: 21
6. Ireland: 19
7. United Kingdom: 17
8. Finland: 16
9. Sweden: 15
10. China: 15
-------------------------------------------
$ of total unicorn value per person
-------------------------------------------
1. United States: $6335
2. Israel: $5405
3. Singapore: $3679
4. United Kingdom: $3091
5. Hong Kong: $2731
6. Sweden: $2321
7. Finland: $2259
8. Australia: $2177
9. Ireland: $2064
10. Switzerland: $1444
----------------------------------------------
$ of total unicorn value per $1000 GDP
----------------------------------------------
1. Israel: $151
2. United States: $111
3. India: $89
4. United Kingdom: $77
5. Singapore: $69
6. Hong Kong: $63
7. China: $60
8. Finland: $52
9. Sweden: $45
10. Australia: $45
> 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.
To what extent is that "America creates more innovation", and to what extent is it "ambitious and innovative people move to America because they know they can get greater rewards there, but if America hadn't existed they would have founded companies at home"? Surely a bit of both - many innovative American companies were founded by immigrants, but there are beneficial network effects from having lots of innovative people in one place.
And I'd say that probably the biggest reason that they moved to America is its unique geographic advantage. While Europe and Asia were endlessly mired in wars between more-or-less equal in power neighbours, USA was able to pick and choose its wars for about as long as it existed, and so never lost one.
What time period are we talking about? AIUI the USA overtook its European rivals in the second half of the 19th century; the only big European war in that period was the Franco-Prussian war in 1870-71. It's a much stronger argument for why the Industrial Revolution started in the UK, though! The obvious reasons for why the USA drew ahead are immense natural resources, "free" land, a large internal market, and disproportionately attracting entrepreneurial and ambitious people from other countries. But there are some more interesting proposed theories, like "labour was scarce in the C19 USA, so it was more worthwhile to invest in automation there than it was in Europe, where skilled workers were more available." There's a great post about it in this month's Works in Progress: https://www.worksinprogress.co/issue/the-decline-and-fall-of-britain/
> and so never lost one.
Not in the relevant period, but the Vietnam War is the obvious counterexample. I'd also argue that the US failed to achieve its war aims in the War of 1812.
Well, my understanding is that USA became the clear leader in the aftermath of WW1, and WW2 sealed the deal for the global hegemony. As for the arguably failed adventures like Vietnam or Afghanistan, they weren't really wars in the historical sense. Team World Police's modus operandi is basically trying to convert foreign societies to its values without even bothering to annex them, then eventually becoming bored and giving up. Maybe it's fair to call those defeats, but not the kind which can significantly hurt the homeland, which is evidenced by America's continued appetite for them.
> Well, my understanding is that USA became the clear leader in the aftermath of WW1, and WW2 sealed the deal for the global hegemony.
I think the World Wars allowed the USA to become the dominant *geopolitical* power, but it was already the leading *industrial* power by around 1900.
Was it mainly due to innovations, or the size? My understanding was that 19th century American universities were second-tier, but I guess it's possible that faster improvements were happening independently of academia.
To make sure I have this right, your claim is "the innovations that happened in America would have eventually happened somewhere else" - is that right?
Well, they did happen somewhere else. A lot of the inventions people in the US claim for themselves are claimed for their own country in many other countries. Those "who invented what" lists are often pretty arbitrary. "Who invented what" often hinges on the definition of what exactly counts as the actual invention, and what only lead up to it.
Just look into the history of the invention of planes, computers, electrical light, fission, transistors and lots of other revolutionary things which shaped the 20th century.
Perhaps! Some of them surely would have (and indeed many were independently created elsewhere but beaten in the market by the American version, as noamik notes). My actual stronger claim is "some of them would have happened in other places at roughly the same time if America wasn't hoovering up talent". But America's talent-hoovering must have had *some* net beneficial effect, because having lots of innovative people together in one place makes it easier to be innovative - it's easier to meet co-founders, easier to find skilled employees, easier to get funding, etc.
I feel as if the main advantage of the US is the availability of free capital. So the question Scott poses is actually the truly important one: "How much return of investment is necessary to not stifle innovation, and at what point does the creation of monopolies hurts innovation more, than the expected return of investment helps society?"
The 1950s for example saw high taxes at the margins in the US, but still had the US dominate innovation and production. So it seems to me as if the claim that taxing those earning would stifle innovation immediately isn't substantiated by actual historic evidence. However: what we have seen in that historic precedent was that gap between rich and poor was closing back then, and has been opening up since.
> I feel as if the main advantage of the US is the availability of free capital.
Agreed. Anecdotally, I've heard it's *much* easier to get a tech startup funded in the USA than in the UK.
Speed matters. If one country consistently brings innovation and discovery to market effectively then cumulatively it will race ahead of others. Arguably the English empire was highly successful at this (along with imperialism) and punched well above its weight per capita until world war 2 drained its talent and population.
And money: we spent all our money in WW2, then pissed our Marshall Plan money up the wall trying to hang on to the remnants of Empire rather than rebuilding our industrial base.
Worse than that. The UK spent the capital of the entire Victorian era during WW2, and gave away 50 years worth of technical advantage via the Tizard Mission - https://en.wikipedia.org/wiki/Tizard_Mission
I... Surely you see that greater rewards wouldn't exist there if they didn't create more innovation?
That's not obvious to me. It's easier to capture a large share of the surplus generated by your innovation in America than elsewhere, but you'd still be incentivized to create the innovation if your captured share is enough to compensate you for the costs and risks incurred. As a toy example, suppose you're an inventor in Kafiristan, and you have a great idea for a new product. Wonderful! Except the government will take 99.99% of the producer surplus, leaving you merely comfortably well-off. But if you can get to the US and develop your product there, your investors will merely take 99% of the producer surplus, leaving you rich beyond the dreams of avarice. Clearly it's a good idea for you to move to the US, even though the total amount of innovation generated is the same. Now, clearly this is not the only effect in play; network effects make it easier to develop and market your product in the US than in Kafiristan. My point is, you have to consider both effects. But I might be misunderstanding you: are you saying that "innovator captures more of the surplus" is *caused by* "more innovation happens in the US"? If so, what's the mechanism? The causality in the other direction is clear, but I don't see why it would work that way round.
> you assume a perfect government that taxes and redistributes fairly to everyone worthy and deserving.
No he doesn't.
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.
i agree with this, except that rich and powerful people often harness the law to minimize their actual risk, e.g. declaring bankruptcy and stuff. I think this is true in theory but less true in practice
I suppose my perspective comes from the business owners that I know personally. Even declaring bankruptcy wouldn't save most of their loss - it would be devastating in a way that wouldn't apply to the employees, although losing a job is devastating in its own way. Might I inquire as to what you mean by "harness"? Are they doing something illegal to make bankruptcy laws work better for them?
no, i don't mean doing anything illegal, i just mean doing what _is_ legal, which is a lot easier for someone who can afford to hire a decent lawyer, than it is for a typical working class person.
I didn't really mean to minimize the dificulties of declaring bankruptcy, but it is one of the govt provided mechanisms by which the risk equation is altered from whatever it might look like in theory.
Purely anecdotal but the amount of emotion, time, outside work sacrifices, etc that get put into a startup outsize the personal financial risk. Add on the responsibility of handling others investment money, and, yeah, no amount of legal or illegal tricks to get out of a failed businesses financial responsibilities comes even remotely close to balancing the pain and loss of the failure. Personally the finances are the smallest loss (even when they were for me all of my saving plus some debt), seeing something you put everything into fail, feeling like you let down investors who believed in you, etc are by far the biggest losses. Which is all to say those "risks" exist regardless of your wealth and, unless you're a psychopath, can be just as brutal.
Yes, the risk isn't all about money.
That's a good point.
This might be true of businesses with a smaller difference in wealth between the owner and employees. But if Amazon were to tank then yes Bezos would lose billions of notional dollars, and still be a very rich man. Many (most?) of his employers would face losing their livelihoods, their homes, their healthcare, etc., and in the glut of fellow workers suddenly looking for a new job I don't think it would be as easy to get new employment as maybe you think. "Risk" is difficult to measure on a dollar scale.
This is true today. For a large part of Amazon's existence, it would not have been. If you play around with the results, don't be surprised if you lose the process.
If you start/own a business and it tanks, the worst case scenario is that you - gasp - have to get a job, like all of those dirty peasants you used to employ. Reduced to their level! The horror!
I think a lot of small businesses have every penny of their owner's money invested in them, so that when the business goes down, the owner is out his life's savings, too. I don't think this is so true with startups, but for pizza parlors, independent coffee shops, beauty salons, and the like, I think it is very often the case.
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.
There's an argument to be made that having that larger variety of options may be preferable from multiple perspectives - not only in a market competition sense, but because companies with the size and scale of Amazon tend to result in a few specific companies and/or individuals having disproportional influence on the market/politics/etc. And that's before acknowledging the possibility that the may be accumulating value to themselves (and/or their customers) without actually generating value per se by outsourcing the costs (such as the effects AirBnB has anecdotally had on housing affordability).
"internet business X wouldn't exist without this *particular* founder"
That there *are* massive, successful companies in basically every niche of internet services - search, storage, car rentals, home rentals, retail, CRMs, vacation planning, social networking etc etc etc - says otherwise. If these critical founding events are as rare as you say, the growth of the web would not have been as explosive as it's been. It seems more likely that all of these products were *guaranteed* to exist as soon as we had the internet and that founders are a relatively minor factor.
more important since ~2005 is access to capital - i.e. VCs racing to find every new internet concept and fund them with 100M each to "just build the network, don't worry about profit".
Two thoughts:
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.
That is true. But also what is the solution? There are some very reasonable things such as cap political donations, which a lot of countries do. You can also take steps to reduce lobbying. But that still leaves the private power billionaires have. The solution people give is to give more power to government. But then you are just concentrating power in a different place. I'm not sure I trust politicians more than billionaires. I certainly trust Bill Gates more than Biden.
The fear people have is technofeudalism. A new social structure where a small class have all the power and use that power to perpetuate themselves in power. While that might be a plausible fear, it's not what's happening. Many billionaires are self made (meaning didn't inherited most of their wealth). We rarely have fortunes doing back many generations as we had in feudalism. Meaning, billionaires are not using their power to perpetuate their family in power.
I think all of these fears could be dealt with a large inheritance tax. Which is not politically feasible. But let billionaires enjoy their meritocracly earned money and take it all from heirs who did nothing. Or a small wealth tax, which would be small enough for a productive investor to keep their wealth, while a baseline investor to slowly lose it.
Mostly agree with what you say, just a few points:
1) Why don't you trust politicians? This means you don't trust in democracy. Do You think it's fundamentally wrong, or it just doesn't work at the moment? If it is corruption, lobbying and other interests that make then to make bad policies, the real cause is too much power concentration in the private economy again.
2) That most of the current tech billionaires worked their way up, there is many other people that have been rich for generations, the fortune just got divided by heritage and they learned more to hide their real worth. This old money is for sure also invested in the current tech giants, and the power and information concentrations are adding very powerful tools to the already powerful.
My conclusions are:
- we need to fix democracy, that politicians act in the interest of all citizens again.
- we have to avoid any concentrations of power. Any position of power has to prove its benefits for society and needs some effective mechanisms to control it. This doesn't have to be the government.
Amazon isn't a natural monopoly though. There's no reason why "selling stuff online" should have become as monopolised (in the US) as it did, it's just that Amazon apparently managed to be that much better at it than everyone else.
Well they managed to become dominant. This does not mean it's only about better serving the customer, there are also other factors like luck, access to capital, the right time...
Just the fact that they managed to dominate the market some 10 years ago, doesn't mean that it serves the society today to have a player that is so hard to compete with just because of the economy of scale and because people are used to it.
I agree, that it's not an natural monopoly so even more it's important to restore a working market with competition. When there emerges a monopoly were it isn't naturally, yes, somebody did a good job in growing a company and yes some competitors were probably sleeping. But still this is one of the main failure modes of a market economy ans we should take care that equal competition is restored again.
> 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.
Bill Gates also spoke out against removing the patents on the Coronavirus MRNA vaccines:
https://observer.com/2021/04/bill-gates-oppose-lifting-covid-vaccine-patent-interview/
Removing COVID vaccine patents always seemed populism for me. Pharmaceutical companies did an amazing job creating vaccines very quickly. And took a large risk as well, as many vaccines did not pan out. We need to keep incentives so that good behavior is rewarded. Otherwise next pandemic there would be way fewer vaccines and they would probably take longer to be produced modulo technlogical changes. On top of that vaccine production was not capped by patents, but by materials. And as Bill Gates said, opening patents would create many bad copies who could do more harm than good.
Correct me if I'm wrong, but didn't a huge amount of public funding go into the MRNA vaccines?
> And took a large risk as well, as many vaccines did not pan out.
Wasn't this the whole point of operation warp speed? Eat the risk for the companies by footing the bill publicly, pay a huge amount for the vaccines so that the companies can afford to have a bunch of duds, because we need the progress NAOW?
But, funding wasn't just in operation warp speed, but a bunch of the underlying basic research, too?
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8426978/
And now Moderna is suing everybody?
https://www.bloomberg.com/news/newsletters/2022-08-30/moderna-sues-pfizer-biontech-over-covid-vaccine-despite-pledge
"didn't a huge amount of public funding go into the MRNA vaccines?"
Sure. And pharmaceutical companies also invested a lot. Was the public funding a strong enough incentive? I don't know, but if it were so, governments should have put the patents in the deal for receiving such funds and not changed the rules of the game in the middle.
"But, funding wasn't just in operation warp speed, but a bunch of the underlying basic research, too?"
These arguments are true, but don't prove too much. It was never an argument of "Big Pharma did everything therefore they deserve everything". That's a straw man.
The argument is companies invested with the expectation of patents. Patents were part of the incentives. Would they have done the same without that expectation? I don't think anyone knows, but predictability is a great part of a good incentive structure, so don't change the rules of the game in the middle
I guess we just have to agree to disagree on this particular one. I think you could use the same line of reasoning to justify the paywalling of publicly funded research by journals like Elsevier.
I think if we operate on the principle that the person who pays for something should be considered an owner of it, then publicly funded research and something like operation warp speed should at the very least get a share in dividends derived from those patents, if not have them invalidated entirely.
"I think you could use the same line of reasoning to justify the paywalling of publicly funded research by journals like Elsevier."
I all in favor of changing the rules moving forward. I'm all in favor of creating new journals with a different incentive structure that would make Elsevier and cia obsolete. Which is already happening slowly.
The Oxford vaccine was originally intended to be donated as royalty free, and Gates convinced Oxford otherwise. Moderna was almost entirely funded by the government, though it built on previous joint research <https://www.usatoday.com/story/news/factcheck/2020/11/24/fact-check-donations-research-grants-helped-fund-moderna-vaccine/6398486002/, https://www.forbes.com/sites/judystone/2020/12/03/the-peoples-vaccine-modernas-coronavirus-vaccine-was-largely-funded-by-taxpayer-dollars/>. However, BioNTech did get a good deal of funding from private pharmaceutical companies, which included Pfizer, of course, but also Chinese company Fosun. Much of the remaining funding the EU and German governments, I understand Pfizer declined to join the US program.
The Oxford group wanted to donate the patents, but Bill Gates convinced them to let AZ have a monopoly. And yet this is the vaccine that did get transferred to India, not the MRNA vaccines. Maybe if one or the other group released their patents it would have been faster, but I doubt it. It looks like the public statements by Bill Gates linked above were correct.
It's not clear what Gates's private argument was. If the deal was that AZ got a monopoly in rich countries in return for advising India, that sounds win-win. But it's not clear what happened.
They created vaccines quickly because they were given massive guaranteed orders backed by the taxpayer. This is not a victory for the free market. If governments had left people to buy their own vaccines those patents would be largely worthless because COVID vaccines are a terrible value proposition without the underlying mass hysteria driving demand.
This is part of where I think looking at this through the framing Scott uses goes awry. You can start with a brilliant idea, execute it well, but as some point, it's likely your ideas will be poor or benefit yourself at the expense of others. Once you get super rich, you're cut off from most people and have a reward system that gives you flattering feedback even when your ideas are terrible. The worst case scenario are authoritarians, but I think there are studies showing business leaders tend to make worse decisions as they're in the role longer. Not to mention the pressure from both ego and investors to pursue monopolies, monopsonies, and other strategies to curtain competition, which very large companies often succeed in.
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.
AWS really wasn't a novel idea at all, it was just a productization of what other tech firms already had and in fact were far ahead with. The idea was simply - hey, we can sell this.
Trust me, I was at Google at the time. It was very frustrating to constantly hear Google exec's get asked by employees, "we have great cloud tech here, why don't we sell it" and be told no, because, the reasoning went, it's core competitive advantage and we can always make more money by doing some generic business + putting ads on it, than other companies can, so why would we sell capacity and tooling?
But isn't this exactly the whole thing behind 'ideas are easy, execution is hard'? It's exactly why innovation is not as inevitable as Scott makes it out to be.
AIUI, AWS as a product was a direct result of Amazon's retail success. They would get hammered by so much traffic on Black Friday that they needed to invest in a ton of infrastructure that would then sit idle for the rest of the year; what started as just squeezing a few extra bucks out of stuff they had lying around anyway turned into the juggernaut we see today.
That's a bit of an urban legend I'm afraid. It's not actually true. AWS was started because Bezos saw the value in well engineered datacenter infrastructure and, crucially, that they could sell it to the mass market.
Think about it - the Black Friday explanation makes no sense. Do AWS customers get turned off on Black Friday / Christmas to free up the capacity that Amazon itself suddenly needs? No, of course not. That would be a mad way to run a business. AWS capacity doesn't compete with amazon.com usage and in fact the process of porting amazon.com to AWS took a long time.
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.
If the company is publicly traded, isn't it almost always up for auction? There's a reason that Amazon doesn't get sold to someone else every year, the $1.3 trillion price tag. If you're looking to sell the rights to run the company for far less than that, what you're actually doing is selling the rights to loot the company for a year. If I had control of a $1.3 trillion dollar company for a year, I would sell off their best assets (to myself or friends maybe) for cheap or liquidate for a nice chunk of cash and pay myself huge sums - then the next guy buys it.
Jacob was talking auctioning the right to use the monopoly Amazon currently fills with your own company. So you wouldn't get a company handed over that you could loot. And amazon would have to pay every year to keep it's monopoly so the government would extract the monopoly surplus profits.
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?
Why just innovation? If we're designing (and presumably implementing via legal means) socially optimal strategies for rewarding success, why just innovative success, and not, say, plumbing success or short-order cooking success? Why set government-mandated wages for certain kinds of private-sector labor but not others?
If you manage to achieve the socially optimal strategy for plumbing, that is presumably a one time thing until innovation makes it possible to again do better plumbing. Though successfully achieving a socially more optimal strategy for plumbing would surely count as an innovation were it not happening before‽
We already have a set of strategies for rewarding success, implemented via legal means:
- Intellectual property law: If you invent something you can patent it, and then the courts and the police will help you collect license fees for some period of time. The size of this reward can be increased or decreased by adjusting the duration and scope of patents.
- Private property law: If you start a business that does something innovative and useful, and then that business makes lots of money, then the courts and the police will help you keep most of it. If you make too much money then maybe the antitrust people will come along and take it away. The size of this reward can be increased or decreased by adjusting tax rates and the scope of antitrust law.
- Regulatory law: If you start a business that does something innovative, you will often find yourself in a position to influence the regulatory environment faced by both yourself and future competitors. You can use this power to crush competition and make more money than the people trying to copy your innovative idea. The size of this reward can be increased or decreased by adjusting the power of regulatory agencies or by adjusting how responsive to industry influence they are.
Note that #1 works well for legible innovations, which would otherwise be easily copied, while #2 works well for illegible innovations that are difficult to copy.
Monopolistic power usually does not function as a reward for innovation: The easiest way to become a monopoly is to have lots of money, not to be first. #3 sometimes has a similar problem where regulators are influenced by whichever firm is politically well-connected rather than first (e.g. Kalshi vs PredictIt). If PredictIt were a real company rather than primarily an academic exercise, perhaps they would have anticipated the threat and done a better job of hiring the well-connected lobbyists who now work for Kalshi.
Hire entrepreneurs. Offer the lowest compensation rate that gets you enough people who meet your quality standards. Not getting enough good quality applicants? Offer higher pay. Suspect you're into diminishing returns from having too many entrepreneurs? Raise your quality standards.
In a capitalist country like we have, this policy wouldn't work since the best entrepreneurs would prefer a chance at outsized returns to capital ownership. In a capitalist country with very high taxes on returns to capital, or in an honest-to-god market socialist economy (i.e. where firms are either co-ops or publicly owned) it should work ... in the absence of emigration. But really the best entrepreneurs would tend to relocate to the more lucrative capitalist countries.
Considering competition between nations, the optimal strategy for a polity may be to pay the most successful entrepreneurs a heckuva lot, as we do.
>But really the best entrepreneurs would tend to relocate to the more lucrative capitalist countries.
This is why, if pressed, socialists tend to admit that socialism would have to (somehow) be global to work. Socialist nations just wouldn't be able to compete with capitalist ones.
Which is a crazy thing to admit, because it means they are willing to stifle growth significantly in order to try to equalize the profits. The conclusion seems to me that they would rather live at the standard of living of the middle class in 1880 than the lower classes in the 1980s (or pick you date), despite the later date having significantly better outcomes on any absolute metric you can name (live longer, better food, better housing, better and more abundant clothing, etc.).
Worse, actually, because doing so in the 1st world relegates the 3rd world to far lower standards of living as well, but they started at far less. If Socialists were splitting the produce of a less productive older society across the whole world, then the average would in fact be far far less than they expect from a 1st world perspective.
Well, I'm not a socialist, but I can point out something obvious they're missing: there's an equal-and-opposite migration option! Just as a low-tax capitalist countries can in practice siphon off the would-be entrepreneurs from other countries, perhaps market socialist (and high-tax capitalist) countries could in theory try to siphon off the working classes of other countries via mass migration. If I may put the idea poetically by stealing the words on the Statue of Liberty: "Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore."
Mass emigration from low-tax capitalist countries would induce a labor shortage and thereby undercut their ability to direct most of the social surplus to the wealthy. Capitalist countries would basically have two options: retain their migratory freedom and pro-market convictions and start directing more of the social surplus to labor instead of the entrepreneurs, or lock down their poor.
Of course I must comment on the obvious: There aren't any market socialist countries. If there were, they probably wouldn't be politically willing to promote mass immigration. If they were willing, they'd have to be able to offer a better quality of life than the poor had available in the rich capitalist countries, meaning they'd have to be a rich country themselves, which seems unlikely at best. If they were able, it would be logistically quite difficult to pull off. Though I said at the start it was an equal-and-opposite migration option, in reality poaching a tiny number of entrepreneurs is easier, so the low-tax capitalist countries' strategy on this matter is more effective.
I wonder. I suppose (early stage) entrepreneurs would have to tend toward the risk neutral or actively risk seeking side of the spectrum — on the other hand, each individual entrepreneur undoubtedly takes on concentration risk, whereas an entity taking on multiple such risks would experience lower variance, assuming those risks are not perfectly correlated. Is there enough difference to go on here? Or, assuming they're risk seeking, can we even charge them now for the promise of lower (or even negative!) taxes in the future and increase uptake? Are there policies we can take to increase the pool of people with appropriate risk preferences (so basically changing the risk preferences of a population)? There are also, of course, innovations coming from existing companies, which have different risk preferences, so most likely require different policies.
Elsewhere in the thread someone else also mentions non-competes, and how that interacted with the establishment of Intel. Would that be a positive overall? I suppose successful entrepreneurs would benefit from believing in themselves, but does that translate to getting greater benefits from reducing friction for the leaving employees than the harm from the obviously missed chance of rewards for Shockley, or more generally, the original entrepreneur?
"Hire entrepreneurs"
Entrepreneurs, by definition, don't work for wages and can't be hired. They can only be encouraged, or stifled.
Saying "you'll never be allowed to make it big as an entrepreneur; have you seen the tax code? Come work for Genericorp and manage our XYZ division, make it massively profitable for us", counts as stifling.
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.
A good observation. Entrepreneurs are doing an EV calculation in their head when they start a company; 1/X chance of being a unicorn, * (my shares %). If we tax billionaires then we decrease the EV of all startup founders by reducing the expected benefits of winning big.
The second-order effects might end up being weird though; if there's no incentive to 10x your company size to go from a $1B payout to $10B, does that mean there's room for 10 more successful companies for each eschewed-$10B company, and so the likelihood of a smaller (but still life-changing) payout goes up? That could be a net positive outcome for entrepreneurs.
Money beyond a certain point is no longer valuable as money; it's valuable as status and power. It's not clear to me that somebody in a system where rewards cap out at $10 million would be less interested in starting a new venture than in one where it caps out around $200 billion.
If Steve Jobs wouldn't have ever another penny coming back to Apple, I suspect he'd still have been there because that was his first and only true love. Zuck didn't know he'd get rich. Musk didn't form SpaceX to get rich…
They got help from people who want to make money, though.
They'd still get help from people who want to make money. There's nothing about limiting the scale of rewards that stops them from being rewards.
You’re making some unstated assumptions. I’m pretty sure that if you limit the upside and leave the downside where it is, you will cause people to change their behavior.
And how likely is it? The US government is known for socializing the downside, not the upside.
Money is always only valuable as status and power; nobody likes green papers or debased metal disks for their own sake.
SpaceX is an interesting counterexample, though, if you think there's no upper bound on power as an incentive. $10M from Zip2 would have been enough for Musk to retire young and party; it would not have been enough to try to electrify the auto industry or enable cities on Mars.
I agree. Also I now wonder: given that our moral intuitions often stem from hunter-gatherer adaptations: How do hunter-gatherers split the meat in case clearly just one of them killed the animal? Do they split it between everybody who tried? Or let him keep it? Intuitively we want the system to be stable over years, in particular not to lead to tensions and wasting energy on internal fights...
....?
He's talking about "fairness" and "deservedness". I'm puzzled that many people seem to think this piece is talking about something else. What did *you* think OP was talking about?
Or maybe you're saying that if two entrepreneurs are equally talented and skilled, and start pretty much the same business, the guy who starts his company one year earlier and ends up with 90% market share does in fact deserve 90 times more money than the one-year-later guy who ends up with 1% market share.
As for branching into new products, it's not like no other entrepreneur would have thought "well we're selling books... but why not try selling other stuff?" or "well we build a couple of datacenters... why not rent out computers in our datacenters?" These are obvious things to do, and frankly Amazon AWS is expensive and shitty — I have little doubt DigitalOcean earns far less money, but their product is clearly superior IMO. And heck, it's not hard to imagine an online store that is better than Amazon, although I am impressed with their fast deliveries.
Well, yes, I’m saying that in a market environment, the firm with 90% market share is entitled to that market share. That’s really not the point of my post though, which is about deservedness and distribution within a firm. I’m saying that a founder/original investors, are entitled to a certain level (which is open to discussion) of potential return on the money that they risked. That’s typically different than the average employee of the firm, who is not putting in a financial stake (this doesn’t include employees who themselves are being paid in equity rather than cash up front). I’m turn, there’s a more watered down version that pertains to taxation and how that applies to people working for more profitable businesses/endeavors vs less profitable ones.
I was suggesting that there’s some optimal balance to be found for what founding investors receive and non-equity employees receive. That’s the central distribution question, to me, in market economies. I don’t believe the original post took risk into account of deservedness - I think it is a component, but not the entirety. If the number you feel should be assigned to the risk premium is less than 1% or even 0, then that’s that. I personally think it should be higher, and moreover, that it’s a relevant part of the conversation.
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.
IMHO:
- 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."
Much easier to punish Bezos than to deal with inflation, central banking, mass immigration of low skill labor and laws favoring Wall Street over Main Street.
Minor warning (25% of ban): Low content, high temperature comment.
"- It's hard to tax unrealized capital gains"
Not terribly relevant to this discussion, but Denmark does, in fact, tax (some) unrealized capital gains. Mutual fund unrealized capital gains are one such example in Denmark (though, strangely, not unrealized capital gains in individual stocks ...). This implies an upper limit on how difficult it can be to tax unrealized capital gains.
Do they give the money back, with a bonus, when the capital gain turns into a loss?
I don't know.
I only know about this because the subject came up in a discussion thread on a personal finance site I visit.
My *guess* is that they don't remit for losses, but that losses can be carried forward an applied against future gains. But that is a guess.
It does lead to strange behavior, though, where Danish investors are dis-incentivized to use well diversified mutual funds because individual stocks don't have this bad tax property. There *are* ways to bundle a lot of stocks together to get around this, but I don't know if this is common in Denmark (it was tried in the US around the 2000s and wasn't popular ... but the US doesn't have this tax behavior).
Good point. I actually don't care about theoretically potential worth, whart counts is real income and even more: real power that comes from the absolute size of the company he owns and additionally from the almost monopoly he controlls.
So let's just tax realised capital gains quite high. Or even cap it at a certain point so there is incentive to build stable lasting enterprises. Bezos could get 1 million $ per year as personal passive income for the rest of his life, but would profit less from looting or selling the company.
The question of power is harder, the main point is to have strong regulatory bodies that can't be influenced too easy and to have proper and enforced anti trust laws taking care that no singe company can get too big and preventing monopolies where ever possible.
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?"
Both are public policy questions. Public policy determines how much plumbers as well as entrepreneurs pay.
In fact, to go one step further, I believe they should be treated exactly the same. Entrepreneurs who make $100k a year should be taxed at exactly the same marginal rates as plumbers who make $100k a year. And entrepreneurs who make $10 million or $10 billion a year should be taxed the same as plumbers who make $10 million or $10 billion year.
Now, where there is disagreement, is about what these rates should be. I happen to believe the marginal rates should be very high as you go up the income ladder, although I get that not everyone feels the same.
I agree that taxation in general is a public policy question, and that reasonable people can differ as to appropriate marginal tax rates. But what Scott seems to be considering a public policy question is "fairness of compensation" measured in terms of value provided by labor--i.e., effective wage-setting by government fiat for each occupation. I don't think that makes sense for plumbers, entrepreneurs or anyone else.
Fair point. Here is why I think it makes sense. For people, like me, who believe that those earning huge amounts of money should be charged very high marginal rates, I think it's reasonable for people to ask why we think these rates makes sense. And for people to push back because they believe these rates are unfair or bad for society. I think it's important to respond to both of these complaints, which I think Scott does a reasonable job of doing.
The usual argument for progressive taxation--which I basically agree with--is that the marginal utility function of income (and everything else) decreases, making a fixed-percentage tax on the billionth dollar earned *much* less onerous than the same percentage tax on the thousandth dollar earned. Hence the percentage income tax rate on dollars earned above one billion should be *much* higher to make the burden "equal" in marginal utility terms. Not only is that argument more persuasive than the "income as payment for value to society" argument, but it avoids the latter argument's drawback of opening the door to general wage-fixing as public policy, and thus to general government micromanagement of the economy.
I'm certainly partly with you ICouldBeWrong. Much of my support for progressive taxation is based on the utilitarian belief that society as a whole is better off with some redistribution through taxes because the value of a million dollars spread across a wide range of "ordinary people" is more than the value of that same million dollars to Bill, Elon, Jeff, etc.
But not all. I also believe in progressive taxation on a fairness basis. I think Warren's "you didn't build that" speech is roughly correct. I think the outsized rewards that Bill, Elon,Jeff reap (as well as Steph and LeBron, Adele and Beyonce, Tom & Nicole, Warren and Schwartzman, Gurley and Meeker, etc) is partly a function of their skills, work ethics, and savvy but mostly the result of a "winner take most" system that rewards the folks at the top of the pyramid in ways that are completely out of proportion with their skills, work ethic, brains, etc.
Having said that, I agree with you that I don't want government (or anyone else) in the business of trying to calculate who deserves what. I agree that the question is practically unanswerable, and it would be enormously wasteful (and divisive) to try. So my answer is just to have a progressive taxation system that treats all outsize winners the same regardless of their field.
But my ideal progressive taxation plan would be much closer to the one that we had in the U.S. from the 1940s-1970s with top rates between 70-94%. I not only believe those rates would be better for society and fairer, but I believe they would have zero impact on making society as a whole less productive.
"So my answer is just to have a progressive taxation system that treats all outsize winners the same regardless of their field."
While I would probably ultimately stick with the philosophy above, I could definitely be tempted me by a system with even higher taxation rates on folks working in finance. While I I think all the folks I named above earn outsized rewards, I do think they contribute a lot to society in their respective fields. I think that is less true for folks in fields like finance and real estate, where I think more of the financial gains come from rent seeking behavior that contributes little to society. So I would be tempted by a system that offered less incentive for the best/brightest/hardest working to enter those fields, although I'm not sure that could be done in a way that doesn't have negative side effects.
I will go one step further than that, and say that everyone should be taxed the same dollar amount, like a "membership fee" for being part of the country. For the US right now that amount would need to be about $24K a year to cover Federal government expenditures.
Of course people who didn't earn substantially more than this would leave the country; since these people tend to be net-negative the country would overall improve.
Heh Melvin. A step too far for me. You would have gotten along great with Margaret Thatcher in the 90's, but I don't think a poll tax is the way to go.
And I suspect that you wouldn't find a country where everyone who currently makes less than $50k a year emigrates quite the paradise you're expecting.
Plumbers barely affect the public sphere, billionaires disproportionately do.
That seems to me to be an argument for limiting the public influence of billionaires, not for gating billionaire-ship based on arbitrary measures of value provided to the public.
> 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.
My uneducated assumption is that family wealth probably plays a very big role (statistically) in how much equity a founder has at IPO. Those entrepreneurs who start with significant wealth can keep higher stakes, don't have to seek dilutative funding. So that circles around nicely again to your point about inheritance taxes. Point well made.
Yeah. People who improve society should get money from it, but it's crazy to have people become rich because of what someone else did.
And how do you measure 'improve society'? Many here think that the mere fact of building a giant corporation and dominating one or several markets prove that they improved society. I see such power concentrations as a worsening of society. If there were valuable benefits for society on the way getting there is totally unrelated. This can have happened and if so should be rewarded, but not more than other improvements to society that didn't fit in an lucrative business case.
Power concentrations do cause problems, and not all companies get rich by improving society. Figuring how to handle these problems in a complicated industrial society is hard. However, most companies do improve society because creating what people want that they couldn't get before, or creating something more efficiently than elsewhere, is an important service.
Perhaps seeing what things were like before big profitable businesses changed the world for the better would make it more obvious. https://rootsofprogress.org/industrial-literacy
Thanks for the link, but it wasn't news for me, and I'm not against business or industry in general. But it has to be judged by the value it provides to society and I think size and profit margins are a poor metric. I see that very kind of industrial plant needs a certain size to work economically and with technological development progressing this size gets bigger all the time. But there is no intrinsic value in having corporations several orders of magnitude bigger than that or spanning many unrelated fields of the economy.
There are also too many ways to optimize a business for profits that are actually hurting the environment or the society that profits and especially big profits are no sign of value production.
Adding in that living now in the developed world what we need to improve life is not more stuff or services but less stress. So economic growth is key to a certain point but when all physical needs are more than filled, there is not much to win by more growth. Now we have to think what we want and what is next instead just following the path that was right for the last 200 years.
I understand that the current consensus among the polsci types (or whoever it is that studies these things) is that an inheritance tax is notoriously unpopular and basically political poison. I suppose it can't hurt to keep trying to build support for it though, and maybe we'll eventually figure out an implementation that works well and isn't going to be repealed come the next few elections. Break down the unpalatability from both ends, so to speak.
Its a moral problem and an engineering problem , because we are not pursuing growth and innovation as ends in themselves. There's profit in slavery but we don't want it.
In the big picture, yes. As always, stating my opinion accurately would have taken so many words that few people would have read the comment, and would probably have generated more confusion than it cleared up. But I'll try to explain more in this sub-comment:
The social utility of a policy is non-linear in any numeric evaluation of its morality. There will be local maxima and minima. Suppose that we believe the most-just distribution of wealth generated by start-ups is X, and the free-market distribution, which produces a much higher total but less-evenly distributed social utility, is Y. We probably can't split the difference by using the distribution (X+Y)/2, because that high total utility is generated by the free market, which is a *machine*. The output of a machine doesn't change linearly as you move its internal parts around. The market is a more-flexible than a car, but markets still break down outside their operating parameters.
There are a number of well-known possible general economic systems, including barter tribalism, monarchy, military empires, feudalism, and free-market-type systems. Each of these has social operating parameters outside of which it breaks down. My earlier comment presumed that we already used our moral sense to choose the general economic family of free-market systems, because they seem more able to provide peoples' needs and desires. Once we've committed to that general type of system, the answer to the engineering question gives us bounds on the operating parameters. There might be ways to make trade-offs in some other part of the machine that will allow us to adjust founder-profits downwards if our morality inclines us to do so. But Scott's approach was to simply ignore the machine's operating parameters, an approach which, if used regularly, would certainly break the machine.
"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.
Fairness is a metaphysical concept, not an empirical one. This implies that the meaning of "fairness" is a cultural construct. This means that to endorse the idea that the government should promote "fairness", you must renounce multiculturalism, which forbids the government from promoting any one culture above another.
I have my own preferred definition of "fairness", which is important to me; and I also value multi-culturalism. But logically, when it comes to politics, you've got to pick one or the other.
The government already decides what’s fair.
Not that the government already doing something is relevant to whether the government *should* do that thing, but... what fraction of the law decides what's fair, without regard either to what's pragmatic, or to providing incentives in order to do some social engineering? There are some: the civil rights amendment, for instance. But criminal law and contract law are driven by pragmatics, and tax law is driven by social engineering. And the Civil Rights Amendment certainly requires the renunciation of multi-culturalism, since just about every culture in history before 1960, and probably most cultures today, would consider some part of it morally reprehensible.
Yeah, it's all in U.S.C. § 9099 title 9, "What's Fair".
First, I think in a democracy the government has no choice but to try to incorporate some approximate sense of "average acceptable fairness" into it's policies. If people are going to vote, part of what they will vote on is their concept of what is fair. It's very important to humans on an emotional level, very ingrained in us, and I don't think you can take it out. Most policies affect different groups of people in different ways that are going to trigger some segment of voter's to think "that's not fair", and you have to account for that in representative government.
Second, yes, there are different conceptions of fairness, but why should that mean we just throw the whole concept out? It's just another thing that requires compromise, and shifts overtime with the will of the people, similar to human rights (which is deeply embedded in concepts of "fairness"). To forbid the government in dealing with the idea of what is fair would be to remove some human rights protections that have been hard won over the last centuries. You could argue they are entirely separate concepts I suppose, but I wouldn't find that very convincing. Fairness is intimately tied to rights.
Ultimately people are messy, emotions matter a whole lot, and you have to deal with them whether you want to or not. There's no useful conclusion that can be drawn by excluding these emotions, because that's a false world that can never exist and will not satisfy the actual real human beings that live here.
I think that we could go much further in the direction of a computational government in which cultural questions were not set into the legal code, but decided by individual voters.
For instance, our laws could explicitly state that punishments in criminal justice should be calculated so as to maximize social utility, rather than to give the criminals what they "deserve". Social utility would be computed as a function of some set of values, and the numeric weights of those values would be set, and continually updated, by the voters.
I agree that it would be extremely difficult not to embed any conception of fairness into our laws. But I never said we shouldn't embed any conception of fairness into our laws. I said that either we shouldn't embed any conception of fairness into our laws, or we should reject multi-culturalism.
The only radical thing about this claim is its honesty. No one really wants multi-culturalism. Anyone who thinks the entire United States must do things their way regarding gun laws, the legality of abortion, or any other controversial subject, is against multi-culturalism. The democrats and the republicans in the US are two cultures more similar to each other than they are to any non-Western culture. Once they learn to live side-by-side in peace, neither trying to interfere with the other, then they can claim to be capable of some degree of multi-culturalism.
Multi-culturalism doesn't mean eating Cajun food, listening to rap music, and reading books by people with a diversity of skin colors who all attended the best colleges in Boston. It means allowing people to act on different cultural values. That means allowing people to be homophobic, racist, and sexist; allowing government officials to take most of their pay in bribes; allowing nepotism in business and government; endorsing religious censorship, honor killings, and warfare; and many other such things.
The standard trick is to take all *your* cultural values and call them "reason". When Plato invented structural racism, when St. Augustine endorsed torturing heretics, when St. Aquinas endorsed killing them, when the Nazis built death camps, when Mao murdered forty million of his own people, they all called it "reason". It's embarrassing to me as a human that this trick still works. Post-modernists rightly pointed out that other people were using this trick, but they and their political offspring think this discovery gives them the right to deny that they ever use it themselves.
It may be possible, someday, to devise a multi-cultural polity, but it would resemble the world of Snow Crash more than ours today. I think it's a good thing that we abolished slavery, allowed women into the workplace, frown on nepotism and bribery, have enough of a sense of honor that colleges can operate on an honor code, and allow freedom of speech and freedom from religion. Anyone who says any one of those things is good is against multi-culturalism. It's important to understand that, so that people can no longer use the word "multi-culturalism" dishonestly, to conceal their own mono-cultural agenda.
Plato invented structural racism?
I can see the argument that *Aristotle* invented scientific racism with his infamous declaration that some non-Greek ethnic groups were 'natural slaves', but I don't recall Plato ever saying anything derogatory about ethnic groups.
One of the keys of the polis Plato presents as his Utopia in /Republic/ is the use of a secret breeding program to breed the original founding population into separate races, of workers, soldiers, and rulers, like in /Brave New World/. People were to be told their sex partners were being assigned by lot, but behind the scenes, the philosopher-kings were to choose who had sex with whom.
Plato took maintaining the purity of the master race to be the most-difficult task for the state, because his ontology says that everything in the physical world decays from generation to generation, including humans themselves. (He would have been correct, if not for natural selection.) IIRC he dealt with this problem in book 8. His solution was that he claimed to have discovered the numerological "marriage number", an integer with occult powers such that knowledge of it would enable him to predict before-hand what the offspring from any particular union of man and woman would be like. The fact that he never told anyone what the marriage number was, suggests he meant to keep it secret so that people trying to carry out his scheme would have to appoint him as the first philosopher-king.
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.
The hypothetical competition is likely to be found in the executive offices of the winning company, helping make the idea work. In which case they're already compensated.
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).
I think the phrasing around "inventing Amazon" or "making progress" misses a key point. In most cases, ideas are cheap; execution is the hard part.
Bezos is an extremely good operator, and is extremely smart at business strategy. He picked books because they were the best-suited product class for an online long-tail distribution business (with an existing taxonomy in the ISBN system) -- that was a Very Good Idea. Had he not come along, it seems fairly clear to me that there would be other online retailers in a similar vein; there were others at the time Amazon started. However absent Amazon's outlier execution and performance, there might not be one pseudo-monopoly entity that captured all of the value and re-invested it all back into growing their company. The value he created was not "inventing the one-click buy button", but grinding away for decades to build a massively successful company, which is an incredibly hard thing to do.
There is something to be said for a huge chunk of economic activity being captained by an extremely efficient operator, instead of by 100 smaller, less-efficient and competing companies. However there are also clear monopoly concerns with Aggregators like Amazon.
I think you can make a different argument about the rare companies like SpaceX or perhaps Tesla, where there is a bold idea that is a risky bet, combined with a need to raise eye-watering amounts of capital, which really does mean that there are only a few people (outside of state space agencies) in the world capable of actually bringing that idea to fruition in a given generation.
Given all that I do think there is a middle ground between the Marxist position you put forth, where there is no such thing as an entrepreneur creating value, and the current status quo where entrepreneurs are able to become multi-billionaires.
I think Scott was trying to leave some room for the concept that entrepreneurs do create some value, by bringing forward inventions/innovations. But we shouldn't necessarily just grant them all of the value that they can capture. I don't think you need to implement Marxism to agree with that; you could just do a Warren-style tax on ultra-millionaires, so your net worth over $1B gets taxed at 6% PA.
>I don't think you need to implement Marxism to agree with that; you could just do a Warren-style tax on ultra-millionaires, so your net worth over $1B gets taxed at 6% PA.
That essentially deprives them of control over their company over time by forcing them to sell their shares to pay the taxes, which strikes me as a terrible idea. Why should the people who generated a ton of value for society, by first coming up with a great idea and then nailing the execution, be forced to slowly lose control over their creation?
Setting a minimum of some very high net worth might seem more "fair", but it's actually backwards; you're specifically punishing the people who came up and executed the *best* ideas and generated the *most* value, and creates a disincentive for them to grow the company to provide more value lest their share grows beyond the threshold where their company starts getting taken away from them. This is the kind of policy that could potentially end or at least significantly slow progress for the human race, just to satisfy some surface-level sense of unfairness that some people might have access to a lot more resources than others.
I mostly addressed these points in reply to Erusian’s sibling comment, please take a look there. In short though, I don’t think this picture of “founder control” matches my understanding of how companies appoint CEOs or how founders’ stakes evolve over time. After it became a public company, Bezos wasn’t CEO of Amazon because he controlled the voting shares (he didn’t). It was because he is one of the best CEOs alive.
> This is the kind of policy that could potentially end or at least significantly slow progress for the human race
Personally I think this is extremely overstated. Of all the founders I know (and having founded a startup myself), I have never met anyone who was trying to maximize their income. Frankly these days working for Google or a law firm or Jane Street are far better EV plays than starting a company.
All the founders I know started a company because they were passionate about the cause, or wanted to build something and leave a dent in the universe. Sure, there needs to be a high payoff at the end to compensate for the fact that most companies fail. But $1b vs $10b seems irrelevant to me as motivation. I’ve never met a founder that would say “I would quit my company if it couldn’t get me from $1b to $10b”. I’m sure there are some like that, but I can’t believe they are a majority. I could be wrong! I haven’t talked to any multibillionaires.
What, specifically, is your objection to the existence of multi-billionaires? Why is their existence something you cast as an extreme opposite of Marxism?
Warren's wealth tax plan was so bad and dishonest that it made me think she should not be taken seriously. Even Matt Yglesias admitted it was mostly wrong but he supported it anyway because Yglesias default supports all taxes even if he admits they won't be very effective.
A 6% wealth tax on wealth would end with the government owning 95% of a company after thirty years assuming the company grows at the average rate. A significant number (about half) would end up with the government owning more. If you only want a tax not on total wealth but GAIN in wealth then that is the capital gains tax and it already exists.
Look, I get the instinct here. Progressives want the government to have a lot of money because they want all kinds of new spending programs. And so they're desperately looking for revenue that's politically possible to collect. Billionaires are unpopular and they have a lot of money so it looks like a solution if you don't think about it too hard. But money is not value but a REPRESENTATION of value. And in billionaire's cases the value it represents is the value of owning a company.
If you tax that away to spend it then you're effectively taking away control of companies from the people who have (so far) been best at running them. Either they sell their companies to other people for cash in which case you're selling ownership of American companies in exchange for a welfare state (presumably to foreigners mostly since every other American is also wealth taxed). Or you're having the government directly own the companies and use that ownership to furnish welfare state services. In which case, yes, you've just reinvented Communism with extra steps. Which has issues.
The truth is there isn't any easy source of revenue available from taxing the rich. If you want European style welfare states you need to tax the middle class and Americans aren't willing to support that politically. You could do something like a national VAT or taxing the middle class but that's hard to get done politically. This is because in order to create a broad based welfare state you can't just financially magic it into existence. You need to divert real resources. People need to give up living standards through higher prices and lower growth in order to have smart people work running universal daycare or housing bureaucracy instead of new companies. And that might be a worthwhile trade! But it's not one the American people have, so far, been willing to support.
I’ll just start by noting that I wasn’t making strong object-level advocacy for the Warren plan in that post, more trying to make a meta-level point by giving a non-Marxist example on the spectrum that might still tackle the problem Scott discussed in his post.
Nevertheless, I gave that example because I do think it has some merit, so happy to explore the object level question.
> A 6% wealth tax on wealth would end with the government owning 95% of a company after thirty years
I don’t understand how you get this conclusion. If I own $11B of Amazon shares, my tax bill is $600m per year (just looking at the “6% on >$1B”). If my income is zero (very unlikely) then I have to sell some of my shares on the open market; the government doesn’t “take them from me” or anything like that. The IRS does not accept payment in AMZN.
What’s more likely in practice is that I have lots of net income that can offset that wealth tax. I can leverage the shares to get financing to invest in buying Twitter or whatever my next money-making scheme is. So say I get a 5% dividend then the net outflow is a 1% reduction in my wealth. In practice the wealth of the mega-rich seems to be increasing faster than 5% PA.
Note that if the founder still controlling the company is (perceived to be) great for the company, the shareholders will let the founder keep control while selling shares; Zuckerberg did this. But I think for most multi-billion public companies, it’s very uncommon for founders to hold controlling stakes. By the time you IPO the founder is diluted out of a controlling position, even selecting for billionaire founders. For example Bezos holds something like 10% of Amazon. He is kept on in the job of CEO because he’s great at it, not because he owns a controlling stake. (Indeed if you need a controlling stake to be CEO you are probably (not definitely) a bad CEO.) Another data point; Musk holds something like 15% of Tesla shares. Again, he’s CEO because the board and shareholders believe he’s the best person they can get to do the job.
And I don’t think the inevitable consequence of forcing some share sales to pay a wealth tax is foreigners buying the shares; retail investors buy index funds that buy shares; hedge funds buy shares; pension funds buy shares. There is and would still be plenty of demand for shares in the US if the 500 or so billionaires were taxed substantially more.
Basically I don’t think capitalism collapses if you tax billionaires a lot more. And I think a wealth tax (ideally replacing taxes on things we like, like income) has substantial merits, though also implementation difficulties.
> Look, I get the instinct here. Progressives want the government to have a lot of money because they want all kinds of new spending programs.
This may be one of those things where liberals and conservatives just don’t understand each other.
I don’t think many folks starting place is “we need more government revenue / want to expand the welfare state, let’s come up with a scheme to find more taxes”. It’s more (in my experience) observing that wealth inequality is unjust, and/or a harbinger of societal unrest and revolution, so maybe we should do something about it. (Maybe Warren is in the former camp not the latter, I don’t know.)
I think this aligns with Scott’s inquiry in the OP; it’s not that we should take money from the rich because we need to fund our entitlement programs, it’s that there is (maybe) something unjust about billionaires capturing so much of the value created in their enterprises.
> I don’t understand how you get this conclusion. If I own $11B of Amazon shares, my tax bill is $600m per year (just looking at the “6% on >$1B”). If my income is zero (very unlikely) then I have to sell some of my shares on the open market; the government doesn’t “take them from me” or anything like that. The IRS does not accept payment in AMZN.
Right. So I take 6% of Amazon and sell it on the market. In actuality it would probably be more than 6% because such a large sell off would reduce the price. Who buys them? In your case where the government demands dollars then it would mostly be foreigners who have the advantage of holding shares without the tax. They will sell things to the US to get dollars and use those to buy shares of companies thus encouraging foreign ownership. We will be funding whatever we spend the money on by, in effect, selling ownership of our corporations to foreign countries. And by year thirty I have lost 95% of my ownership in the company.
> What’s more likely in practice is that I have lots of net income that can offset that wealth tax.
The chances of your stock growing every year by more than 6% are extremely low. The wealth tax explicitly does not take into account that your net wealth may have gone down this year. If it did it would be a capital gains tax, not a wealth tax. Further, since it is a constant 6% of whatever the value happens to be, I am losing a roughly constant percentage of my ownership of the company REGARDLESS of how much money that is worth.
If in year 1 the company is worth $100 and I have to pay $6 my percentage is now 94%. If in year 2 the company is worth 200 and my ownership is $194 I have to $11.64 then my percentage is now 91%. And so on. The amount of growth cannot escape this. My net worth might still grow but my percentage of ownership cannot. Plus since the median return is something like 7% and it's inconsistent we would expect about half of companies to have sold off 90+% of their ownership within thirty years.
> Note that if the founder still controlling the company is (perceived to be) great for the company, the shareholders will let the founder keep control while selling shares; Zuckerberg did this.
No. Zuckerberg sold off a different type of share while keeping the shares that gave control for himself. He still controls the majority of Meta's voting stock and, if he sold as he'd be required to under your scheme, would have lost that. Likewise Musk is covered by explicit agreements and covenants. Bezos is the only example where you're right and he's not even the head of Amazon any more. This comment betrays a basic lack of understanding of how shares and corporate governance works.
> Basically I don’t think capitalism collapses if you tax billionaires a lot more. And I think a wealth tax (ideally replacing taxes on things we like, like income) has substantial merits, though also implementation difficulties.
My point is you don't seem to actually have done much research or thought through the implications of your policy. There's a reason why wealth taxes have been abolished nearly everywhere they've been tried and that they only raised significant revenue when extended to the middle class. You don't seem to realize you're proposing the government effectively demand owners of corporations give up ownership of their companies. But you are.
> This may be one of those things where liberals and conservatives just don’t understand each other.
I'm not a conservative. My most consequential political action on a national scale is campaigning to allow felons to vote in a swing state. Successfully, I might add. I think I understand liberals fine.
> I don’t think many folks starting place is “we need more government revenue / want to expand the welfare state, let’s come up with a scheme to find more taxes”. It’s more (in my experience) observing that wealth inequality is unjust, and/or a harbinger of societal unrest and revolution, so maybe we should do something about it. (Maybe Warren is in the former camp not the latter, I don’t know.)
If they're concerned solely with wealth inequality why is the answer taxes that invariably are promised to fund some service or another? Why is it that the taxes are invariably proposed tied to welfare spending? Why is it that wealth inequality suddenly became a talking point just around when the Democrats wanted a massive expansion of the welfare state? Why is it never deficit reduction?
The actions and even the rhetoric of the Democrats do not match your claims. In fact Warren and Biden specifically said they do not consider billionaires immoral and only wants the tax revenue for the welfare benefits it provides. I understand there is a small hyper-progressive group who say things like "Every Billionaire Is A Policy Failure" and pass around mostly bad statistics to justify their worldview. But they're a minority fairly out of step with even the Democratic mainstream. Albeit a wealthy and educated and therefore influential one.
And you have not answered my question: What, specifically, is your objection to the existence of multi-billionaires? Why is their existence something you cast as an extreme opposite of Marxism? Explain it to me.
> This comment betrays a basic lack of understanding of how shares and corporate governance works.
This is more as hominem than I’m willing to stick around for. If you’re trying to have a good-faith conversation I suggest you dial it back in future.
my objection to the existence of multi billionaires and too big corporations alike is that they concentrate too much power without any checks and balances keeping their actions aligned with public interest. They hinder a real market competition and even have the means to influence legislation in their favor by massive PR campaigns, lobbying or (indirect) bribery.
Okay, so I broadly agree with you. But I think there's two issues with this critique.
Firstly, it overestimates the power of corporations and underestimates the power of government. As has been pointed out, the diffusion of power GENERALLY rather than just corporate power is necessary for an environment of checks and balances. There was no corporate power in the Soviet Union but there was much less diffusion of economic power. The fact the people running the economy were government employees doesn't really matter. What's important is checks and balances that create individual agency and freedom in my view. In economics usually through prosperity.
Secondly, you've moved on from bigness being an issue. Saying there's regulatory capture, monopolistic practices, etc is not the same as saying people are too rich or too big. You could have a world without monopolies or corrupt lobbying that still has big corporations. In fact, reducing the power of billionaires could INCREASE such concentration of power in the hands of other competing power centers which could make the problem worse. This isn't pedantic. The remedies are different. Things like anti-trust and unions vs regulatory agencies and congressional oversight moves power down instead of laterally.
Now, this isn't to say big corporations are a benign influence on society or that there aren't public-private issues. But buried deep in this is the fact that very often the "every billionaire is a policy failure" crowd is actually supporting the increase in centralized power in government hands. Which has often ended very poorly indeed.
Watching our western politics, i attribute many of the political problems to too much influence of corporations and rich elites. This is why I'm generally more concerned about too big and too rich. I still believe in in the possibility of a democratic government acting in the interest of the people, but I'm not talking about what we have now.
The pointing to the failed Communism/Soviet Union often comes across for me as a scarecrow to discredit any kind of improving the work of government or introducing legislation to guide the economy to serve the interest of the people. At one hand adjusting the guard railing of economy is some completely different than having a top down planned economy. On the other taking into account the starting point and al the other circumstances, the soviet economy did do too bad.
I stick with the point that individuals being too rich or corporations being too big will always give them too much power.
So you would attribute our current problems not to, say, Congress or the President but to large corporations? I personally think they're both problems but in different ways.
The point keeps coming up because it gets dismissed too often by people who just find it inconvenient. The Soviet economy did terribly and was based on forced labor and other human rights abuses. Workers on the capitalist side of the Cold War were freer and materially better off than their eastern counterparts. Including workers who started in countries far behind the Soviet Union.
Now, this shouldn't stop us from noting the ways in which we can improve our collective lives. But the attempts to rehabilitate the Soviet Union, invariably from people who have not studied the USSR in depth or lived through it, are a sign to me of intellectual weakness. Of people who prefer not to engage with the complexity that government power is often worse than private power but that private power is not necessarily great either.
"Too much" is, of course, a moral rather than a practical sentiment so I can't agree or disagree.
This seems like an example of the Guilt By Association Fallacy with a bit of Slippery Slope Argument mixed in. It's basically saying "These critiques of capitalism are very similar to Marxist critiques of capitalism, therefore any attempt to find solutions would necessarily mean re-implementing the same disastrous "solutions" the Marxists tried." Maybe those Marxists were like medieval physicians: largely correct in diagnosing the problem, but fatally wrong about the solution. Or maybe they were wrong about both, but still not so absolutely, completely, totally wrong on every particular detail that any ideas remotely associated with Marxist ideas should be immediately dismissed out of hand. (Indeed, if they were literally 100% wrong about everything, then it would be trivially easy to find the correct policies simply by going with the exact opposite of what they suggest.)
>This seems like an example of the Guilt By Association Fallacy with a bit of Slippery Slope Argument mixed in. It's basically saying
It is neither. My contention is: "Your ideas are basically the same as this ideology's idea. They tried to implement economic systems based on those ideas, including this specific one in these ways, and they were disastrous. This is basic empirical evidence against the claim. You then add that experts, now and then, believed it was wrong and it's been abandoned by even most Communists. This is an extremely disproven argument."
You can attack this in various ways. You could show that this specific part of their ideology was right somehow and all the bad things were in other parts. I don't believe that. But that would be an angle of attack. So it's not a fallacy but a fairly coherent argument.
> Maybe those Marxists were like medieval physicians: largely correct in diagnosing the problem, but fatally wrong about the solution.
This is a strange metaphor. Both because medieval physicians were mostly wrong about diagnosing the problem ("that pinching in your belly is due to crabs! You have cancer.") and because you're posing Marxists as the educated experts instead of what they were: people who believed they had invented a "science" (really a pseudo-science) that allowed them to ignore economists and the like. They were more akin to faith healers in my view. Preaching a new religion on the back of its supposed abilities whose promises were never quite kept. (I hope we can agree a large amount of fraud, deceit, and force by a radical minority was involved in establishing and maintaining the totalitarian Soviet Union?)
> Or maybe they were wrong about both, but still not so absolutely, completely, totally wrong on every particular detail that any ideas remotely associated with Marxist ideas should be immediately dismissed out of hand.
I'm not dismissing them out of hand. In fact this is not an ad hominem against Marxists. It's an attack on a particular Marxist idea. One that almost all Marxists have abandoned! Except North Korea and perhaps some Marxists who are not actually running countries. Unless you consider "they were wrong, realized they were wrong, and have mostly moved on" to be an ad hominem. You will notice that most Communist countries these days are still led by trained Marxists who expound Marxist theories but do now have entrepreneurs.
> (Indeed, if they were literally 100% wrong about everything, then it would be trivially easy to find the correct policies simply by going with the exact opposite of what they suggest.)
Point of pedantry but this is only true if options are a binary. Since economics is not usually a binary option this would not be true.
"They were more akin to faith healers in my view. Preaching a new religion on the back of its supposed abilities whose promises were never quite kept. (I hope we can agree a large amount of fraud, deceit, and force by a radical minority was involved in establishing and maintaining the totalitarian Soviet Union?)"
I disagree with the tenets of Marxism, and I think a lot of Marx's ideas were wildly incorrect, but I wouldn't say that it was equivalent to "faith healing." Maybe modern Western communists are akin to religious fanatics; I remember making a thread on here a while back asking if Marxism was deontological, consequentialist, or neither, and the general consensus was that Marxism as written was consequentialist, but present-day Marxist movements are rooted in a sort of fanatical and quasi-religious deontological morality. But Marx himself was hardly the fire and brimstone preacher that people make him out to be. He was a social scientist who had a lot of misguided ideas, and while his methodology certainly wouldn't be considered valid under modern academic standards, I don't think it was just based in blind faith either.
And yes, the Soviet Union was built on deception, intimidation, and violence. But Marx himself was long dead by the time of the USSR's founding. And Orthodox Marxism (which I'd agree is wrong in many ways, and especially wrong when applied to a modern globalized digital economy!) is a rather different beast than Marxism-Leninism and its ideological descendants.
"You will notice that most Communist countries these days are still led by trained Marxists who expound Marxist theories but do now have entrepreneurs."
Sure, but I don't think Scott was saying or even implying that entrepreneurs shouldn't exist at all. He was questioning the precise details of the current system and how fair it was, and he left it an open question, without pushing any particular conclusion beyond "we should acknowledge there are trade-offs here."
> Marx himself was hardly the fire and brimstone preacher that people make him out to be. He was a social scientist who had a lot of misguided ideas, and while his methodology certainly wouldn't be considered valid under modern academic standards, I don't think it was just based in blind faith either.
Marx was very much a fire and brimstone preacher. He also happened to be wrong. Still, he died before the worst abuses of his ideology. Which is more than I can say for some others who stuck to them regardless.
So semi-agreed on Marx. Marx was somewhat ambiguous on his opinion of the petite bourgeois. He famously toyed with the idea that capitalist exploitation might not exist in firms that were small enough everyone knew the owner. He also placed founders pretty firmly as petite bourgeois even when they grew rich. While ultimately he wished to eliminate them he was just... vague on what that meant. He didn't explain exactly where the dividing line was or why there should be one. That left his successors to invent the more stringent Marxist-Leninist version.
Nevertheless, my point that the idea that material progress can't create innovation in the absence of entrepreneurs remains. And that idea is at least present in Marx. If you can point out how Scott's proposals are different I'd be interested to hear it. I understand he doesn't quite get there. But I don't see how that's not the conclusion of this line of thought.
> He was questioning the precise details of the current system and how fair it was, and he left it an open question, without pushing any particular conclusion beyond "we should acknowledge there are trade-offs here."
My point being his framework for analysis is wrong and most closely associated with a disastrous regime. Which might tell you what I think of it. This isn't a pro-status quo argument. I do think we can do better. But I don't think there's many lessons to be learned from Soviet theory that's even been abandoned by most Communists.
"Point of pedantry but this is only true if options are a binary. Since economics is not usually a binary option this would not be true."
Fair, but by the same token, there's an enormous range of possibilities in-between "entrepreneurs should be able to continue drawing a profit from their initial investments in perpetuity" and "entrepreneurs should only get paid for the exact value of the initial labor they put in and not a cent more, like they were under the Soviet model." So Scott questioning the former shouldn't be taken as an endorsement of the latter! (Especially since he really was just *questioning* it! He didn't actually conclude that the former model was unfair or should be changed!)
I'll admit to being a bit casual in my comments. But my frustration is less that the idea is being aired and more that I think rationalists REALLY need to learn more about historical debates on these kinds of things.
My frustration is partly that we're rehashing a fairly disproven idea. Entrepreneurs provide significant value and letting them control what they build is a net benefit to society. Which isn't to say we've found the perfect economic system that cannot be improved. Including potentially changing how entrepreneurship works. But when I see people reinventing Marxism-Leninism or Fascism or whatever without realizing it I get frustrated.
> 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.
Yeah. I don't think many people here realise just how difficult it is to create and sustain successful organisations, or the critical search functions that incentives and competition provide to society.
I actually agree with you--the main contribution of Musk, Page, Bezos, etc is not technological but organizational. (I'd argue Jobs is an exception, in that he had a very singular and unique talent for bringing technology to market.)
But that's not what the article is arguing. It seems to take no issue with great executives making millions/year--instead it focuses on _founders_ who make billions, ostensibly as a reward for their great innovation.
Personally, I think the owners of capital (both founders and investors) should be taxed at higher rates. Specifically I believe capital gains should be taxed at least as high as ordinary income.
The argument against this is that it will "hurt investment," which is not wrong--there will obviously be marginal impacts there. But I would argue that the benefits (stronger welfare/healthcare programs, a more egalitarian society) outweigh the costs.
We're playing in the dark here--no one really knows exactly what the cost/benefit would be, or if we'd cross the hump on the Laffer Curve [1], but IMO we're very far from hitting that point.
[1] https://en.wikipedia.org/wiki/Laffer_curve
Hmm...I actually really disagree here.
There's a very clear distinction between managers and founders--founders are primarily compensated through equity, while managers are primarily compensated through salary.
The former generates compound growth, which is the only real way to get to billions. The latter can get you millions, but not much further.
This is the classic Capital vs. Labor distinction. A hardcore Marxist would say the founder absolutely does not deserve to keep his wealth, beyond what he earns from his labor. I'm no hardcore Marxist, but I think US policy is hardcore anti-Marxist. I'm in favor of balance.
You're under estimating costs (even categories of costs) enormously, and assuming that benefits exist where they very likely do not. Look to the Soviet union, and pre reform China and India for examples of costs when governments become too powerful
Those are both very extreme examples of kleptocratic governments with extremist attitudes towards private wealth.
I look more toward countries like Denmark. Cap gains are taxed at 42% (vs US at 20%). They have some of the lowest inequality and highest happiness levels in the world [1]
Now, those tax rates are pretty darn high for a liberal market economy. I'm not saying the US should go all the way there, but it seems like a few steps in that direction would help quite a bit.
[1] https://en.m.wikipedia.org/wiki/Income_inequality_in_Denmark
(edit: TIL they have a Land Value Tax as well! https://en.wikipedia.org/wiki/Taxation_in_Denmark#Indirect_taxation)
(edit 2: removed discussion about income tax...I can't find a good source that incorporates both federal and municipal rates)
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:
https://en.m.wikipedia.org/wiki/Timeline_of_e-commerce
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.
Bezos is arguably the greatest businessman in history. He maybe didn't invent any single product, but he certainly can be credited with inventing the systems that Amazon uses to run it's operations. He famously told all of the employees in the early 2000s to only communicate through APIs, or else they would be fired. The result of this type of communication effort was AWS, which is why Amazon is a trillion dollar company now.
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.
>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.
Are you saying he doesn't today?
No, he pays today, but I'm arguing for making zero taxes on company founders. If that had no limit, Bezos would pay zero taxes on any sales of his Amazon stock. I'm saying there's a threshold for where taxes should kick in.
There is no such easy line to split the cases.
If i buy a company facing bankruptcy and bring it up again to be stable and successful is it mor elike a entrepreneur. On the other hand, if I found a shady startup and convince enough VC to buy me out I get rich without adding value to society.
And if some entrepreneur like Bezos gets his startup running by talent and hard word until it's worth 10 million and then start to inflate the value to 9 billion by PS stunts or government connections because of being a startup celebrity. How would you handle this.
Next scenario: the founder that did most of the creative and hard work gets mobbed out after a certain point when usual management is enough to keep growing fast. Is it OK that the mobbing founder gets most of the reward?
> 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.
The part about Bezos's wealth coming from gambling on Amazon stock is entirely beside the point. It just shifts the question from "why is Bezos rich" to "why is Amazon rich". The claim is that part of Amazon's success is due of a natural monopoly, regardless of who owns Amazon.
You do raise some good points in the rest of your comment.
"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.
Well, he did call it neoliberal, not liberal. But yeah, I wonder if anyone seriously makes that argument.
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.)
There's a reason there are no libertarian small societies—everybody would die. It's an ideology that only works once society get so large, you can have freeloaders.
We all have to share, and we all succeed only when others give us resources to build on. Your ownership of stuff is 1) a cultural construct, and 2) bounded once you participate in the larger society. So, yeah, it's OK to take stuff from people within the rules of society, and indeed, vital that societies do that.
On the contrary, constraints on political power, a key tenet of libertarianism, are what allowed societies to get wealthy in the first place. When the kings and nobles do not feel free to seize wealth created by others on political excuses is when societies take off. Unfortunately, this also works in reverse!
I was responding to the argument against taxation and other forms of "taking stuff," not limitations on power. Which is something smaller societies also tend to have, and most contemporary theories of political economy emphasize (e.g., every leftist critique of neo-liberalism I'm aware of is concerned about how power is distributed). But you can't constrain political power without taking stuff from people who have enough stuff to move from needs meeting to power projection.
You seem to be ignoring the fact that taking stuff from people is one of the greatest projections of power there is (next to liberty and life). If you can take their stuff, they're not very powerful to start with
If you can't take their stuff, they're probably taking yours.
This is one of the big problems of not having sufficient taxation and other forms to limit extremities of wealth: the rich become so powerful, they can manipulate the system so they're above it and use it to exploit others. Libertarianism (at least in the purist form you seem to be operating in) assumes that you can create rules (or the lack thereof) that ensure people are free from coercion, when that's never possible. The only thing you can do—and thing that every society that's minimized the abuse of power by the elites have done—is create rules (via laws or social norms) to distribute goods and power away from those that accumulate in excess of their need. By doing that, you constrain the ability of people to gather enough power to coerce others. (Or, in your terms, the coercive force becomes the collective rather than the elite.)
So far as I know, there's no "pure" method for this. Every approach a society has flaws, and some groups will be more advantaged. So the question, as I see it is, how can we optimize the outcome for the most people while avoiding an extreme burden placed on anyone? And as a corollary, what does this system need to be reasonably stable?
"The only thing you can do—and thing that every society that's minimized the abuse of power by the elites have done—is create rules (via laws or social norms) to distribute goods and power away from those that accumulate in excess of their need."
So, Marxism? Because that's the ONLY way power can be limited? How's that working out for the countries that tried it?
I don't know why exactly, but corporations don't elicit the slightest infinitesimal fraction of sympathy from me, they rival militaries and states in how utterly "morally unsexy" they are. (Moral Sexiness is the quality of eliciting strong, spontaneous, knee-jerk, gut-level, moral reactions in favor of the morally sexy thing\being, babies and kittens are examples of entities with almost universal moral sexiness.)
Take Bezos' money? Let's roll mate. Pirate Springer and Elsevier? I'm fucking on board. Pirate Netflix? I love doing it just to spite the corporate NPCs, most of what they produce is garbage anyway.
Regardless of what's actually objectively true or moral or useful or consistent, it feels deeply right in my monkey brain and heart to abuse corporations and deprive them of rights.
For starts, I would distinguish between a corporation, and individuals who own stock in a corporation. Bezos’ wealth is mostly of the latter form. In principle, this is no different from grandma whose retirement portfolio is in stocks.
The idea that you can never take stuff from people leads to some weird conclusions.
What if you have a society whose rules are set up to allow massive wealth concentration to literally just 1% of the population, and the other 99% lived in tin shacks with no access to medication and just enough food to survive. Surely it would be right to take the wealth of the 1% to increase the living standards of the rest? Perhaps you disagree with that, in which case I applaud your iron clad belief against theft, but that doesn't seem like a place I want to live.
Whether or not it is okay to take stuff from people depends in my mind entirely on the existing distribution of resources. Every society has its own rules that allow for some amount of inequality, and inequality has its benefits, but its not hard to imagine a society in which it is so skewed that theft is almost a moral obligation.
Think some resource rich countries today which have massive wealth inequality between the resource owners and the civilian population. Those resource owners don't necessarily even have to be good businessmen or have any particular special qualities at all, they just control all the oil/mines/etc. that produce wealth and can afford to create safeguards that protect their continued ownership of the resource. Now a lot of those places are so corrupt that working to redistribute the money might not do any good, but a good case study is Botswana, which has massive diamond wealth but has worked to distribute it to the benefit of their population, which is comparatively rich by African standards, while other African countries have failed do the same with their resource wealth. I think Botswana is on the more morally correct path.
If 99% of the population lives in un-improvable misery, then the appropriate people to blame seem to be the people within that 99% who continue to have children, knowing that they will be born into un-improvable misery.
Is this satire?
Eww.
Sex and kids are probably two of the only things that make life bearable in this hypothetical. And the 1% are the ones with the power to change the situation. But somehow the ones with the power do not have moral responsibility. This is a common attitude... but I find it odious.
Not sure why people keep thinking that Scott reasoning about what is "deserved" implies "people can just go take stuff away" or "this should be the law!" (even though there's no way to reformulate the essay in the form of a law).
I think he's floating one way of thinking about what is deserved or fair *and nothing more than that*. I don't even think Scott has even reached a firm conclusion about fairness, and he's obviously not proposing a public policy.
Whether or not Scott formulated his ideas in terms of actionable policy, there are LOTS of people who immediate go there, e.g., via taxation. Just look at the comments above from 'Sparkling Water, Seriously?' and WaitForMe. So the idea that these thought translates into policy is hardly foreign.
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?
"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?"
I think I can give you a resounding yes to that question. I live in China, where there are two alternatives to Amazon, both run more like Amazon Marketplace than Amazon itself (Taobao and Jingdong). They are both massive, the founders are very wealthy, and they occupy a lot of advertising and mindspace. People talk about them in exactly the same way they talk about Amazon.
So, yeah, there's a natural experiment which gives you a very very clear answer to that question.
Can you show that they would exist today if Bezos hadn't done it first? A lot of Chinese online services, e.g. Baidu and Weibo, were directly replicating the proven success of other services that were already popular or even essential outside the Great Firewall, and benefit from a government enforced monopoly space for them to prosper.
I can't answer your question, because lots of the assumptions are wrong.
1) Bezos didn't do it first. 2) Taobao didn't replicate Amazon (it was a third-party platform from the start).
(And incidentally: 3) Government-enforced monopoly space? Amazon operates in China (see for yourself: z.cn). The US government literally wouldn't allow TikTok to operate in the USA without changing ownership. And China certainly isn't granting monopolies - the two biggest internet companies here compete with each other in very cutthroat ways.)
Add all those up, and we see a rather different story.
The internet arrived and a bunch of entrepreneurs started trying to make money out of it. Bezos was one, and was extremely successful - not because he was the most original, but because he was a good businessman with access to truly eyewatering amounts of capital. (Do you remember the early 2000s, when one of the big think points was, "Will Amazon ever make money?"? He operated at a loss for a decade.) Jack Ma in China was another - he successfully leveraged a gap in the market (his English skills and the need for an international internet commerce platform.)
None of these successes were doing anything technically very amazing. They just saw a gap in the market that the internet could fill, and filled it. In each case, I think yes: if they hadn't done it, someone else would have.
That's not his actual question. His question is - if you take away the incentive system that rewards innovation, would the same thing exist, and the answer to that is just as resounding, and it's No. The natural experiments exist - N. Korea and South Korea, China pre and post 1979, India pre and post 1991
So far as I can tell, you're saying the same thing that I am. If you set up the right system, then internet retail giants will emerge. It doesn't have to be Jeff Bezos. It could be Jack Ma and Taobao, or Flipkart in India.
I completely agree with you that the USA and China today are much more 'right' than North Korea. If you have a system/country that is too messed up, then internet retail will not grow. But if the system is good (USA) or OK (China, India), then you get big internet companies.
Possibly. My point is that allowing entrepreneurs to get rich is a big part of getting the system right. You can't ask the question that Scott is - since someone else would come along and do what Bezos did, so you can tax his wealth, because under the counter factual where you do that, someone else would not come along and do what he did.
Yep, that sounds like it gets clearly to the heart of where we might disagree.
I don't think that raising taxes on very high earners would destroy the incentives to create big businesses.
My reasoning is fairly simple: I don't think the revenue-maximising impulse comes from people at all. Think about the people you know. How many of them are really maximising their money? Taking the highest-paying job over the job they prefer? Selecting the very best savings plan? I honestly don't think I know anyone who does it. So I don't really believe billionaires do it, either.
And yet, I do think that billionaires' money gets maximised better than my money. Why so? Because they have enough money that it's worth hiring a professional to maximise their returns in every way. I don't choose the most economical produce in the supermarket. But if I hired someone to do that for me, I could! For me, that would only be a few hundred dollars' worth per year, so it's not worth hiring someone. For Bezos it is.
What this means is that personal motivation is not, I assume, the most important factor that leads to the rich getting richer. Instead, it's professional support. Raising taxes would not make much difference to the motivations of Bezos or his tax accountant. Therefore I don't think it would seriously impact the way he does business.
My assertion should be falsifiable: if we look at billionaire behaviour and find that they in fact put in less effort in high-tax states, then I'm wrong.
I think your model of the world is flawed. Incentives most certainly work, and your assertion is, in fact, falsified. Look at the Soviet union, pre reform China or pre reform India. It's not so much that 'billionaires don't work hard if taxes are high'. It's that they don't become entrepreneurs at all, or at least at significantly lower rates than otherwise. And what's worse is that the more powerful government is, the more it tries to run the economy, the more likely it is that the kind of people who become entrepreneurs are great not at running companies or innovating, but those who are great at managing government policy in their favour. Once again, look at Russia, India or China for examples. All/most of the billionaires there have only become rich because they actively manipulate government policy, not because they've innovated.
This is exactly right. You can't take away the incentive system under which the innovation exists and then claim that it would happen anyway, it's just someone else that would do it. No. The someone else would also look for better returns to their time. In a system where political power determines who gets to keep wealth (as it was for most of human history), the best returns to time would come from investing in getting political power. And that's very bad for human society, because wealth that comes from political power is zero sum, unlike wealth that comes from capitalism
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.
Then the obvious solution is to tax billionaires extra, but make investments in e.g. startups tax deductible, right? Because we don't want billionaires to buy a 3rd mansion, a 5th yacht, or to turn a stretch of California desert into a golf course. We want their wealth to pay dividends for society, so we incentivize ways that do that and tax the Ozymandian excesses instead.
That's what we do already. Bezos is not taxed on the hundreds of billions in Amazon shares that comprises the vast majority of his net worth, he is taxed when he converts those shares to money to buy yachts with.
Why would we want to stop people turning deserts into golf courses?
Traditionally golf courses in a desert area require massive uses of water for irrigation in an already water stressed climate. Not the optimal use of that land there.
As Sin said above, most of Bezos' wealth is already being put to good societal use.
Also. I understand the urge to want to come up with elaborate schemes that promote "good uses" of billionaire wealth while discouraging "bad uses," but these are almost impossible to get right and susceptible to manipulations. An alternative I like better is to tax consumption rather than income or wealth. That way, industrious billionaires who put most of their wealth to good use get to keep amassing wealth, and profligate billionaires (or children of billionaires) who spend most of their wealth get taxed heavily. (See https://scholar.harvard.edu/files/mankiw/files/how_to_increase_taxes_on_the_rich_amended_feb2020.pdf)
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 don't think that's a better example, because it's a patent situation. It's literally a winner-takes-all game. But Amazon could have a competitor arise at any time.
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.
In my experience (and I've been an Amazon customer since 1997) it was "being better." In the early days, it was a mild *negative* to buy stuff online, compared to just trucking on down to the well-stocked Barnes and Noble and having it in your hand immediately. But Amazon was worth the little extra wait. They had a huge selection. They had actual reader reviews. Their prices were very competitive, often cheaper in my area. Their delivery was as fast as they could make it, and very reliable. And they had phenomenal customer service. If you called them with a problem, the first person who answered the phone was empowered to fully fix it, and would. There was no listen carefully because our options have changed, no check out our FAQ on the website, no um er I don't think we can do that...I guess I could check with my manager. They acted like it was a matter of extreme concern to everyone you talked to that you Joe Customer were fully satisfied, and if that meant sending you a replacement immediately, or taking a return no questions asked, or just generally losing a little money, they'd do it in a flash. They also had some amazing innovations, like Amazon Prime and next-day delivery, that took almost all the sting out of waiting for your stuff.
It hasn't lasted, though. Over the years Amazon has slowly become much more ordinary, and I would not say the experience of doing business with them is still head-and-shoulders above everybody else. Maybe it was something that could only be found in the early aggressive growth phase, when they really did feel they would live or die by the next order, the way start-ups often do -- or maybe Bezos's daily leadership actually is truly essential.
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.
Thinking about capital and labour as classes is where your intuitions are going wrong
What is the better way of thinking about the difference between people who derive the bulk of their income and wealth from working for wages and people who generally derive the bulk of their income and wealth from ownership of assets?
The whole point of the article is that successful entrepreneurs may not “deserve” all the value captured; e.g. it was not their work that did it in the most meaningful sense.
Here's the thing (you can see this in action in small companies); say you have two people working on a project, one of whom is doing the heavy lifting, the other of whom is directing him to keep things organized.
If the guy doing the lifting doesn't come in, the guy doing the organizing can jump in pretty easily; it's just a question of doing it. If the guy doing the organizing doesn't come in, the guy doing the lifting is going to have a much harder time covering for him.
It's not a setup where each person can only do their job; it's usually a setup where the top guys can do everything if necessary. The high capitalists are only not doing the labor because they have enough employees not to need to, they can concentrate on the harder stuff like logistics and risk assessments. The average worker will have a very bad time doing logistics, or risk assessment.
I have first hand seen it be the case that the top people can do (almost) everything in a skilled labor company owned by someone who has risen through the ranks.
I have also been a first five employee of high tech companies founded by people who couldn’t do anything out of their lane of business development.
It’s a mixed bag.
Honestly? Study some economics that isn't Marx, since he was a terrible economist. Here's a good place to start - https://mru.org/principles-economics-microeconomics
> What is the better way of thinking about the difference between people who derive the bulk of their income and wealth from working for wages and people who generally derive the bulk of their income and wealth from ownership of assets?
Why would you want to think about that difference?
The average business owner has a lot more in common with the average employee than the average employee has with (say) Tom Cruise or LeBron James.
Which camp are politicians in? Are our representatives putting in work for their ghost-written autobiographies, or is their wealth from renting out their seat in the legislature?
Billionaires don't actually have billions of dollars in resources. Bezos' Amazon stock being liquidated would dramatically reduce its value (and giving what you end you with to e.g. poor people would also inflate the price of goods they buy meaning the value tranferrwd is lower still). Which is relevant if you have designs on having the government extracting this value for the benefit of others.
That one can retire on low single digit millions is irrelevant. The only thing that matters is the consequences. If you could only ever hope to get low single digit millions feom founding a company, then far few companies would be founded/invested in. And I don't care how much Marxist theory you recite, the government, no matter how "democratic", is never accomplishing what these private individuals are.
The problem is that there really isn't a good work-around for economies of scale that doesn't lead to worse consequences down the road.
It takes two kinds of work to make a book. Someone has to write the contents, and someone has to print and publish the contents as a book. There's a fundamental difference between the writing labor and the printing labor. Printing labor is proportional to the number of books printed. If I print x books, it takes x labor, and if I print 2*x books, it takes 2*x labor. The writing labor is constant.
Alice and Bob both write books and sell them to their fans. The Carol printing company prints the books for Alice and Bob, and it takes an equal amount of labor and materials to print one copy of either Alice or Bob's books. Alice sells 100 books. Bob sells 100 books. Alice and Bob are entitled to the same amount of money; this should be easily intuitive.
Alice thinks she can sell more books, so she prints 1000 more. They sell out. To my thinking, the only logical conclusion is that Alice should make 10 times the amount of money than she did for the initial 100 books, despite doing no further labor other than ordering the printing. Both the initial 100 and later 1000 books are equally valuable. The Carol company should make 10 times the money, but at the same rate per book.
Alice's book is a massive hit. Before we know it, she sells 100,000,000 copies. Alice is rolling in money. The Carol company has probably had to hire more workers and buy more presses, but overall, the value of the company's labor to an individual book should be the same as it was for the initial 100 books. Alice's intellectual labor scales in a way that the Carol company's physical labor does not. The work of printing copy 99,999,999 is the same as printing copy 1. If the printing employees are somehow entitled to a bigger share of the pie for the book that sells more copies, then you'd need to know how many copies the book was going to sell in advance.
Now with businesses rather than books, the scaling is worse since the value of business to business negotiations depends on the value of both businesses. A transaction between two million dollar companies should be theoretically a hundred times more valuable than a transaction between two hundred thousand dollar companies, and the value of the transaction between two billion dollar companies should be a million times more valuable than a transaction between two million dollar companies.
You started off strong, but went off course.
"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."
Exactly. Capital (or money) is just an abstraction that represents a store of value. If I farm and produce $100 worth of food, and then use that $100 to buy a shoe-making machine, what that means is that the value I produced from the food, as determined by the demand for the food and the amount of time and resources and labor I put into making the food, is equivalent to the value of that shoe-making machine. i.e. I could have just spent that time building the shoe-making machine myself, but maybe I'm not particularly good at that, or I have some special advantage in farming. But I nevertheless have complete and total ownership over that shoe-making machine, in the same way that I would if I had literally built it with my own hands.
This is what the Marxists fail to understand about labor vouchers. We already have labor vouchers. They're called dollars.
"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.
This is close to Nozick's distinction between desert and entitlement. For a simple example, suppose I bet you a dollar on a coin flip and win. I don't deserve the dollar, because I didn't deserve to have the coin land heads. But I am entitled to the dollar, because I obtained it in a legitimate way, by a bet you agreed to.
Similarly here. The claim is not that Bezos deserves his money but that he is entitled to it, having obtained it by voluntary transactions with his customers. You put it in terms of things working better, which is true. But there is also a moral intuition behind it.
I think of this as the difference between a God's eye and a man's eye view of the world. God can know what everyone deserved, whether someone did good things for good reasons or for bad, how much of the outcome was luck. And God doesn't face a budget constraint — if a house burns down and nobody was at fault, hence nobody deserves to lose the house or have to replace it, God can wave his hand and bring the house back.
Humans cannot know what other humans deserve and do face budget constraints. So from their standpoint it makes sense to work with entitlement — did he get the thing by legitimate means — not desert.
Agreed, and I like the desert vs entitlement distinction, it states things in a more concise manner than I could.
I also agree there is a moral intuition even with "only" entitlement - which rests heavily on the legitimacy of the transaction, which in turns rests on the free will/choices/agreements of the other parties, which (not incidentally) I think is a major component of the moral argument for capitalism: that its outcomes (mostly) reflect the (mostly) free choices of people. (obviously there are exceptions and caveats).
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?
What about the assumption that property as a concept is valid? When all of our society is built on cooperation, and any one person's success is predicated on the collaborative effort of millions of people who came before them, what justifies them to say that they, and no one else, should own something?
Indeed. The validity of the concept of property is also an assumption. But that general assumption was implicit in the original post as well.
For that matter, not only is the validity of monetary property an assumption, but the validity of bodily property is an assumption as well. Who says you ought to decide what is done with your body. Maybe someone else should be allowed to take one of your kidneys (especially if he really needs it).
Would you rather that all the resources be owned by the biggest strongest man with the biggest strongest gang of followers?
Property exists whether it's legally recognised or not; legal recognition of property just has the nice feature that we're no longer engaged in a constant struggle to physically monopolise resources. If property isn't legally recognised then people will simply grab whatever they can grab and defend.
Expanding on your "why does anyone deserve anything?"
There is a very tempting line of argument that starts with the idea that desert can't be based on things you didn't deserve. You didn't deserve the genetic endowment that made you productive, so don't deserve the higher income that results. You didn't deserve to have intelligent, loving parents who did a good job of rearing you, so don't deserve to have a better life than the petty criminal who is that way because of the parents he had the bad luck to have. The successful murderer doesn't deserve his punishment, because all the factors that led to his both attempting and succeeding in murder are things he didn't deserve.
Consider a Nazi concentration camp guard. Suppose you believe, not implausibly, that most people, if they had been reared in that society, would have accepted the job. Does that mean that almost everyone deserves the condemnation we feel for the guard or that he doesn't?
For a less exotic example, consider the distinction between murder and attempted murder. Being a bad shot is not a virtue, so why do we give a lower punishment to the person who missed his intended target than to the person who hit it?
All of this is sometimes described as the problem of moral luck, which I discussed in an old article: http://www.daviddfriedman.com/Academic/Payne/Payne.html. One implication sometimes reached is egalitarianism, that, since everybody has the same desert once all undeserved factors that differ among people are eliminated, everyone deserves the same income or the same utility.
The actual implication of the argument is that nobody deserves anything. The fact that I am a human being instead of a dog or a stone is accidental in the same sense that the fact that I had particular parents and particular genes is — do dogs and stones deserve the same income as people?
The answer, in my view, is that desert is not predicated of the imaginary pre-birth me, somehow hovering out there, but of the actual person I now am. Hitler didn't deserve to be a mass murdering tyrant but since he was a mass murdering tyrant he deserved to die. Similarly for positive deserts.
This point is orthogonal to the desert/entitlement distinction I made in another comment. It makes sense, I think, for our legal system to run mostly on entitlement. But our individual evaluations of people, which affect our interaction with them, can and should depend at least in part on what we think they deserve — but not on whether we think they deserve to be the people they are.
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.
It really isn't workers who *figure out how to* do the implementation. That's the point. Ideas are cheap. Ideas plus the vision and skill to see those ideas implemented is rare and valuable.
In almost all cases, it is the workers. Bezos built afaik zero percent of Amazon's infrastructure. Musk built zero percent of PayPal, Tesla, and SpaceX. Zuck may have built a bit of Facebook, but that part I'm sure is long gone and no longer part of their product. Henry Ford didn't design and build the cars and factories.
It's exceedingly rare for an entrepreneur to do much of the work at any but the smallest businesses, and that includes the hard work of actually designing and making the product.
Again you missed the point. Obviously Bezos didn't do the programming. But did he figure out how to implement his ideas, or did he just have the idea and ask someone else to do all the brainwork?
The latter.
... and yet workers continue to give them their great ideas and the fruits of their labor. If capitalists truly provide such little value, it's quite puzzling why workers would do this so consistently.
Almost like there is immense institutional power on only one side of the equation...
How so? All Amazon can do is offer people contracts that they can choose to sign or not sign. I don't think they're holding anyone at gunpoint. And even if you want to claim that they do have some sort of coercive power because they're so large now, they were a startup at one point. And yet apparently Jeff was able to convince a lot of really smart people to give him credit for all their ideas and work.
If you really think that employers and employees bargain on equal footing, I really don't know what to say. You are incredibly misinformed. Maybe look into the history of the labour movement, where workers were routinely murdered for fighting for extremely basic rights.
This is drastically undervaluing how much of a hand Bezos had in scaling Amazon. Amazon is the result of 30 years of tiny decisions that have compounded into a $1 trillion company. The idea that the founder and CEO was just bumbling along as this happened is insane. The story of him issuing a mandate in 2002 that all employees communicate via APIs alone is a precise example of why your point is nonsense:
https://medium.com/api-university/the-api-mandate-install-api-thinking-at-your-company-4335433b7d0b
This memo right here directly lead to AWS, which is why Amazon is worth $1 trillion and why cloud computing has totally revolutionized the world. And it takes an incredibly visionary leader to do something like that. If that pivot didn't occur in 2002, Amazon is not worth $1 trillion, Bezos never becomes the richest man in the world, and it's very possible cloud computing is not a thing in 2022.
Who designed and built every single one of those APIs? Every single line of code? Who installed every single server in every data centre? Who made every single implementation decision?
That memo is worth precisely zero without the input of the workers.
I would also say that the value to society of "scaling Amazon" is probably mostly negative. Amazon creates a lot of negative externalities, from the decline of main street and local businesses, to extremely bad treatment of workers, to enabling third party sellers to defraud customers, and so on.
We would be much better off without a "scaled" and fairly monopolistic Amazon. So I'd say to the extent Bezos is responsible for that, he deserves not plaudits or wealth, but the opposite.
There are millions of people who can write and expose APIs. Doing the work is not difficult. Making the decision to reorient an entire company as a collection of microservices, and forcing everyone to adhere to that decision, was due to Bezos alone and is what directly lead to cloud computing. And cloud computing has made everyone in society wealthier by trillions of dollars wether they realize it or not.
I really don't think we can credit Bezos with "cloud computing" in any way.
You are being willfully ignorant. AWS was doing $100 million in revenue back in 2007 and growing at something like 50% year-over-year before Google and Microsoft had done *anything* about cloud computing. It's the reason they started scrambling, but they were totally behind the curve. AWS didn't face serious competition from either of them for 7 years: https://techcrunch.com/2017/02/13/why-aws-has-such-a-big-lead-in-the-cloud/
There are legitimate criticisms to levy at Bezos and Amazon, but you undermine those criticisms when you don't give him credit where it is due and make yourself look foolish.
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.
And also…are you *sure* someone would have come up with the idea for Amazon if Bezos hadn't? We tend to think of ideas as inevitable, but I'm skeptical. I mean, if Jobs had never founded Apple, I think our lives would be *vastly* different now. Just how I can't really say, but at the very least computers would be clunkier, uglier, and more difficult to use, and at the most, computing might *still* be something for businesses, universities, and nerds.
On the other hand, Newton and Liebnitz invented calculus almost simultaneously.
Which is Amazon more like? The idea of selling things online is obvious; that was inevitable given the environment, and indeed Bezos was not at all the first to do it. But one big store, selling you everything as cheaply and easily as possible? That might not have happened at all! We might have hundreds of smaller marketplaces, or a few larger ones, or one dominant but really awful one, like if Microsoft had gotten into the space first. Things might be better or worse than if Bezos had not acted. We hope markets lead to upwards progress, and they do seem to long term, but that doesn't rule out temporary inefficiencies.
The ultimate question is, what is the principle we're setting? What is the likely effect on the future, on future prospective entrepreneurs and businesses, and most importantly, on general welfare? What precedent do we want to set?
Wow, now *that's* an old joke.
I never knew it was a "Simpsons" reference. And yes, it's old enough to run for Congress. https://waldo.jaquith.org/blog/2011/09/simpsons-subscribe-newsletter/
Personal Computing, or Computing for that matter, doesn't owe no shit to Apple, the Commodore PET and the TRS were launched in the same year as the Apple 2, Xerox PARC was working on their own vision since the start of the 1970s and had vastly better (but more expensive) machines by 1976, and the entire idea of the personal computer itself was explored since the 1960s and mapped fairly well in broad outlines, the late 1970s is simply when Moore's law caught up.
Apple is such a fucking propaganda machine, the North Korea of tech companies.
And what was the first commercially successful personal computer, again?
That something was thought of and explored doesn't mean that it was brought to market in a successful way.
>And what was the first commercially successful personal computer, again?
One of the other 2 companies I mentioned.
From https://arstechnica.com/features/2005/12/total-share/3/ :
>>Initial sales were sluggish as Apple sold only 600 machines in 1977, mostly due to the high price compared to the PET and TRS-80. However, with the addition of the fast and relatively inexpensive Disk floppy drive accessory, made possible by an ingenious disk controller using only eight chips that Wozniak designed, the Apple sold 7,600 units in the following year and 35,000 in 1979. It was still a distant third compared to the other two machines in the trinity, however.
Then later :
>>A combination of great marketing and even better luck propelled the Apple from an also-ran to a serious contender. In 1981 the company sold 210,000 units, leaving the PET in the dust and nearly equaling the TRS-80's numbers
Trust me when I say that Apple is 67% propaganda and fan worship.
> if Jobs had never founded Apple, I think our lives would be *vastly* different now
Like many people, I don't buy Apple products, so I find that hard to believe.
Do you use a graphical user interface? Do you use a screen-only smartphone? Is attention paid to user-friendliness in the software you use? Are your electronics devices esthetically pleasing without being only for the wealthy?
It's hard to say that these things would definitely not be true today if Jobs had never lived. But there's no question that he, personally, greatly advanced the field in these and other dimensions.
For kind of a knockdown example: There were no usable tablets until the iPad. They had been tried, they failed, and had been essentially given up on. Now they're ubiquitous. That is solely due to Jobs.
I've never owned a tablet, and don't want a "screen-only" smartphone (but if you just mean "the keyboard is on-screen" then okay those are pretty good), but I did own multiple smartphones before the iPhone, was not excited by the iPhone, and didn't really feel like Android was a significant improvement. The capacitive touch screen was, on the whole, better than previous pressure-based screens , but when I think of my favorite features of my phone ... I'm thinking the cameras, the internet access, the ability to write out entire words with a single stroke, and the low price.
- first cameraphone was invented in 2000 (not by Apple)
- phones with browsers arrived around the same time (not by Apple)
- the entire-words feature dates from 2002 or earlier (https://en.wikipedia.org/wiki/Swype)
- Apple stuff has always cost a lot
I still miss the 90s-era PalmPilot's ability to send small documents and applications easily between phones.
> I still miss the 90s-era PalmPilot's ability to send small documents and applications easily between phones.
Then get an iPhone and use AirDrop.
I will say, the first Macintosh was a great product. The key GUI technology was not invented by Apple though, I preferred PC over Mac (due to low price and high programmability), and I find it hard to believe that some other company (Microsoft?) wouldn't have eventually made a good GUI inspired by Xerox-PARC.
I very much appreciated the improved user-friendliness of Windows 95. To the extent they copied the Mac, good, though what did the Mac have that wasn't invented in the 70s? Also Win95 had its own innovations - I love taskbars and tabs. I think it's trendy to sacrifice user-friendliness these days (e.g. all kinds of phone apps; Windows 8's bizarre dual UI)... developers should still know how to do it, they just... don't always bother.
And I don't see how human designers somehow wouldn't care about aesthetics without Steve Jobs.
The GUI technology was not invented by Apple. It was languishing, unused, in a lab. When the Mac launched, GUIs were viewed as laughable in the computer industry. After the Mac, GUIs rapidly became near-universal. Until the iMac, computers were boxy, beige, and ugly. After, designers worked to make them esthetically pleasing. Before the iPhone, there was no such thing as a phone without a physical keyboard (though Newton and Palm had brought out PDAs without them); indeed the notion was laughable. Now they're universal. And of course these are only a few of the many similar examples.
Whether human designers would not now care about aesthetics without Steve Jobs is unknowable. We only know that, in this industry, they did not until he started a revolution in design.
The fact that you don't use Apple products has very little to do with whether Jobs had a major impact on your life.
>I think the big unanswered question here is: Why aren't there any meaningful competitors to Amazon?
There are, though. In the retail space you have Walmart/Jet.com, Target, eBay, AliExpress, Shopify, etc., and in cloud computing there's Google Cloud and Azure. They all have fair sized shares of the market, and I don't think they lack the resources, or are prevented from competing fairly.
None of those are direct competitors to Amazon in the retail space, though.
Obviously Amazon has competitors. But no challengers. Walmart and Target exist in the same business space. Who is Amazon's Target?
I don't understand how they're not direct competitors, Walmart and Target are not just brick-and-mortar stores anymore, they're trying to catch up in the online retail space. If I wanted to by a doodad, I could go to Amazon.com, Walmart.com, Jet.com, Target.com, etc. They are all directly competing in the online retail business space for my business.
They're trying. But they're not really to that level. You can buy stuff from Walmart.com. People do, I suppose. But they don't seem, from what I can see, to be really posing any kind of threat to Amazon's dominance at this point.
More importantly…are you denying Scott's premise here? Are you saying there's plenty of competition for Amazon, and they don't have any real market advantage?
I think there's plenty of competition for Amazon, enough to keep them on their toes instead of being able to capture all the market surplus unchallenged. They no doubt have some market advantage just from the scale and brand recognition, but I'm not sure how big that effect is.
I don't feel like that answers the question. Are you challenging the premise of the article?
It's tautologically true that there will always be a largest company in any given industry.
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.
You're missing the point of the two years. Say that if Bezos had never lived, Beff Jezos would have founded Amazon in 1996. That means that the world would only have lost out on 2 years of Amazon, which means that that's the sum total of the benefit he uniquely created.
I’m saying JB unique value add much, much > than 2 years.
And the point here is that various possibilities are considered, one of which being that some other person would have invented Amazon in 1996 if Bezos hadn't in 1994. Do you know that would not have happened?
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
Arnold’s post from today is also worth looking at:
https://arnoldkling.substack.com/p/how-a-business-wins
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.
Agreed. Also, it's worse than that. In a world where most wealth and power is political (as it would inevitably be under any system that gave an even more massive role to the government) , your best talent would be playing political games, not business+leisure games. And those are zero (or negative) sum.
To expand on Bldysabba, the problem with drawing a line about how much wealth one can have is ultimately once you allow the government to draw the line, there's no limit on it. You might be willing to make Amazon for $999 million, but what's to say the government won't make the line $500 million tomorrow... then $100 million... then $10 million... and so on. Letting the government draw the line at all is a massive power grab.
"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.
Good point. I think there's an element of toxoplasma of rage here: no one wants to defend hedge fund billionaires whose value to society is even more questionable than that of Bezos, Gates, Musk, or other spotlight billionaires, so they tend to come up less in these discussions. It would be valuable to consider how many millionaires and billionaires are the result of desirable capitalist incentives, and how many of undesirable ones.
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.
I think that's write. I think Bezos won in part b/c he's really good at what he does. Amazon has been a creative and growing firm with products in many different industries, and some other firm may not have offered as good or as diverse of products. Some countries, like Russia, where Amazon doesn't operate, don't have a single dominant e-retailer. There are a bunch of lesser so-so ones.
Could make this argument for Musk. It's not clear Tesla had to happen. Other carmakers were content to ignore electric. And it seems like Paypal's best days are well behind it. Had Musk & Peter Theil stayed at Paypal, maybe they go on to do a lot more interesting things than what they did.
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.
Materials science deserves a lot more glory than it gets. Many of the apparently "too late" inventions were simply waiting for someone to invent materials with appropriate properties.
I don't know much about archery, but wikipedia tells me that compound bows are built of things like fiberglass, aluminium and carbon fiber ; I'm guessing that the design wouldn't work nearly well if built out of wood and steel. (Also, it looks like you need precision machining to make all those little cams and pulleys which can rotate freely.)
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.
"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."
Huh, sounds like a pretty bad deal to take. And yet somehow a lot of people voluntarily took this deal, choosing to give Bezos billions of dollars. So he must have produced a ton of value somehow.
In a free market, the only legal way to make money is to beg other people to give it to you. Ever tried begging for 200 billion dollars? It usually isn't too successful, right? Well, somehow, some way, Bezos begged for 200 billion dollars... and people actually gave it to him.
That doesn't happen unless you produce a lot of value somewhere.
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.
(1) https://www.sbxl.com/how-many-countries-does-amazon-operate-in/
Amazon doesn't "operate in" New Zealand in that it doesn't have a distribution network here, but it does in the sense that I can log in to amazon.com and order something to be delivered to me as long as it can be shipped here. So it's not particularly cheap - nothing individually shipped to New Zealand is cheap - but it's good enough for niche goods that no-one else has. For everything else there are the internet arms of local bricks-and-mortar stores, or TradeMe (which successfully held the niche here that eBay might have otherwise taken).
I suspect that a local Amazon distribution chain wouldn't have the scale to be worthwhile to Amazon. For Switzerland it probably wouldn't save much over having things individually shipped from Germany/France/Italy.
For Switzerland, yes there is:
You can and always could order from amazon.de, amazon.fr etc., and have it shipped to Switzerland. Amazon tells you which vendors ship to Switzerland. But until recently (3-4 years ago), it was not very user-friendly (you saw only when you processed an order whether the shop would ship to Switzerland), and that was enough for Amazon to lose the competition for the Swiss market. The winner is Digitec/Galaxus, which has 3-4 larger sales volume in Switzerland than Amazon. Amazon is only the fifth-biggest online store in Switzerland.
There are also some other broad competitors (brack.ch, still larger than Amazon) and some companies specialized on only one branch (like Zalando for clothes).
In Australia, amazon.com.au exists but isn't very widely used. I've looked a few times but it never seems to be significantly cheaper than anywhere else so I haven't bothered. There's some local competitors too, e.g. kogan.com, though I've never used that either; they supposedly have some good deals on cheap Chinese electronics if you're in the market for that.
The fact is that people just don't do all that much online shopping in Australia the way they do in the US -- they'd rather just head down to the shops to pick up whatever they want.
I suspect that there's some very US-specific factors going on which enabled Amazon to become so popular in the US.
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.
The internet, water utilities, and the government were all already paid for by taxes in the first place, so that seems a bit circular. "We stole your money to build the internet, and then you used the internet (that we built with your money) so now we're entitled to any and all of your future income."
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).
"'Deserve' ain't got nuthin to do with it" (W. Munney) kind of sums up the whole discussion, doesn't it?
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.
Elon Musk's wealth seems to have little to do with network effects (Tesla super charger network not withstanding). His wealth seems to mainly come from share market speculation rather than actual revenue numbers from his businesses.
His wealth is one of 2 things: he's producing a product that really is just that much better than the competition (in a field in which there _is_ some amount of competition), or else it's just baseless speculation. Either one of them will eventually end. I think there is far less reason to be worried about Musks current profit making endeavors. One might argue that his initial PayPal fortune was from "got there first, benefited from network effects keeping out competition" except that the market for electronic payment services seems to be more robust than others.
The argument in the post was "are there cases where billionaires have not earned their profit". I think that he makes a decent case that this is true of Bezos and Amazon. I'm _much_ less convinced that this is true of Musk.
Did you edit your comment to remove any mention of Musk? Makes it look like I'm talking to the air or I'm one of those Musk fanatics that brings him up at any opportunity.
Not a big deal but in future mentioning the change in either the original comment or the reply would be courteous. (You know, only if it invalidates the whole purpose of the reply; I'm not one of those people attaches an edit log noting every typo corrected.)
My comment still (and always) mentions Musk. I'm not sure what you are talking about. Do you mean my original comment? That one never mentioned musk.
-edit- I was pretty sure that substack left an indicator when a comment has been edited. To test, I edited this to see. if it did.
-edit2- yup, it does. At least for me, it indicates that I have edited the comment. Neither of my two preceding comments have the mark, they were never changed.
Sorry for blaming you then. Possibly this is an early sign of insanity, a day later I cannot understand why I wrote what I did there.
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[1], 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[2], 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[3] 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.
--------------------------
[1] And not just in terms of consumer appeal, either, of course, given the tremendous role AWS has served in enabling other Internet services.
[2] 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.
[3] Exempli gratia, the current 4th wealthiest woman in the world, MacKenzie Scott, Bezos's ex-wife.
I've sometimes heard of Japan as being such an alternate world: home PCs have been uncommon (perhaps because of space limitations in dense cities), and people used feature phones for things we use computers for. They also kept using faxes longer than anyone else.
I find it exceedingly dubious that some guy other than Bezos wouldn't found an online shopping empire within a year or three. Dotcom bubble anyone? Lots of people wanted to do online shopping. A few of them would surely be good at it.
(I also find it dubious that the internet depended on online shopping to grow, and dubious that the explosive growth was healthy. But if so, I think much misery exists in the world today due to whatever factor prevented microtransactions from taking off. Still today there's no microtransaction infrastructure. I've been saying for decades it should be built into the browser.... I was going to say it's dubious that Bezos is so much more valuable than its key software developers and other key employees, but I understand AWS is overpriced and has a shitty user interface, so maybe Bezos really was worth dramatically more than any other single employee. Random webpage tells me the second-biggest shareholder has 0.02% of Amazon, though obviously those numbers were different in the early years.)
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.
Exactly right.
All systems do take some riches away.
Of course, and public finance provides great analytical tools to think about what those riches should be taken away to finance (public goods), and how (mainly, consumption taxes)
Indeed. However, I do think a great many people, including many commenters here, think Bezos "deserves" every last one of his billions per se, and the virtue of Scott's post is that it pokes at that way of thinking. There's an overwhelming mass of people that treat this as a dichotomy, as if the choice before us is just "communism or capitalism: pick one." It's a shocking lack of imagination. There must be so many other ways society could work. So I like this essay, even though Scott hasn't taken it to the logical conclusion of looking for mechanisms that might make society more fair (though I doubt his ideas here represent any firm moral opinion on his part.)
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.'
I can't tell if this account is satire.
I'm curious why free 2-day shipping seems to be so highly regarded in this post, like someone perfecting the art of getting us stuff from China is considered the heights of innovation? If Amazon had invented interdimensional travel or something I would understand more the reverence for Amazon's "value" creation.
I feel like there's a lot of just world fallacy implicit in many comments here. A common way of thinking seems to say: Jonas Salk isn't a billionaire, and the engineers who first built Amazon (or GMail) aren't billionaires, and so what Bezos did must be much more valuable. And the guy who made Crucial Open Source Library X that 12,607 companies depend on, well his net worth is under $200,000 so f*ck him.
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.
Most firefighting organizations, at least in the US, start out as volunteer fire departments. They only turn professional once they, or the population they serve, get to a certain size. In the US, 2/3 of all firefighters are volunteers.
And yet 95% of fire call-outs are attended by professional firefighers. If govt stopped paying them I expect private business would step in to fill the gap.
The history of that transition is discussed here:
https://www.econlib.org/library/Columns/Mcchesneyfire.html
Online shopping isn't "critical" in any sense of the word, and the idea that the US government could create anything close in efficiency, in terms of cost and usability etc., as Amazon.com, is preposterous on its face.
It's not critical now perhaps, but it could be at some point if network effects prove to eventually be too much of an advantage.
And there exist in this world far more competent governments than the US one.
>And there exist in this world far more competent governments than the US one.
How would whichever government that is reduce Bezos' wealth, even if they did create an efficient shopping platform for their citizens?
There are plenty of Amazon stores around the world, it will only take one govt doing it before others start to get the idea.
However if govt can't do it more efficiently, even without a profit overhead, then perhaps Amazon is delivering continuing value after all.
>However if govt can't do it more efficiently, even without a profit overhead, then perhaps Amazon is delivering continuing value after all.
I've yet to see one do so, so...
It just seems bizarre for any government to even want to be in that business, it's not exactly a public good.
Firefighters are less of a necessity now that buildings are less flammable, but instead of reducing the number of them they just get reassigned to EMT duties:
https://marginalrevolution.com/marginalrevolution/2013/09/firefighter-hysteresis.html
https://marginalrevolution.com/marginalrevolution/2012/07/firefighters-dont-fight-fires.html
Yes that's a good point. I spent 20 seconds trying to think of the least controversial example of this widespread phenomenon but in the end everything has nuance I guess.
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.
That would be a more plausible argument if the list of occasions when government had flung good seed onto concrete under a bone-dry sky weren't as long as my arm. Solyndra, Sematech, Federal water projects, the Space Shuttle, the War on Drugs, healthcare reform (many times), Federal student loans, No Child Left Behind, Common Core...if the Federal government were a VC firm, it would've gone bankrupt ages ago, and nobody in his right mind would park his capital with them. The fact that once in a blue moon they actually semi-accidentally do something right does not inspire general confidence.
It's hard to know how good the US seeding is in the absolute terms - but in relative terms, it is clearly working - US has way better successful startup rates, and Amazon was started here. That said, a long list of failures is not much of an evidence of things being done wrong - it's pretty much a given for any high-risk/high-reward type of activity.
Amazon was started without a shred of government involvement. So was Facebook, and Google, and Apple, and IBM, and back in the day Ford and Bethlehem Steel. What you consistently see is that private entrepreneurship creates innovation and huge new industries, government at best sustains well-established industries, and often to the detriment of new ones (e.g. ULA versus SpaceX, GM versus Tesla).
This is hardly surprisiing, if you think about it for five minutes. By definition, a brilliant new idea looks silly or lunatic to most people until it proves itself in the real world by undeniable broad success -- that's *why* it takes an unusual mind to think of it, and believe in it, during the early founding stages.
So not surprisingly any organization that is highly responsive to the majority, like government, will only ever support what the conventional wisdom thinks is a good idea. And will therefore never discover or support anything new and innovative.
Or to put this in financial terms: if the government were an investor in the stock market, it would only ever buy stocks when their price was high (because the price is high when the majority of people think the company is doing well), and sell stocks when their price was low (because the price is low when the majority of people think the company is doing poorly).
What happens when you always buy high and sell low?
Military projects and public education were already paid for by taxes in the first place, so that argument seems a bit circular. "We stole your money to build the internet, and then you used the internet (that we built with your money) so now we're entitled to any and all of your future profit."
We'll, the US Government-seeded pipeline, however flawed, does work - and results in value that far exceeds that created by any of the alternatives developed by other countries, particularly those where the Government is not involved at all (no Amazon-sized successes coming out of Somalia, are there?) - so seems fair that some of the value should be used to help perpetuate the pipeline. Of course, a better pipeline would be better, but at some crude level what matters is that the existing one is still way better than not having one.
It's hard to know what the counterfactual world would look like without the crowding out effect of US government investment spending, although we can try to guess by looking at the efficiency of each source of spending.
We have a handful of examples of successful government ventures, but the list of successful private ventures is easily 100 times longer, even though the government has been responsible for anywhere from 30-70% of R&D spending over the decades.
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.
Could you provide the constructive complement to this comment and say what it is about, then? I actually do not know
Come on man. If you actually make me explain to you why oppression is bad, we're both going to die from embarrassment before I'm through.
Not what I asked
Banned for this comment.
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!
agreed that the original intuition pump was not that convincing. i think there are two directions our intuitions get pulled when we think about "how much people deserve to be paid" in these scenarios. one is that people should be paid commensurate with their proportional causal contribution to the surplus. and the other is that they should be paid what the market dictates. As someone above mentioned, the first is just a way of doing credit assignment (maybe like Shapely values). And that can be entirely rational in the case where we want to stabilize good working arrangements (again, no altruism required). But it seems we're conditioned by economists and the general liberal consensus to think that only the second can be rational. In the ideal case where markets take everything into account, the two might converge. but in general, we shouldn't expect them to. And when they don't, it's still not clear to me why we should privilege the second way of thinking (unless maybe you think that that's our best, though still imperfect, way to approximate calculating the first thing).
>it's still not clear to me why we should privilege the second way of thinking
Could it be because if janitors at Google made 1000x more than janitors at Bob's tools for basically the same work just because they happened to be employed by a more productive enterprise, it would seem profoundly unfair to the janitors at Bob's tools? You could argue that investors have this same problem, but there are elements of luck and risk involved, unlike plain labour.
I did some back-of-the-envelope maths that I won't bore you with, and found that if you can find super-janitors who will reduce the probability of an employee slipping and falling and becoming disabled and needing to resign from its current small value to zero then you should be willing to pay these super-janitors about $1 per year extra.
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 ?
(edited) I think Elon is replaceable — by a really good investor. There are probably tons of people who could do what Musk did. Let's say 0.1% of the population are every bit as talented and driven as Musk. That's over 7 million people. But to do SpaceX you also need (1) tens of millions of dollars just for starters and (2) a burning interest in going to space / colonizing Mars. (2) is not super uncommon but (1) is, and out of those 7 million people, maybe Musk was one of only like 4 people with both qualities (and maybe 2 of them came later and said "nah, SpaceX exists so I won't bother", and the last one is building a solid SpaceX competitor as we speak, but will earn much less money because first-mover advantage).
Maybe someone could do it without (1), but in place of (1) you would need a special ability to convince billionaire investors to fork over tens of millions of dollars, which itself is a rare skill that rarely co-occurs with great engineering talent or a burning interest in space. But parhaps someone else could have founded a SpaceX-like company given the right choice of cofounder. Note: I'm not including some of the other space companies in the "7 million" because few companies have executed their goals as well as SpaceX.
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:
https://www.wsj.com/articles/best-paid-ceos-run-some-of-worst-performing-companies-1469419262
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.
Bezos is worth hundreds of billions now precisely because he increased the value of Amazon stock to over a trillion, because most of his net worth is from his ownership in the stock, not from executive pay. His actual salary is something like $80k since the beginning, and he's never taken stock compensations; he's the exact opposite of the highly paid executive who doesn't deliver value you're suggesting.
What makes you confident that he was so instrumental in increasing the stock price? Why not some combination of the thousands of other people who work there? Just because he owns a lot of stock and benefits from it increasing in value doesn’t mean he personally is making that happen
Because he's an infamous micromanager, famously came up with the idea of selling unused infrastructure as cloud compute (https://gist.github.com/chitchcock/1281611), and set a lot of the company's business culture like customer-centric thinking which imo was the main thing that allowed Amazon to dominate online retail (https://fourweekmba.com/amazon-flywheel https://qz.com/work/1135467/what-i-learned-from-jeff-bezos-after-reading-every-amazon-shareholder-letter/). By all accounts he made a lot happen at Amazon.
But if you have evidence to the contrary, feel free to share.
Why does it matter whether he personally increased the stock price? He’s the one that owns the stock either way.
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.
> 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.
It's true to some extent but not sure it's that meaningful. If Bezos wanted to offload his Amazon stock to buy Newfoundland or something then he'd still get a very substantial fraction of the current price. (Note that he wouldn't just dump all his shares onto the market one morning, they'd treat it like an IPO and spend months rustling up major institutional investors to buy them.)
I am not saying he would receive 0 for it, but there would surely be a significant discount. 50% wouldn’t surprise me.
Still, should he buy some other asset for stud money, it’s still not consumption.
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.
Worth doing.
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).
Good comment.
I hope you understand that how much emphasis you put on fairness is a reflection of your values and not some objective standard. Different people put different degrees of emphasis on fairness. In fact, traditionally at least, liberals value fairness over freedom, while conservatives value freedom above fairness. There is no way to settle this dispute, about which of these virtues is more important, through arguments.
Absolutely it is subjective but some opinions are more carefully thought through than others. I don't think many people would really prize fairness over all else if it meant that everyone got their fair share but we all went hungry. Someone might say that wouldn't be the outcome, but that is just another way of saying that they think that they can get both fairness and material comfort with the same policy not that fairness is the be all and end all.
I like fairness, but I personally care more about whether people feel happy and fulfilled. They are not the same thing.
To be fair to Scott, he does not just talk about fairness but to my mind he seems to over emphasize it's importance in thinking about what we should do with billionaire wealth.
BTW, I am definitely not a conservative by any ordinary meaning of the term!
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.
>whether or not they have to eat or have a home, so they'll work below their actual value at great personal cost.
What on earth could you mean by this? They need to exchange their work for stuff, and thus they work UNDER their actual value?
The idea being similar to a short sale. I know this house is worth $80,000, but I also know the owner needs money right away, so I'll only offer $50,000.
I don't think the example is a great one; instead of showing how exploited the engineers are, it shows how weak the role of money is in incentivizing them. It's like talking about how famous they should have become; a lot of people don't want fame, a lot of people only want enough money to feed themselves.
Yes except I suspect in this person's dream reality these engineers instead of exchanging their labor for productive work at an employer, would instead be spending their days attending craft beer festivals, hiking and masturbating to hentai.
Which you know, don't knock it till you tried it, but is hardly some great "actual value".
RB, sorry, but we must have completely different concepts of value.
The very concept of "absolute value" is a fallacy. When I was paid for a job, my pay was based upon how much value I could likely add according to the employer adjusted for competition. They then gave the job to the prospective employee that would agree to do that job and add the most value for the least cost, subject to me or someone else accepting the role. Over time in a relatively free and competitive market wages (and benefits properly adjusted for inflation) track pretty well with productivity, so workers are not being exploited.
Indeed, considering freed markets have led to average incomes which are twenty times higher than historic alternative systems (which could never even escape the Malthusian Curse), workers benefit more from "neoliberalism" than in any other system ever tried.
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.
Related SSC: https://slatestarcodex.com/2019/09/18/too-much-dark-money-in-almonds/
> Not sure if Benzos is the best example (not sure if he invests much in political power)
The guy who bought the Washington Post and turned it into his personal blog? You're not sure if he invests much in political power?
I'm all for stopping any individual from accruing too much political power, but shouldn't we start with, y'know, politicians? Let's abolish the position of the President of the United States before we start thinking about taking away anyone's money.
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.
> So a simple solution might be: Let them have their gains, but give the next generation a fair chance and blank slate.
So, uh, would you genetically engineer everyone to be identical, or what?
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.
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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 isn't just an immutable fact of reality, it's the aggregate sum of what people will pay for that new better value. And boy, are we always willing to pay a lot, even for small amounts of value...
The US is 22% of the world economy. Of course the German company would have produced for Germany, Europe of the world. The vaccines were free everywhere, so it was all government purchases everywhere.
I'm not sure why the second-best entrepreneur deserves anything for a business they counterfactually would have founded. People generally only deserve rewards for their actual actions.
I'm also not sure that Bezos' reward can be broken down into reward for the idea + reward for labour. It doesn't seem plausible that Bezos could have the idea, then pay someone to do the work and end up with $199 billion or whatever. Even though Scott didn't notice the niche in 1994, I think probably several people did, and having the "busines acumen to fill it successfully" is doing a significant amount of work. Perhaps we might think of a there being a "founder award" for successfully nurturing a new business into existence.
I'm wondering how much of Scott's success is a kind of monopoly. If it weren't for SSC/ACX would we all be commenting on some other rationalist blog?
Maybe Scott’s subscriptions should be redistributed to all the other rationalist bloggers!
Indeed comrade. Please lets start with mine.
Seriously though I am interested how true this is. Certainly on the open threads Scott gets a lot of engagement without having to provide any content. And there are probably all kinds of network effects, first mover effects and other positive feed back loops in blogging.
Less Wrong preceded it, and that spun off of Overcoming Bias, which I still comment at.
Her goes generalized Georgism! Those special niches which companies occupy are in some metaphysical sense "land", and can be taxed accordingly. Proportionally to market share or something. Hope is, tax on occupied market share would not damage the incentives as much as the tax on income.
if you include metaphysical senses of "land", don't we already have Georgism? I bet everything can be thought of as "land" in some kind of metaphor if you think about it long enough.
But more seriously, I find it quite interesting to think of occupied market share as land, I just fear it's going to get really complicated once you actually start the categorization in reality. There are niche markets that belong to many categories and some that are only ones in their category. I guess we already categorize things like this to figure out which companies are monopolies, though? So it could work? I'd like to read more about this!
A simple way to tax "market land" is to simply make corporate taxes progressive. From a GDP standpoint this can be inneficient: now companies will stop growing when the increased taxation makes it uneconomical. However, from a game theoretical point of view, consumers could end up better off because the increased competition means value cannot be captured as easily.
I'm surprised this seems to be the first suggestion of this in the comments here, some 600 comments down and 3 levels deep.
I'm also sad we aren't doing this already. The possibility of making corporate taxes progressive and thereby disincentivizing natural monopolies is the only clear reason corporate taxes should exist to begin with. Without that, you might as well replace all tax on corporate profits with progressive capital-gains (and income, for dividends) taxes, so you don't have to hit Amazon stock in Bezos' wealth and Amazon stock in grandma's meager retirement savings at the exact same rate.
Pretty much every tax has some inefficiency, from the GDP standpoint. Capital gains taxes disincentivize investment, income taxes and sales taxes disincentivize trade. Even Georgist taxes create weird distortions depending on how you evaluate "unimproved value" for sufficiently large plots of land. At least with progressive corporate taxes the inefficiencies have more potential upside.
This would be trivially easy to get around. Amazon splits into a hundred different entities, each covering a different geographic territory with a gentleman's agreement not to engage in zero-sum competition.
I'm not sure how easy "maintain a oligopoly with a hundred entities and no public agreements and antitrust laws extended into tax fraud" would really be. For Amazon in particular they'd have to divide up differently; their profit margins depend on logistics, and half of their barrier-to-entry power is the fact that logistics doesn't scale down well.
But yeah, defining what a "single entity" is is the flaw in the scheme, at least as far as deterring monopoly and monopsony effects goes.
I think even the secret-cartel workaround would still be great for avoiding bureaucratic sclerosis; a hundred entities whose only directions from HQ (which one is HQ, exactly?) are a wink and a nudge would be much more likely to have some fertile ground for new disruptive ideas.
Why would it work as taxing "market land"? From the point of view of Georgism, if we tax one person with 1000 land, we get the same amount of money as when this land is held by 1000 people having 1 land each. So I don't see why progressive taxes are relevant here.
I'm not sure there is a coherent point of view of Georgism. If you get the same amount of money from the one person with 1000 land, then you've broken the "Georgism doesn't disincentivize improving your own land" promise, because in the case of 1000 people any improvements on any 1 unit of land would have increased the unimproved value of those other 999 neighboring units. If you still let those improvements raise the assessed unimproved value of all that land when it has a single owner, then in the limit you're back to taxing the improved value of land.
If there's a canonical Georgist answer to "what is the value of unimproved land in the middle of Disney World", it's hidden well enough that you can find a lot of people who claim to be solid Georgists arguing for different answers.
Well, first, income tax is explicitly non-Georgist. Also, even if we treat money like some sort of land, income tax would be like taxing rate of increase of land (derivative of land), not land itself. Better analogy would be taxing people in proportion to the amount of money they own, rather than income -- but we already have that, and it is called inflation.
Also see my other comment in this thread for why progressive taxes don't seem to be Georgist.
So I think that considering various metaphysical senses of "land" and applying them to Georgism would provide not every possible taxation scheme, but very specific kinds of taxation schemes, which might be very interesting to consider.
To think of market share as land, the simplest thing would be taxing company in proportion to number of people it serves (with coefficients dependent on industry, so that we don't tax a company selling luxury watches to 1000 people the same way we tax a local bakery selling bread to 1000 people). This could provide some interesting incentives, so that companies better serve smaller amounts of people, and leaving other people to other companies.
I am not an economist, so it's all just stray thoughts, and could go disastrously wrong for reasons I can't think of. An example of a problem I _can_ think of is how this idea interacts with intellectual property. Under this tax scheme, if someone thinks up of some service and deploys it for 10000 people, other companies can look at this service, copy it and provide something similar. However, if the innovation behind the company's success is locked behind a patent or an author's exclusive rights, then it can't be copied easily, and most of the world is left without this value at all. For example, if you film a movie and show it only in a few cities to lower your taxation, no competitor can film the same movie to provide to other populations. (However, it said that modern media is so bland because it tries to cater to everyone, so we could see some quality increase and unearthing of local talents, so who knows!)
This also reminds me of the fact that we can't deal with monopolies and all the sadness that they cause without somehow reforming intellectual property (yes, I am looking at you, printer ink!)
You are right: taxing corporate profits sounds un-Georgist since the correlation between "land" and profit is tenuous. How about progressive VAT based on, say, gross revenue?
I think that Google janitor intuition pump is potentially misleading. There are lots of similar but slightly different possible scenarious here. A couple of competing intuition pumps:
At the dawn of industrial revolution factory workers earned low wages and had dangerous working conditions. Now factory workers have much better working conditions. Should their wages be even lower so that they earned the same money for the same work+risks as the workers from the past?
Google and Bob’s Tools used to be valued the same per share. Now Google shares are 1000x more valuabale. Should Google shareholders be 1000 times richer?
It seems like civilization getting richer is different from one company getting richer. For example, if I pay my gardener $40/hour, and Jeff Bezos has 10,000x more money than me, should he pay his gardener $400,000/hour? But if civilization does get 10,000x richer, then I think either gardeners would make 10,000x as much, or it would make sense to raise the minimum wage 10,000x.
Oh, my bad, I've actually misread the original example with cars and thought it was talking about every car company, not just one.
I agree that civilization becoming richer intuitively feels different compared to just one company becoming richer. Still, it's pretty interesting where does this intuition come from. There is a sorites paradox type of problem here. The enrichment of civilization would mean that every car company started using new technologies and producing better cars. Than we would think that workers deserve better pay. But any single company adopting new technology isn't a reason to pay more to its workers. How would the transition from one state to the other happen? Not just in our intuitions but in actual market mechanisms.
One source of our intuitions comes from the notion of fairness. It would be unfair if two workers get paid vastly differently for the same job, right? But is it really, though? Wouldn't market just solve it by ensuring that the most qualified gardener gets the job at Bezos house? Maybe Bezos should pay his gardener considerably more? Oh at least the employers at Amazon who actually create profits for him. Then, when whole society becomes richer the transition to the state where every employer is payed more would be easier.
I really think that if a company dominates an important market due to network effects, then governments should declare this as an infrastructure, and enforce fair market access.
Regulating infrastructure companies works very well in many countries and branches. Telecom, electricity, public transport. Basically, the government ensures that all consumers and (important) all vendors/competitors have fair access to that market.
For amazon, that would mean that they have to offer market access to all vendors, and can't just throw you out when they don't like you, or when you don't agree to their insane conditions. For facebook, they would have to provide an interface by which other companies can integrate their profiles.
There are a lot of cases where this should apply. Play stores, whatsapp, ...
(But not everything that is big. Google search does not profit from network effects, you are not forced to use google search because all your friends use it.)
I get nervous about this because actually government regulation of infrastructure only works well when government is very good, and in other countries it ensures nobody gets infrastructure, or that there are perpetual brownouts, or that all money invested in infrastructure ends up in the hands of kleptocrats. I expect US government to get worse over time and for private companies to have to make up the difference. See for example https://www.awanderingmind.blog/posts/2022-07-30-state-of-south-africa.html . This is part of why I'm excited about "decentralized infrastructure" like solar panels, drone package delivery, etc.
I think there is an important difference. The companies in South Africa are owned by the state. I agree that this can very easily be abused and fall prey to corruption.
But I only suggested that the infrastructure companies should be regulated to give fair market access, not that they should be taken over by the state. I see a lot of systems where this runs very well, at least in developed countries. For example, in Germany the telecom and electricity market work like that (railway as well, but the railway company is state-owned, so I leave that out).
For example telecom: there are three big network providers in Germany. But they have to give access to the infrastructure to any other company. At a fee that allows them to make profit, of course, but the fee is regulated by the state. So other companies can offer contracts to end users. The big network providers are essentially guaranteed to make some (moderate) profit from the infrastructure. But to make additional profit from direct interaction with the end users, they have to compete in the market.
I am less familiar with other countries, but I don't think this is an unusual construction, at least in the EU. (Any examples in the US?) And it doesn't allow politicians to extract money from the companies, because none of them is state-owned. So the incentives are well-aligned.
There are plenty of stories of disaster when it comes to private ownership of infrastructure...
And quite a lot of success stories when it comes to state ownership...
Incentives and allocating resources based on competence.
If you tax entrepreneurship too much you don't get better redistribution - you get potential entrepreneurs doing something else, and no more Amazon period. Look at URSS for an extreme example, or Europe for a moderate one.
Also, billionaires getting "allocated" billions allows them to do cool stuff - and they're preselected to be competentat that. Musk is an extreme example, but see also Gates with his charity, or Buffet with many years of value creation.
The idea that Bezos would give up if he could only become a multi millionaire seems odd to me. O would argue that they are motivated by money as a secondary trait.
A sub-C-level manager at FAANG is easily a millionaire :) Total compensation is approaching a million per year, if not more.
Quite a bit of the attraction of high-risk, high reward career paths is not personal wealth per se - it's the potential for much higher agency and power to do stuff. At least it's why I personally went into it, and 20 years in, I'm pretty sure I'd still make significantly more money if I was an employee. But my current position has quite a lot of chance of going big - right now it's probably over 50%, so I'm pretty happy with my chosen path. So if one data point means anything, I'm clearly motivated by "a chance of a shitload of money" more than by "a lot money".
Ok, well you do you.
You are perhaps misreading the nature of what money means to this kind of person. To a businessman and *especially* to an entrepreneur, revenue is a direct measure of your spiritual success. People love you! To paraphrase the Beatles, you're more popular than Jesus! You were 100% right that you had a brilliant idea! How do you know? Because people keep sending you oodles of money for whatever you're providing.
So huge piles of money are *exactly* the kind of thing that satisfies the intrinsic motivation you identify. It isn't about earning money per se, it's about achieving the level of social success *of which the money is proof*.
But yes they don't necessarily value the money qua money. They often (cf. Bill Gates) end up giving away much or even most of it.
I don't think I can say anything insightful at this level of abstraction, but at a different level of abstraction my intuition says that most of the surplus generated by capital should eventually be distributed to the public in the form of UBI. It seems like the government could achieve this by periodically issuing new shares of ownership in every company at some fixed rate, and selling those shares at market value.
Clearly you still want people like Musk and Bezos to capture part of their contribution to the surplus, but allowing them to claim an endlessly increasing share of global wealth seems undesirable. With enough effort you can probably justify this at a lower level of abstraction. Perhaps by noticing that all surplus is ultimately derived from natural resources, and then asserting the axiom that natural resources are rightfully the property of the public, to be used only in exchange for compensation.
The bulk of Bezos' wealth comes from owning 9.79% of Amazon. Amazon is valued at $1.31trn, so Bezos' share is worth $128bn. Forbes report his net worth at $153bn.
The value of Amazon is (in theory) the net present value of its future cashflows, so its *future* customers and not past customers who are paying for it.
You could also own 9.79% of Amazon, if you had invested $75m at its IPO. Well, you might not have had $75m, but some people did, so from 1997 onwards, Bezos' wealth has been accruing from his choice to remain so highly invested in Amazon stock, which is a choice others could have made, if, let's say, it was obvious in 1997 that Amazon would achieve a disproportionate return from exploiting a natural monopoly.
Actually, that's not quite right because checking the prospectus it seems only $62m of stock was offered at the IPO, but the general point still stands.
Actually, the transfer to consumers through low prices came from basically the same $200Bn that Bezos has. Amazon has been burning through equity to subsidise prices for many years, this was possible because share price was high and Bezos (and other shareholders) are rich also because share price is high. If we somehow tax Bezos out of his $200Bn, it should be fair to tax his early investors out of most of their money as well, as it is even easier to make a case for fungibility of investors than a case for fungibility of founders. But if we start taxing investors out of most of their equity gains, they are not going to bid Amazon share price that high to start with, so there would be no money to give away to consumers through low prices. Admittedly, this argument is somewhat Amazon-specific as few companies are that aggressive in giving investor money to consumers for that long.
My intuition is that it's not about a 1000x wage for the Google janitor, but about Amazon denying their warehouse workers an unscheduled pee break, let alone a living wage. Billionaire Bezos would be much more palatable if his company was at least a little above average in pay and/or working conditions. If the market fails to arrange these things, you need some form of government intervention such as taxation, though the exact nature of which can be discussed.
>Billionaire Bezos would be much more palatable if his company was at least a little above average in pay and/or working conditions.
???
Where does this idea that Amazon doesn't pay well come from? They start at $18/hr, I haven't been in the unskilled labour market for a while but that seems well above average.
If a company fails to be above average, then the government should intervene? Won't half of all companies always be below average?
A challenge to your intuition. My intuition says that every large company or wealthy individual has a target on them. A large number of people will hunt for justifications to hate them. This is particularly true if it supports their political aims. All they need is for a few workers or competitors to complain and they will amplify those complaints. It goes from Amazon is not perfect to Amazon is evil.
Just to check: of the vast number of Amazon warehouse workers, how many does your intuition tell you, felt compelled to pee in a bottle? My intuition says that even one making that claim would be sufficient to cascade through the internet creating a meme that will grow into a legend. The legend will persist even after all the warehouses are automated and people are criticizing Amazon for the destruction of all those well paying jobs.
An obvious problem with saying that CEOs should realise any amount of profit from the success of their company is that they don’t lose the equivalent amount from failure.
Many a CEO has lost a company billions in value. Most earn good wages in doing so. Many still get bonuses.
Almost all of Bezos' net worth is in Amazon shares, so if Amazon failed he absolutely would have lost the equivalent amount.
But i wasnt specifically talking about Bezos here. Founder CEOs will make money for their company, or you wont hear of them. However plenty of CEOs have run companies to the ground and received wages and bonuses as they did it. If you are entitled to 10% of a company’s gain why not be responsible for 10% of the lose? Of course nobody would work like that, the risk of personal insolvency being too high but it shows the disconnect between how profits are distributed vs losses.
Very few executives are paid in exorbitant amounts of straight up cash, a lot of execution compensation is in the form of restricted stock and stock options, which is what makes them share in the gains *and* the losses.
No they don't share in the losses. They are exempt from being pursued for those losses and can make a large salary or even a bonus as the stock tanks. Sure, their options might be worthless but that's a zero limit. They get a percentage of gains but don't pay out a percentage of losses. I don't mean that they just get nothing, but that they owe nothing. Millions in gains if the stock increases, but 0 in losses if the stock tanks.
You're conflating several different things, gains from owning the stock, and compensation for work.
Bezos the founder/shareholder's net worth gains when the stock price increases and incurs losses when the stock price decreases.
Bezos the CEO gets paid a cash salary which doesn't increase or decrease with the stock price.
Some other executives at Amazon get compensated in restricted stock which also increases and decreases with the stock.
There are only very rare cases where someone is paid in a way that increases with the stock price but doesn't decrease when the stock drops, and that is performance-based bonuses (e.g. "you'll get a $X million bonus if the stock price hits Y within Z months").
In which case do you think someone should be "pursued" and owe money for stock losses? Keep in mind executives are just employees, and shareholders already suffer losses when the stock price drops.
I am not confusing anything. I am talking about total compensation. I clearly know how stock is compensation for CEOs because I already explained that.
"In which case do you think someone should be "pursued" and owe money for stock losses?"
No because I clearly said "Of course ***nobody would work like that***, the risk of personal insolvency being too high but it shows the disconnect between how profits are distributed vs losses."
What I am saying is that CEOs only have partial skin in the game. If they are to be employees then that should be the compensation.
I am not confusing anything. I am talking about total compensation. I clearly know how stock is compensation for CEOs because I already explained that.
"In which case do you think someone should be "pursued" and owe money for stock losses?"
No because I clearly said "Of course ***nobody would work like that***, the risk of personal insolvency being too high but it shows the disconnect between how profits are distributed vs losses."
What I am saying is that CEOs only have partial skin in the game. If they are to be employees then that should be the compensation.
Those people aren't billionaires. In exchange for having their losses capped, they accept much lower gains than the founder CEOs. They are usually millionaires, but they are not billionaires.
We're talking about billionaires here, which means we're basically just talking about founder CEOs, a few of their heirs, and some princes and oligarchs. And we're really not talking about the princes and oligarchs.
I don't think there's any way that founding Amazon could have cost Jeff Bezos $200 billion dollars. I suppose it could have caused him to make $200 billion and then lose it if Amazon suddenly goes bust, but I expect that for most kinds of bust he is still pretty rich.
Founding Amazon did not cost Jeff Bezos $200 billion, but many decisions made after the the initial company launch could have cost a large portion of that fortune. If his wealth was capped by policy or taxes at say $10 billion, would he and people like him continued to take the risks necessary to grow the company knowing he had very limited up side potential? Would investors trust them?
The question about incentives asked many time is, isn’t $10 billion enough to get people to start businesses? This the wrong question. The question should be, what happens when people approach the cap?
There are multiple ways in which Amazon produces problems elsewhere.
Amazon focuses a lot of frugality. A workplace that makes their employees work on doors instead of letting them work on proper desks has negative externalities.
The strategy of not treating customer service workers as human agents who's expertise matters is likely bad. I could imagine an alternative Amazon that pays senior customer service workers more and provides better ways for those to escalate systemic problems that annoy customers to be solved to be successful as well.
Amazon signs contracts that require producers of goods to sell those for higher prices when the goods are sold at other shops than they would be sold for in a counterfactual world. A merchant that wants to sell both on Amazon and on Walmart is not allowed to sell the product for lower on Walmart where the merchant has to pay less for fulfillment to Walmart than the merchant pays at Amazon.
Amazon Prime does create a moat that makes it harder to compete and where it would make sense to outlaw as monopoly building mechanism.
If you want more information about it Matt Stoller explains it at https://mattstoller.substack.com/p/amazon-primes-free-shipping-promise [text] https://www.youtube.com/watch?v=O8Jk7zuwOxg [video].
I would expect that part of why Amazon stock is valued as high as it's currently valued is not because Amazon produces a lot of profit currently but because it's investors expect Amazon to be able to extract even more rents through monopoly power in the future.
If you look at Uber it's more obvious. It's investors believe that it's okay to lose lots of money while building up Uber to make it the market leader in expectation of being able to profit from monopoly power in the future. To the extend that billionaires have their status because of monopoly seeking investors, that produces problems for society.
I think part of the problem comes from not considering where the wealth actually comes from.
It seems completely logical that of CEO (or anyone else) should have a compensation commensurate to added value to the company.
But in the case of a CEO/shareholder, they also get wealth from the value of the company itself. Sure, the CEO probably has been involved in getting the company to this value.
But consider the following : all the employees are also contributing to the value of the company. That value is bought off them via their salary. In the end, the difference between the wealth created by an employee and the salay they are paid is added to the value of the company, and thus, to the wealth of the CEO.
So the wealth of the CEO/shareholder is not just the result of his own direct work. But also taking a part of the wealth generated by the other. As sort of internal taxation, if you will.
Sure, that wealth generated by the employee might be enabled by the creation of the company by the CEO. But the creation of existence of the company itself is made possible by the rest of the society and its infrastructures (you cannot invent Amazon without the internet, after all).
It seems logicial that is the CEO/shareholder taxes its employee on the ground on having enabled their wealth creation, that society can also to the same degree taxes the CEO/shareholder on the ground of having enabled the very existence of the company itself.
The concept of "counterfactual competition" is quite weird. It is one kind of counterfactual assumption to assume that Bezos was not born but otherwise the world works the same as ours. To assume that there are no economies of scale in commerce in general and all hypothetical late Amazons exist simultaneously and compete with each other is a completely different kind of counterfactual and the difference between that world and ours is much deeper than a few billion o redistribution here and there. So even if you somehow develop a consistent model of that weird world, it is not clear if any hypothetical outcomes in that world would tell much about fairness in our world.
Also, when you are looking at the first counterfactual and establish that Bezos owes some of his surplus to the guy who did not get to found Amazon two years later, this guy is presumably quite a successful enterpreneur in our world, so he owes a big share of his surplus to Bezos. So this is an argument for substantial cross-shareholdings in a small group of eligible counterfactual founders. This is actually the reasoning behind medieval guilds which enforced substantial (but not full) redistribution between close competitors. I am not sure that a world with a closed billionaires guild is much more fair than ours. The impact of guilds and competition suppression in general on innovation is known and it is not very encouraging.
This argument is all about whether billionaires "deserve" their fortunes, but as a consequentialist, I don't believe in "desert" anyway.
The reason to tax billionaires more is to redistribute their dollars to people who'll get more utility from them.
And the reason not to is so that we continue to get Amazons in the future
I think "desert" ends up as a mid-level moral abstraction that's impossible to dispense with. Why don't I seize your home, sell it, and give the money to the poor? This would probably raise utility in a short-term sense. But in a long-term sense it would be bad, and I think explaining this requires property rights, and that fleshing out the explanation of property rights requires something like an idea of desert.
Also, $200B to Jeff Bezos is a great incentive for millions of other entrepreneurs to try hard to innovate, and the overall effect is that a lot of entrepreneurs try to do a lot of things, a bit earlier than it would have happened without some big fat successes like Jeff and Elon and others.
Money have diminishing marginal utility. How much harder do you think the enterpreneurs are trying now counterfactually to a world where it was not $200B but $20B?
I agree, but the reward ought to fit the accomplishment, and my claim is that Jeff Bezos' accomplishment for which we are trying to reward him is coming up with Amazon two years earlier than the next guy, and that is worth probably some single-digit number of billions of dollars.
All of Amazon's earnings and most of Amazon's market cap is coming from AWS. If Bezos only had created Amazon Retail, he probably would be a single or low double-digit Billionaire. Precisely for the reason you are giving, there is economies of scale but if Amazon would try to extract to much value from its Retail businesses, there would be someone else.
And AWS is a much more Musk style innovation, where Bezos was for many years the only one who tried to create this business and other players only occurred after Bezos has shown it is possible.
Once companies get so large that they can buy politicians and NGOs they will do so. People wouldn't mind it so much if all the things that billionaires could do with their money was buy expensive luxury goods. It's when they can buy laws, not only to pull the ladder up behind them on upstart would-be competitors, but also to do whatever they think of as 'the Good', that we see the problems of having a class of people that are above the law, since they get the laws made. I don't want Bill Gates' vision of vaccine policy, or editorial policy at newspapers. But I cannot vote him out of power since it wasn't given to him through elections. The problem with the rich is not that they are 'unfairly rich', but that they are 'unfairly powerful' no matter how fairly they earned their money.
Great point.
There's also the angle that the destruction of antitrust enforcement since Bork has led to a drastic reduction in competitive acriss the economy, unfairly tilting compensation in the direction of the lines of Bezos. (See Matt Stoller's blog for navy examples of this.)
Good point
One simplification, that to me put the whole thing under a different light, is to both forget that the multimillionaire ( Let's stick to Bezos, to be simple) will redistribute it's money, together with lumping tax with redistribution and not check who redistribution favor. Gov decide where taxes go.
So basically, when progress generates a surplus, the alternatives are let the creator of the surplus (or the first mover to the surplus-generating niche) decide where the surplus will go, or let the governement decide (more reasonably, which mix of the 2?). Would I be better under Bezos choosing or under Gov choosing? I don't know and my point is it's not clear at all for most people: It depends on Bezos priorities and Gov priorities. I guess only people usually favored by one (Bezos family/associates) or the other (victims du jour for western Govs) are reasonably sure.
So even under pure selfish reasoning, without any fairness consideration, the optimal private/public distribution of the surplus can not be decided without knowing much more about players than if they are private or public....
I think this only makes sense if Bezos gives a lot to charity; otherwise I think it's self-evident that the members of the Bezos family get less utility from an extra few billion than government clients (even granting that the government has a lot of non-charity functions and waste).
Bezos doesn't give that much to charity, nor do most billionaires, but I think you could make an argument that the ones who do are so much better than the government that it's worth it. I think this would be a different argument than the one in my post or in your comment.
Charity is obviously a possible target, the one that would convince many (maybe most? I don't think it will convince all, cause each charity is focussed on specific problems, and solving some problem will be considered neutral or even a bad idea by part of the public).
But my point is that the surplus will be redistributed anyway: Maybe to yacht builder, to mansion sellers, to gold bathtubs manufacturers, to rocket company or to Amazon growth. Even if Bezos sleep on rivers of cash (physical, not even in the bank), or burn it, it means removing cash from circulation, which in fact redistribute value to all owners of remaining cash (well, the government will very likely just print this amount, so gather the surplus almost as fast as if he taxed it. Not that he doesn't do that anyway, Bezos using special cash burners or not.)
So money is not only (or even mostly, especially at this level) for buying things, it gives the power to decide who will get it and what they will have to do to get it. It's in fact very similar to gov power, so billionaires can be a form of power distribution, away from gov.
If the gov is perfectly democratic and overall nice (but could it be, to all? I think not, even in theory, and it's certainly not in practice, even western gov) , billionaires are probably not great. If gov sucks, i think that billionaires are good by default (they would need to be worse than bad gov to be a net negative)...
Practical consequence: what about China hitting on its local billionaires like Jack Ma, or Russia hitting some of it's Oligarcs? I think it shows my point, and should be kept in mind if officials start pushing for heavier taxes on Bezos or Musk for example. Is it for (fairer/more efficient) redistribution, or is it because they are not following party line?
> you could argue that Bezos is being paid not just for his idea, but for the hard work of serving as CEO of Amazon over many years. I’m skeptical of this because it seems like the fair wage for that would be the going rate for top-tier CEOs, which is very high but not hundreds of billions of dollars. So fine, subtract that small amount out, but the rest still seems to be some sense of paying Bezos for his idea
Another wrinkle here is that a large part of bezos's pay here is just for taking the risky investment of owning Amazon. Amazon has gone up something like 2000x since its IPO price - if you'd invested a hundred million dollars in it back then (a lot, but not an unreachable amount by top tier CEO wage standards) you'd be about bezos rich by now.
Do you think it is possible that if Jeff Bezos wasn’t born, that online retail may have been solved earlier?
There seems to be an assumption here that every successive hypothetical inventor must come later in time. Is it not possible that through anti-competitive practices or just moving slowly and inefficiently (but at a pre-existing large scale) that a dominant business could come to a solution later. Compared with a genius at the helm of a startup that could have accelerated faster without that dominant (Bezos) business.
I picture it as a large slow growing tree with a broad canopy preventing smaller rapid shoots from overtaking.
Perhaps Amazon is not a good example here for stifling innovation and maybe Google would be better.
I don't think so because Amazon has to exist (and probably be pretty big) before it can start crushing competitors. I think it's possible (though unlikely) that there would be a *better* online retailer without them, but I don't understand how there could have been an earlier one.
I find this argument unconvincing, because the creator getting to keep much of the value they created is part of the conditions that would ensure someone else built something like Amazon. In the pirate treasure analogy, how many people would rush to dig for it if they knew they wouldn't get to keep what they found?
Nobody if they do not keep at least a little. If they keep the first 10 million, then a decreasing share of everything above? Probably almost 100% of the people who would look for it if they keep the whole thing will still look for it....
But it does not means I push for this kind of solution, because regardless of fairness or incentive to future entrepreneurs, ultimately the surplus is always redistributed, the only difference is if it's Bezos who choose how, or the government, or a specific mix of the 2....
Given that the guy who created the surplus had some particular qualities (maybe intelligence, persistency, inventiveness, or ruthlessness, and certainly at least incredible luck, so if you believe in luck it may correlate with other decisions), and given the mixed track record of various governments (various in time and space), I am not sure it's clear who would redistribute more fairly or more efficiently....
Many? If you told me there was $1 billion in pirate treasure on a beach an hour away from me, and I would only be allowed to keep 50% / 5% / 0.5%, I would start driving to that beach pretty quickly.
To me, the typical liberal defence for why it's wrong to take stuff from people by force isn't that they created the value, but that the stuff was given to them consensually. It applies to lottery winners as well as to entrepreneurs and to labourers and to heiresses.
If you buy something from a monopoly,is that consensual?
Yes? E.g. I have a natural monopoly on my labour, but I don't think that anyone would disagree that my employer consents when buying it.
Is your labour unique and irreplaceable?
That is a matter of degree rather than of kind. But yes, my labour is difficult to replace.
Do you think you are using monopoly in the same way as the op?
From the follow-up question, it would seem to me that we are both using it in the sense of 'absence of competition'. Would you disagree?
So the fact that people are not slaves ( i.e. they monopolise their labour) means they are in the same "monopoly position" as a large company which dominates a market?
That varies greatly. E.g. Tom Cruise faces much less competition when selling his labour than some Zambian day labourer does when selling his.
Haven't we already abandoned that principle by having taxes at all?
I'd say that violating a principle doesn't mean abandoning it. One might think of a principle as a strong prior on the morality of a certain class of actions, which might get overruled in certain cases. E.g. if we have a principle against involuntary servitude, we might still favour conscription when a genocidal dictator is invading, but that doesn't mean we have to abandon the principle and be OK with chattel slavery.
Let's say Bob has the magic power of making piles of gold appear out of thin air. Maybe there is some abstract sense of fairness under which Bob should get all the value generated. But from a utilitarian point of view, 5% of the gold is enough to incentivize Bob. Leaving 95% of the gold to be put towards some good cause. If Bob's utility is sub-logarithmic in wealth, increasing tax can encourage Bob to work more. Ie if Bob can get everything he wants for $X, then he will generate $2X given a 50% tax rate, and $20X given a 95% tax rate.
There seems to be an unstated assumption here that says “dollars earned are a measure of value,” without asking, “ok what exactly is value?”
As best I can tell it’s an emotional response, since that emotional response is necessary for people to hand over the money in the first place.
So, dollars measure “towards responses generated” which could come from any number of things, including direct robbery, or, say, providing services to robbers. When you add on the nature of debt-based money creation, ot then seems increasingly dubious whether dollars really “measure” anything other than “ability to get more dollars.”
Isn't it utility here? Amazon earned trillions of dollars because people are happy with their services and pay them money to continue to provide them.
In the case of Amazon I think this is plausible.
But When you’re getting money from the government, or, say, a lawsuit payout, is it still _measuring utility_? Or just acting like a proxy?
When the fed printed a trillion dollars, they didn’t create a trillion dollars worth of utility, did they? Does the total money supply correspond to total utility?
This all starts to get much more complex because of feedback loops. So I’m ok saying something like, “cash flows act as proxies for utility”, but this is very very different from “the net worth of a person is a measure of the utility they have created.”
RISK. Creating something like Amazon or Tesla entails lots of things (innovation, hard work, ability to raise capital, salesmanship, etc.) but it is done with an astronomical amount of risk that few people are willing to take. After something is successful it's easy to point at it and feel like now everyone should be compensated. The salaryman takes no risk with their compensation so they get their $50K. If they want to risk more they can earn more but they have to make some kind of investment (new employer, learn new skills or accept a mix of compensation with incentives where you might earn 150% of your salary or 90% depending on performance.) I've been amazed how many people would rather have a compensation plan that pays them 100% versus a choice that offers them 130% to 95%. I have not expertise on the tax system, I know ours is overly complicated and full of loopholes. And the government is terrible at running the economy. Henry Ford already showed us that. RISK!
Every entrepreneur takes on risk of banrkuptcy, regardless of whether they end up with $200 bln or a mom-and-pop shop. That's it.
Perhaps we should tax Bezos to fund a social safety net so people can found companies with unlimited runway. This way we can save time and annoy both sides of the political spectrum at once.
The risk to Bezos was some money he got from his family. $300k according to wiki. RISK!
If taxes are set high enough to deter Bezos from starting/expanding Amazon, then it follows that whoever would have founded “Slowazon” two years later is also deterred. To use another example, if Pfizer and Moderna are racing to discover a new drug, with Pfizer set to discover it a year before Moderna, but then the government passes new price caps on prescription drugs, then both Pfizer *and* Moderna will give up on R&D. So, from a policy perspective, the opportunity cost of deterring Bezos really is no Amazon, not getting “Slowazon” two years later.
This makes some sense. As much as I cringe at the patent system, it’s hard to imagine having such advanced pharmaceuticals without it.
What would a counterfactual society look like where the cap on entrepreneurship is orders of magnitude lower? From a personal perspective it’s hard to see why a potential $200B is really much more motivating than $20B. Raising capital would be harder if that cap were implemented in corporate taxes. But a very steep personal tax that only kicks in in the billions per year? Harder to see how that would deter innovators.
It might lead them to retire to yachting much sooner though. Sufficiently steep personal taxes might mean Amazon never grows beyond a bookstore.
The opposite surely? The incentive might be to keep working rather than retire rich. If it was about getting a yacht then many entrepreneurs would retire by 30.
Why? Once you have reached 999m or whatever the level is where confiscatory taxation kicks in, why go on? You can’t make any more
Because 999m was already enough to retire on. And the tax wont be 100% anyway. CEOs who are richer than God who stay working are clearly not in it for the money - they could hardly spend what they have.
Economists - like Scott Sumner - argue, that the riches of Bezos/Gates/Buffet/Musk/MBS* or even the richest: V.V. Putin DO NOT matter much, as (long as) they are not consuming much of them. If Gates bought all Big Macs in the world - or Buffet: all Cherry coke - there might be a problem, as prices would be driven up or only standard coke left at Wal-Mart (The Walton: the richest family around for a while now. The three richest Germans were: the two ALDI-brothers and Mr. Schwarz - owner of LIDL. Now one bro died, both took 2nd class train-tickets - cuz "just as fast a first". Made you poorer? All monopolies?)
The super-rich are usu. not into "exploiting" anyone. They 'just' own companies that are valued very highly. Those who got rich by relentlessly pushing their company to outperform others are usu. too busy to buy Porsches/yachts/palaces by the dozens.
Putin (and other state-billionaires) are different: They actually do buy all this stuff - "got to show them" - AND misallocate billions for cities in the desert/ wars in the neighborhood (Yemen/Georgia/Ukraine). Again: The trillions of "net-worth" of the super-rich in itself are a non-issue. The consumption of those riches might very well be. Gates seem to do fine. The O(i)ligarchs less so. Luxury-consumption-tax: Great idea - if you can make it work.
But taking say 99% of Bezos' shares et al. - worth 150 billion USD - to fund ... ay, there's the rub: what exactly?! 5 months of serving the US federal deficit**?? - Or building 800 F-35? Now, that would make the world a so much better place. And drive up prices for steel/titanium et Al..
* Saudi-royals "worth" 1,4 trillion, or so. https://www.trtworld.com/middle-east/saudi-royal-family-s-1-4-trillion-wealth-and-lavish-spending-36040
**(i.e. interest-payments: at 357 billion/year, but soon higher - inflation is coming)
The problem with US billionaires is that they dont stay away from politics. Also I’m the opposite to Sumner - by spending their money the rich distribute it. By hoarding it they keep it.
And you are teaching economy at ?? - One man one vote. Maybe Bezos/Gates/Buffet have even better ideas about "politics" than Hillary or Donald (who is hardly a billionaire)? - Otoh, Bezos bought the Washington Post, it's true. And turned it into NYT-trash (see Scott and Zvi about "Lincoln and Karl Marx" ). Better he had not spent that. But kept it invested in his company. Only known trillionaire "hoarding" - (i.e. pumping it in unproductive assets esp. gold) is - again - V. V(oldemort). Putin. Oh, MBS paid 400+ million for a pic of Jesus. Not sure when this trickles down to his all-muslim subjects.
Like your commentary style. Ad hominem, followed by lack of clarity, Putin Putin Putin, and MBS. Who actually spent money. Anyway its generally accepted in economics that spending money is more beneficial to the economy than saving it.
Sorry, as you wrote " I’m the opposite to Sumner " I assumed you are an economist with an opposing view. As I understand now, you are not, right? (Neither am I, that's why I quote them.) Putin and MBS are spending money and, indeed, I strongly dislike this two humans who each command over a trillion $ without any checks by any laws. Not least, as they spend it on very wasteful or outright destructive projects. That leaves less resources for the rest of us to use. So we are worse of. I am not worse of being a windows-user or being an amazon customer - rather both create clear value for me, and a considerable part of humanity. How confiscating their shares would create a better world in the medium or long term - still eludes me.
I'm not sure it makes sense to think of holding shares in a company as hoarding money. A sack of gold under one's bed does not participate in the economy, but a company does.
I think it's important to clarify what we're talking about here. I can imagine someone feeling that there's something morally wrong with any one person possessing vastly more wealth than any other. Perhaps you feel that way yourself, but if that's your argument, the conclusion it should point to is not that the wealthy should *spend* their money, but rather that it should be seized from them (e.g. via taxation) and given to their poorer brethren.
After all, spending wealth isn't truly the opposite of keeping it: by definition, when you spend your money you receive in exchange something of nominally equal value, so you haven't lost wealth at all, but rather converted it from one form into another. If the economy were a zero-sum game, spending money would be a net-zero transaction that did not alter anyone's net worth in the slightest.
In reality, of course, because different things are worth different amounts to different individuals, the economy is not really a zero-sum game but a positive-sum one: the act of trade effectively generates value by moving assets from those who value them [relatively] less to those who value them [relatively] more.
If every act of trade generates value, it follows that fostering trade adds value to the economy (thus, ultimately, to its participants), which is the reason, as I understand it, to think of spending as good and hoarding as bad. Spending creates an act of trade in its own right, and, beyond that, transfers money to the seller who may, in turn, use it for a new act of trade, creating a multiplier effect. Hoarding does neither.
If my understanding is correct, holding your assets in a company that itself participates actively in the economy is no worse that spending them on something else. Spending is superior to hoarding not because it redistributes wealth but because it facilitates trade, which generates additional wealth.
Well thats a longer explanation of what I think. Spending money on a luxury yacht (for instance) will employ lots to people to design, build, maintain and run the yacht. Money is like manure. You have to spread it around or it smells.
But corporations aren't money: they aren't media of trade whose purpose is to facilitate the exchange of the things people actually value. They're assets like the yacht: they have intrinsic value independent of what they can be exchanged for.
Asking someone to exchange the things he values most for things he values less would invalidate the premise that trading generates value for both sides. It's hard for me to see the point of that.
When did I say that "Corportations are money" or when did I argue that someone should trade something "he values most for things he values less".
I dont even know what you are saying here.
The original comment of yours that I replied to said, "Also I’m the opposite to Sumner - by spending their money the rich distribute it. By hoarding it they keep it."
Nearly all the wealth of the rich people that have been the subject of this discussion [Bezos, Musk, etc.] is in the form of the corporations that they [partially] own. What I am saying here is that, if corporations aren't "money", then these men are not hoarding money, contrary to the implication of the quoted sentence. Is that any clearer?
The other thing that you notice here is that while Marxists credit workers alone with adding value, ignoring in particular how important a founder/ceo is - neoliberals credit the founder alone.
I don't think neoliberals credit the founder alone. They do certainly credit the founder(s) at an outsized value compared to other individuals at the company. They may even do so at a level that is above some optimum number, but that's not the same thing.
Amazon has over 1.6 million employees. If their average total compensation were $50,000/year, that would be $80 billion dollars *per year* going to the employees. The median pay is about $30,000 apparently, with an average that's higher (a core group of very highly paid employees).
My guess would be that the number is a good bit higher than that, after factoring in benefits and taxes paid by the company. So let's round that up to an easy $100 billion dollars per year. Jeff Bezos has made about $200 billion since 1994. His employees make about half that every year the company continues to exist (and the number of employees is going up very rapidly, so this number is going up as well). If anything, the employees are making much more from this enterprise than Jeff is.
Neoliberals definitely credit the employees with their portion of the success of the business - and generally assume (may or may not be true) that the compensation these employees receive is just compensation for their efforts. More skilled employees, as well as founding employees and management, tend to make a lot of money. Warehouse employees who are interchangeable with millions of other people tend to make much less money.
Do you really think that Bezos was responsible for 50% of all value? There are well paid employees no doubt, bit nothing like mr B. If what you are claiming is true then if Bezos had stopped working the companies value would have dropped by that much.
If employees are getting $100 billion a year, and Bezos is getting $5 billion (his total worth averaged over the time spent working on Amazon), then he's worth 5% of all value. That may or may not be too much, but that's certainly closer to the ballpark than 50%. If Amazon continues to expand and employees get $200 billion or $300 billion a year, Bezos may be looking at "only" capturing 2% of the value. I don't think I have enough information to take a strong stand on whether 5% is a good number, too high, or too low. I doubt anyone has a justifiable claim to the correct formulation of that number, but I'd love to be wrong about that.
Two points: First, I think you mischaracterize the effect of competition versus monopoly. It's not just that competition leads to a larger share of the surplus going to consumers. More importantly, competition leads to a greater surplus (and this effect can be large). To see this in a simple setting, suppose I had a monopoly on sandwiches and I could produce sandwiches for free (like I said, simple setting). Obviously, the efficient thing to do would be to give everyone as many sandwiches as they wanted; it costs me nothing, after all. But the only way I can do this by setting a price is to set that price equal to 0. Then I make 0 profit. I want profit, so I set a price greater than 0, but that means sandwiches are not being consumed that really ought to be, for the surplus. The analysis extends to more realistic costs.
Second, the reason (I mean this factually, not morally) that Bezos makes so much money is not that he is such a good entrepreneur/innovator (though I do not deny that he is). It is because the distribution business is a natural monopoly, because of the returns to scale of providing distribution. (Imagine being a plucky entrepreneur setting up a competing distribution network...) Bezos naturally faces little competition, now that he is the established incumbent. So it is not the value of the surplus he created that made Bezos rich, but the particulars of the field in which he happened to innovate. Fleming, when he invented penicillin, arguably created more surplus than Bezos, but because penicillin production isn't naturally monopolistic, he could capture far less of that surplus. (I realise I'm torturing history a bit here, but the point should be clear. Also, the fact that medicine is now associated with the unnatural monopoly of patents only strengthens my point.)
The central tension here is that competition is good for efficiency (surplus creation) with fixed technology. But because not all the surplus goes to the owners of the technology, competition is bad for innovation (creation of new technology). Monopoly (natural or unnatural, through patents) is one way of addressing the inefficiency in innovation, but it sacrifices surplus once the innovation is out there. In principle, the solution is lump sum rewards for innovation by some centralized agency, but that is not practical in most cases (and it comes with its own theoretical issues). In practice, I am not aware of a good solution.
Bezos “owns” the equivalent of roughly 25% of Amazon’s market cap. That does seem a bit high, if he is going to split half with customers, and a quarter with employees.
Perhaps a better split might be:
40% customers
30% investors
20% employees
But 10% for founders might be too low a floor for startups, given their high failure rate. Not so much for Bezos, but for 95-99% of entrepreneurs who take similar career risk.
I don’t think Bezos is an angel or saint, but he’s not Beelzebub, either. I appreciate his healthy competition with Elon Musk, and how they are both crushing NASA on the vehicle front.
Hi Scott, thanks for the post, as always I love your way of thinking.
I think you're making a common mistake : attributing too much value to "the idea".
As an entrepreneur once told me : the idea is worth 1, the plan is worth 10, the execution is worth 100
In many industries, the winner is not the first to have the idea. Google was not the first search engine, Facebook was not the first social network.
Ideas are important but they are not an on/off switch. Think of it as a belief or, as Peter Thiel puts it, a secret. You know (or you strongly believe in) something that most other people think is rubbish. That gives you an edge, a first start, but it doesn't help you much in the thousands of decisions you must make in a very uncertain environment along the way.
Often the idea evolves a lot when confronted to the market. Each iteration requires courage (accepting you were wrong on some important part), insight (changing in the right direction), resolve (not changing too much) and perseverance (grinding long enough to survive one more iteration). As Paul Graham says, some founders never know how close they were when they gave up.
Back to Bezos. I think you chose Amazon to illustrate your point because it doesn't look much like a tech company. Without Page and Brin, maybe the world would never have had such a powerful search engine (you even make that exact point with Musk), but Amazon? Come on! Someone would have done that sooner or later.
See? That mistake about the importance of the idea : "someone would have founded pseudo-Amazon two years later". But the idea of ecommerce has a very low value. In France we were doing ecommerce on Minitel since 1980, yet that 15 years headstart on the idea didn't convert into French Amazon.
The idea of selling stuff on the Internet was already pretty obvious in 1994, but nobody knew how to do it right. Nobody knew what was different from physical commerce and what stayed the same. Amazon invented most of it. One-click shopping (everybody laughed), marketplace, AWS...
And Bezos is a management genius, he actively set systems to prevent Amazon from becoming complacent as it became bigger. If you're interested, you really should read Zack Kanter's outstanding paper : What is Amazon ? https://zackkanter.com/2019/03/13/what-is-amazon/ Bezos imagined, invented and deployed stuff nobody knew were needed.
Also, we're used to insane growth in software companies, moving bits. But have you seen anything resembling Amazon's growth in businesses moving atoms? There's this anecdote (dunno if it's true, I wasn't there), back in 2003 or so, when Ebay's Pierre Omidyar and Meg Whitman visit an Amazon fulfillment center. Bezos is enthusiastic in showing them how Amazon tackled the monstrous task of handling billions of parcels. As they're leaving Whitman tells Omidyar that they were right not to get into logistics, it's too messy and complex. These are very smart people, but they didn't understand then that delivery is a critical part of the user experience. Bezos knew that, saw that incumbent logisticians were not going to provide the level of service that he wanted and took the herculean task of building a global ecommerce fulfillment system, and succeeded, while growing 50-100% year over year, and offered that as a service to vendors on the marketplace... Would pseudo-Amazon have done that? Ebay certainly didn't. If Amazon hadn't set the standard to next day delivery, where would ecommerce be today?
Two years, you said? What if it's 5 years, or 10? And did you take into account how much the Internet economy in general benefited from the drive of ecommerce, itself driven by Amazon? What if Amazon only kept 10% or 5% of the surplus it brought to the world instead of the 50% you supposed?
TL, DR : The concept of having the idea first is simplistic and often underestimates how much exceptional persons may have brought to the world.
Whether the way of getting treasure feels "earned" to our intuitions or not, no one would waste anything energy on it if it was, like, a bag of rocks or $29 or whatever. The outsized nature of the possible reward drives entrepreneurship, the engine of this feverish flux of human interface and interchange. With only mild reward potential, you will get only mild entrepreneurship.
And if you don't like this feverish flux, there really are many places where entrepreneurship is turned down from the American cacophony. Not straight up communist dystopia like Cuba or dprk, but nice normal civilized places like Sweden or the UK, where starting a business is a little harder and growing it into a unicorn is almost impossible, but public services are amazing because the system distributes consumer surplus to the public more than to the capitalists. If that sounds good to you, why not move there, instead of killing the one place where cacophony lovers can thrive?
I just see billionaires as the natural consequence of the rules we made.
$1 + $n = $(n + 1).
You can found a "company" which earns its own $, and you can own "shares" in that company, which you can then sell to others.
Something something prevent monopolies.
I like this system for its simplicity and its incentives. In terms of outcome, I don't see the side-effect of "billionaire" as something worth worrying about.
One side effect I don't like is that innovation slows down when everyone is financially uncertain. I want UBI to patch this.
This is a reprise of the 19th century debate about theories of history. There's Robert Carlyle's Great Man Theory of History, "The History of the world is but the Biography of great men '' where Jeff Bezos would be characterized as an exceptional individual with an unique set of talents. The only hero who can slay the dragon. A branch of this is "Great Founders Theory '', where the way Great Men influence history through the institutions they create.
Then there's Arnold Toynbee's "Challenge and Response '' dialectical approach, where different civilizations face a series of challenges, such as wars or climate change, and their capacity to face them successfully and grow depends on a creative minority, capable of coming up with solutions. Not a guy, but a small number of people. If they do succeed, they tend to take over society and become an oppresive minority, categorically unable to solve the next crisis with the tools developed for the previous one.
Then there's “People's history”. Great Men are a narrative convention, and the masses are the true movers of history. Napoleon is nothing without his army, without peasants laboring the fields, women sewing uniforms and so on.
Even more Communist is the materialistic approach. Material conditions and social incentives interact to produce certain types of individuals and not others. Brazil is obsessed with soccer, so they produce a bunch of great players. America is obsessed with entrepreneurship, so they produce a bunch of Jeff Bezos and no Neymars.
There are a thousand of these theories, but how did this debate resolve itself?
It didn't.
Nowadays, historians don't really concern themselves with coming up with grand theories of history or counterfactuals. When they look at historical records and data they find way too many counterexamples which crush every neat little narrative anyone can come up with, so they don't bother coming up with anything other than modestly noting this or that pattern.
The "Give me a Break" Theory of History.
As for the particular example, it depends whether you think Amazon is closer to a problem-solving technology or a work of art. Both Newton and Leibniz can develop Calculus, because both were looking for ways to deal with change and continuity. But if Shakespeare had not lived, there would've been no Hamlet, no “that particular play”. And while Elizabethan England produced a number of very strong playwrights, none of them could have ever written specifically the text of Hamlet.
I personally think Amazon is closer to Calculus than to Hamlet.
> pseudo-Amazon
Don't you mean Amazon′
I think you can get around most of this issue by taxing consumption instead of income or wealth. When a billionaire uses their fortune to found a new company, they're creating more value, and that shouldn't be punished with taxes. Whereas when a billionaire buys a yacht, sure the yacht company makes money; but the value that went into the yacht, from raw material to labor to innovation, is permanently redirected from the rest of the economy. That value could go towards commercial shipping or cars or something, which would actually provide value to everyone else through cheaper/better goods and services.
The extent to which a billionaire continues to make good invesents and start good companies is also a way to "measure" how much their success is skill rather than luck. And taxing consumption instead of income/wealth encourages reinvestment, especially for skilled billionaires. So if Bezos loses billions on Blue Origin while Musk makes billions on SpaceX (both funded by earlier entrepreneurial success), or if Bezos knows he won't get lucky again and spends all his money on yachts, this acts as a kind of naturally selected tax on billionaire luckiness.
Another way to put it is that when "wealth" is in the form of, say, shares of a company, that wealth is actively producing value for the economy. When "wealth" is in the form of yachts and mansions, it's actively draining value from the economy. It's kind of nonsensical to lump these both into the same category of "wealth" when they're basically opposites.
+1
The niche Bezos exploited was made possible by the same system that allows him to profit by exploiting it. Indeed, it was made possible by the exploitation of many other such niches in the past. I don’t think this particular niche is the final output of the system — it will contribute to the emergence of many other niches in the future. The first justification of the billionaire’s windfall is that those are the rules of the game, and he might have lived his life differently if he knew the rules would be changed after he invested in exploiting a niche. The second and more important justification is that changing the rules now will deprive future generations of the opportunity to exploit further niches.
This is well-thought-out and well-articulated (as usual).
But I think taxation should play a much more important part in thinking about this than you have afforded it here.
Bezos may have figured out how to deliver the value to our door, but he didn't create all the added value alone. He was only able to build Amazon by leveraging the value created by the people who funded and developed the internet, who built the roads, who subsidized the gas in the tanks of the delivery trucks, who made sure that the dollar was fairly stable and that the political environment was conducive to growing a business, who gave him tax credits, who negotiated NAFTA and China's entry to the WTO, who paid for K-12 education for Amazon's employees, and kept them mostly safe while they were growing up, etc.
It takes a village to raise a trillion-dollar company…
Basically, Bezos and Amazon used more than their proportional share of publicly owned and funded projects and assets, and I'm not convinced the public has charged nearly enough for its contribution.
(There's an idea that we shouldn't tax Amazon or Bezos much because they contribute so much to the community in other ways. That's like arguing you shouldn't take a salary from your job at Walmart because your community benefits so much from their low prices.)
So, if we're thinking about fair ways of distributing the surplus, taxes should be central to the consideration, not an afterthought.
I think there's something kind of evil about forcing people to buy subsidized gas without giving them the option of saying no, then saying "AHA! You took our subsidized gas, now we own you and none of your accomplishments are your own and we deserve everything you built!" I mean, come on, at least give him the option to pay full price for gas so he doesn't have to listen to you.
Sure.
And I think there really should exist a free Wild West somewhere, where people could opt out of the totalitarian liberalism of much of the west and into a natural state (whatever that is) – even if such a place only serves as a contrast to what we have, and a place libertarians can threaten to move if progressive candidates win elections.
But now that we all live in complex societies (especially those of us who have some choice in where we live) we should take the good with the bad and appreciate that everything is interconnected, and that (subsidized gas or not) it probably would have been really hard to become a hundred-billionaire in a society where everyone else is a hunter-gatherer. Once you accept that, you accept some sort of inheritance and I think you should be willing to pay something back. I’m not arguing for communism, just an alternative to the view of taxation as “theft” or a necessary evil.
You should also appreciate that, because you only thought that their *should* exist a "free Wild West" rather than actually making sure it *did* exist, the people who create things are allowed to say that since they didn't ask for your help and weren't allowed to refuse your help, they don't owe you a damn thing for your help beyond the taxes they've already paid. If that.
I don’t get it… Is it somehow my responsibility to make sure there exists societies that someone else might want to live in? There are plenty of cities, states and countries to choose from, including tax havens, and countries with a weak state and shaky democracy, where you can build your own infrastructure, refine your own gasoline, and educate your own workforce, if you don’t like the way your local system solves those issues.
Once you’ve chosen where to operate, it’s not about “asking for help”, it’s about ownership and about who writes the rules. Just as once you decide whether to build your app on AWS or on Google Cloud, you follow the terms and conditions of the provider you chose, and pay what they charge.
You can’t just build a house on other people’s property and expect to get to keep the whole thing, and you can’t build a business on other people’s infrastructure and political structures and expect not to pay for it. You owe what the owners charge. If you don’t like it, take your business elsewhere.
This is obvious in business – why isn’t it equally obvious when it comes to civics?
The answer is, it *is* obvious and entirely uncontroversial to companies like Amazon. They play this game all the time – letting cities, states and countries compete against each other on price and services to win some new facility.
The problem is that almost all governments are terrible at charging what their societies are worth to entrepreneurs. Like mom-and-pop stores trying to win against the Walmarts of the world by dropping their prices, instead of providing a better experience worth paying for.
Citizens (and the bureaucrats and politicians who represent them) should get better at realizing the value and relative advantages they bring to the table, and get better at charging fairly for it – and that should be part of the equation when figuring out how to capture and divide the additional value created on their structures.
I'd add that I think you're missing a whole diffusion of responsibility argument - that we are overrating the importance of Bezos to Amazon and underrating the importance of the other early employees.
How much of the success is attributable to Bezos and how much to say, Eric Benson who created the first "if you bought X, you might like Y" code, or Susan Benson who got Amazon early publicity, or Ellen Ratajak who built the original infrastructure, or Scott Northrop, or Tod Nelson, who did early warehouse automation, or Jonathan Kochmer who redesigned the recommendation algorithm so it would recommend music based on your books and vice versa (it used to be siloed by each store) or Tom Schonhoff who built the customer service teams that had a great reputation until Amazon got super big, or Paul Davis who built the original back end, or Shel Kaphan who built the original front end (or MacKenzie Bezos, who ran the entire finances and HR for the early company, but I think she's been adequately rewarded)?
If you conceptualise the innovation as being done by a team not an individual, and the billionaire as the member of the original team who happened to be able to drive the rest out and therefore they make all the money and the others don't, then there's an argument for a much broader distribution of that super-wealth.
Despite being a supporter of capitalism as the best system ever tried in practice for economies, this is the weakest argument by capitalists I have seen, and I think a large portion of the problem is capitalists overvalue the lone genius, that is the lone genius bias is huge amongst capitalists. To be fair, history books compress so much time and focus on great men rather than the millions of non-noble or leaders combined with America's individualistic culture meaning that people believe that billionaires are superhuman people, sometimes near-deities.
I think people have been overtrained to hear the words "lone genius" and think "aha, it's politically incorrect to believe in those", but actually a cursory look at history shows there are plenty of lone geniuses and they create huge amounts of value and I hope they continue to do so.
The only argument I'm making in this post is that Bezos' genius probably moved Amazon forward a few years (which is still worth billions of dollars!) but it would still have eventually been created without him (probably by another genius). I think other people do even better - I'm not sure anything like Tesla would have existed without Musk, or anything like crypto would have existed without Satoshi.
I think you overestimate “also rans” here. If you didn’t have Amazon, you’d probably be shopping on Walmart.com, which for my dollar is a much worse experience despite a decade of investment following a blueprint for success laid out by Bezos. If we’re honest, Android phones weren’t up to iPhone standards for at least 6-8 years after the initial release. Plus, it’s very hard to delineate between where Android phones would have ended up if Apple didn’t exist at all and where they were able to get to by mostly duplicating Apple’s efforts.
Basically what I'm saying here is lone geniuses, if they exist, are ultimately replaceable by a team of less intelligent humans within reasonable time. And given the normal distribution that is intelligence for humans, something like this has to be the case. So geniuses exist, but unlike power-law worlds, they are far more replaceable. This isn't about political correctness, this is just a fact of how intelligence is distributed.
"lone geniuses, if they exist, are ultimately replaceable by a team of less intelligent humans within reasonable time"
I am almost sure this is false. How many IQ 100 people does it take to discover the Theory of Relativity?
Sorry to come in late, but I'd argue around 10-100 people could do it assuming the data was in hand for 5-10 years.
To me, a better starting framework is the concept of "universal destination".
The first aim of all productive activity is the benefit of all humanity. In the same way that the earth (really all matter/existence or poetically "creation") is a gift for humanity. (Maybe the earth is also a gift to each living entity?) Each person is also a gift to humanity. Our productive activity is an echo of creation.
We really don't need to be incentivized to do good, it is our primary nature to be good and to be in solidarity. Nor do creativity and imagination, the spring from which improvements come, need to be incentivized: it is our nature as a species to be imaginative. Talk to some 3 and 4 year olds.
"Surplus" only really exists after the duty to all humanity has been satisfied.
"I made this so it's mine. I thought of this so it's mine " The universal destination proposes a different way to think about this that is not transactional or bound in a chain of custody. Instead, I made this so it belongs to humanity. But I am part of humanity so some of it is mine and my existence is required to have made it so the portion that satisfies my basic existence is mine. And if I am a parent, I have existential duty to children (entrusted to be raised for the benefit of humanity - ie the children are gifts to humanity just like every other person. Someone needs to protect that gift.)
Entrepreneurial activity is labor. The mental exertion of thinking up an idea of a product is not fundamentally different than the physical exertion of the worker making the product.
Labor whether mental or physical (as if nerve cells are less matter than muscle cells?) has as it aim the benefit of humanity. We might be diverted from the true aim by some selfish libertarian impulse that our primary aim is self satisfaction but would a distraction from our true essence and purpose: We exist as gifts for humanity. But as indicated previously we are part humanity and we must exist to produce and we may have special duties to humanity if we have had children, so there is a recursion.
Is there no private property? Yes there is private property but private property beyond what is required after your existence and your children's existence is ensured is always subject to the claims of humanity. Private property is a means of procedural justice not an end.
Disputes will however arrive: who gets this particular thing. Dividing the car into 7 billion pieces is no good for all kinds of obvious reasons. So private property and the chain of custody to the labor, is a good status quo default, even if everyone is "entitled" to their sliver of the car.
How exactly to divide stuff up is a political question that communities and societies work thru in a consensual manner. Even the dictator has some consent that exists because a majority of people have not said "hey buddy who put you in charge?!" Consent by silence or inaction.
Surplus is not the incremental increase caused by the improvement (whether by invention or better management and organization of the process), as proposed or implicitly presumed by Scott.
The universal end of all productivity value is always humanity, subject to initial justifiable existential demands of laborer (whether mental or physical) and the laborers' children whom they raise as trustees for the benefit of humanity.
The billionaire's pile of wealth is always subject to the claims of humanity but in and thru mechanisms of procedural justice of distribution which can only be decided politically. (Basically via taxation and eminent domain however those are politically agreed upon. Implicit in the political is peacefulness. Social ordering without peace and consensus is war and anarchy. "Politics is the peaceful resolution of conflict." (attributed to Mark Sheilds but this was a phrase used at Notre Dame in the late 50s when Sheilds was an undergraduate, the name of professor who used it escapes me right now.)
From the 1967 encyclical Populorum Progressio:
"Everyone knows that the Fathers of the Church laid down the duty of the rich toward the poor in no uncertain terms. As St. Ambrose put it: "You are not making a gift of what is yours to the poor man, but you are giving him back what is his. You have been appropriating things that are meant to be for the common use of everyone. The earth belongs to everyone, not to the rich."
See also the Compendium of the Social Doctrine of the Church:
"177. Christian tradition has never recognized the right to private property as absolute and untouchable: "On the contrary, it has always understood this right within the broader context of the right common to all to use the goods of the whole of creation: the right to private property is subordinated to the right to common use, to the fact that goods are meant for everyone". The principle of the universal destination of goods is an affirmation both of God's full and perennial lordship over every reality and of the requirement that the goods of creation remain ever destined to the development of the whole person and of all humanity. This principle is not opposed to the right to private property but indicates the need to regulate it. Private property, in fact, regardless of the concrete forms of the regulations and juridical norms relative to it, is in its essence only an instrument for respecting the principle of the universal destination of goods; in the final analysis, therefore, it is not an end but a means."
I don't think that this is a very valid argument because it makes the false assumption that if the capitalist hadn't invented the product, it would have eventually been invented by somebody else. That's completely unprovoked and sounds totally wrong to me. Throughout history, societies fail to invent things all the time, then they go extinct or are conquered by societies that are better at invention. So a more fair way to put it is that POSSIBLY somebody else in your society might have come up with the invention, or possibly a foreign enemy would have come up with that invention and your society would have crumbled due to your enemies gaining an insurmountable advantage that you could not compete with.
The idea that "somebody else would have invented it anyway" is unprovoked and even if it was true, you have no guarantee that the invention would have been created by somebody with positive feelings towards your society, rather than somebody with hostile intent. Only a narcissist unaccustomed to the realities of life would assume than every invention will be used for their benefit rather than to harm or even destroy them.
So we don't just pay inventors a premium for their DISCOVERIES, we pay them a premium for them being altruistic enough to use their discoveries for our benefit rather than to hurt us. Failing to adequately incentivize this choice can often lead to very bad outcomes. For example, why would the future inventor of AI decide to use it for societies benefit instead of taking over the world and killing anybody who opposes them? We should probably make sure to incentivize the first outcome rather than the second.
I actually think that "very big online retailer" is a big enough niche that we can be pretty sure someone would have invented it anyway. As people have brought up in the comments, many inventions are invented independently several times within a few months of each other and it's a question of who makes it to the patent office first; I think by studying these cases we can determine that most (though not all) inventions are usually replaceable within a few years.
I'm not sure what you mean about the narcissists - if you're a narcissist who invents a $200 billion dollar idea, I think you start the company and collect the $200 billion. I have no idea if Jeff Bezos is a nice guy or a narcissist or whatever, it doesn't matter to his success and it doesn't matter to me.
I disagree on the inevitability of the “very big online retailer” at least one big enough to drive the changes necessary to compete at scale with large store front retail.
In a world without Jeff Bezos, I could easily see the second runner up settling for being the worlds largest online book store while another founder duplicates big box hardware store model, but skips all clothing because they don’t have a solution or resources to manage returns, etc, etc. this much more fragmented online world would lack the volume to drive affordable next day shipping, one click purchasing or many of the other things that make buying from Amazon so beneficial (or addictive) to consumers.
Speaking as the ordinary idiot in the street, I think the view around redistribution of excessive wealth, and measuring what does count as excessive wealth, is proportionality.
Does Bezos deserve to be a multibillionaire? That's a difficult question to answer. Who *deserves* anything, at all? And indeed, "treat every man as he deserves, and who should 'scape whipping?"
Is Bezos entitled to his billions? Well, I think most people wouldn't object too much to him being a billionaire, or even having five or ten billions. What grates is "This guy is rich enough to be able to fund his own toy rocketships to play with like the other billionaire boys, but his company apparently operates on such thin margins that it really does need the workers to pee in bottles instead of going to the lavatory so as to maintain the necessary level of productivity".
That does not make any intuitive sense at all. The company can be valued at incredible rates, but it's also permanently teetering on the edge of collapse? Bezos can have a net worth of somewhere between $150-160 billion, but it's not real money in fact?
$10 billion sounds like more than enough to manage to struggle through somehow in order to live on it. When talking about hundreds of billions for one man, that sounds less like "reward an entrepreneur" and more in "now we're operating in the realms of fantasy". At those levels, it becomes more and more difficult to argue convincingly to ordinary people that "we *need* to reward entrepreneurs at that level or else they won't bother setting up in business for themselves".
I think there's a lot to this sense of intuitive indignation, but practically speaking, I think it's important to remember that Jeff Bezos has hundreds of billions of dollars based on the valuation of his share in Amazon, and his only having a fortune of around 5-10 billion depends, not on laws about how highly people are allowed to be compensated for their work, but on restrictions on things like how large a stake in a company someone is allowed to own, or how large or valuable a company is allowed to be without being broken up.
If net worth was capped at 10bn probably Amazon never becomes anything other than a bookstore
Also, I’d rather see 190 b in Bezos hands to invest, than in the hands of the government to piss away
If you're going to grant that it's reasonable for someone to have $10 billion, why not grant that it's reasonable for them to have $100 billion? Both are such bizarre inconceivable amounts of money that I can't think of any way to distinguish between them. I'm concerned that if someone makes $1000 billion next year, people will be saying "$1000 billion is so absurd, they should stick to a reasonable amount like $100 billion", and if somehow Bezos' fortune crashes to $10 billion, then they'll say "$10 billion is so much, how about $1 billion"?
That's why I said proportionality. Go back fifty years, and we'd be talking about Bezos being a multimillionaire because billionaire is only a thing in fantasy, there's not even that much money in the national economy! Jump ahead fifty years and we'll be saying "So-and-so is the USA's first trillionaire!"
(Kindly note: all dates and figures pulled out of the air for use as examples, I have no idea if fifty years ago the national economy was or wasn't worth a billion).
Suppose Amazon goes "poof" in the morning and Jeff, poor poor deprived Jeff, is reduced to his last billion, like the Getty fortune (and we should, I think, take note of how the former 'richest in the USA' families dwindled in wealth; nobody took it away from them, no socialist government was voted in and seized it, no workers' revolution, but rather 'too many descendants split the inheritance and squandered it rather than building up new businesses').
EDIT: I apologise to the Gettys, the family fortune is around $5 billion. They have fallen from their former lofty position as "richest in the world" (back when that meant the founder had a fortune equivalent to $1 billion in today's money) because of the inflation in worth of how people make fortunes.
https://www.tatler.com/gallery/meet-the-getty-family-andrew-getty-history-fortune-getty-images
Would anybody really try and advance the proposition that Jeff Bezos, now only worth $1 billion, was horribly deprived? He could still live a life free of want and care, and in luxury that many can only dream of as a fantasy. He might *feel* deprived having lost so much of his fortune, but in actual terms, nobody can really argue that he is lacking anything to have a comfortable life.
His wealth is fairy gold, anyway; it's all based on the valuation of Amazon stock, and it's only worth that much so long as he doesn't try to realise it. He can borrow against it, but if he tried selling his stock to get money, he'd crash the price. This is why I am less than impressed by markets as the One True And Only Way, because it's fairy gold: in the morning, you are left with only a handful of dried leaves.
Not meta enough.
Does the niche exist because there are a lot of people trying to innovate, or do innovators exist because of niches? Since the population of innovators is finite, we can't take for granted the existence of niches-soon-to-be-filled either. Modern high output wooden beehives were possible in 300 B.C., yet it wasn't until the 20th century that they were invented. The opportunity to create the flying shuttle existed for 8,000 years, but it wasn't until 1733 that it was created. The niches were there! The use cases were there! It was the innovators who were missing.
But your model seems to imply a log function of potential founders, which might hold if can you set culture and institutions and incentives constant. Explain one's assumptions about the elasticity of innovators and taxation becomes clear.
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I'm confused what part of this model you find compelling. The counterfactual world where online retail doesn't follow a power law distribution and competition drives prices further down isn't obviously possible. So I don't see why it should govern thoughts on optimal tax policy.
Is it that Bezos is getting paid rents in the form of market power and partial ownership of a company that sits at the top of a power law? If so, there doesn't seem to be an obvious way to reduce those rents for the benefit of consumers that's significantly better than allowing him to invest and buy yacht boys to clean his poop deck.
And lastly, is Bezos the typical billionaire? Policy should be gauged towards both the typical and future billionaire founder. Reason based on one market example at your peril.
Usain Bolt won a bunch of races, but if he hadn't raced, someone else would have been named the fastest man in the world.
Imagine instead a world where nobody is ever declared a winner in foot races. You can race, sure, but if any news outlet wants to publish the results they only publish participation. There's no Olympics. No prize, no recognition. After all, if Bolt hadn't crossed the finish line when he did, someone else would have crossed maybe a second later. And someone else after that, and so on.
Maybe in that world you still have an Usain Bolt as the fastest man in the world. But he's considerably slower, probably not going to train for races, and nobody knows he's fast - maybe not even him.
The NBA wouldn't be the same without the scoreboard, and entrepreneurship wouldn't be the same without the incentive structure.
But not all proponents of taxing billionaires want to take every excess dime. Just proportionally more. What if, in our racing analogy, you got rid of the Olympics? Would Usain Bolt refuse to run? Not worth it without the maximum prize. Maybe he'd still run, but in other races, possibly closer to home.
What if the economic trade-off isn't in whether there are any incentives at all, but in what gets incentivized. Want more global involvement? Make outsized global prizes. Want more community involvement? Bring incentives closer to home.
I think footraces should be decided statistically. In order to be a winner, your times have to be statistically meaningfully different. Let's consider the Red Bead experiment and Deming's insight into statistical thinking. Let's measure all sports with a control chart!
As to "games", well they are just that "games" a diversion.
The rest of the world seems to produce great universities without the Academic Sports Entertainment Complex.
It seems that the value for an athlete of an Olympic medal is how much more money in sponsorship/endorsements they can get. So if there are no Olympics, but instead entering and winning Fastest Male Sprinter contests internationally gets the same amount of "will increase your asking price", then it would be worth it.
The Superb Owl is not a global competition like the World Cup, but somehow teams still compete in it and it is worth something to the players to be Superb Owl winners 😀 There isn't a World Cup of tennis, but "won Wimbledon, won the Australian Open, won US Open, etc." seems to be something that top tennis players find worth their while training for and playing in. Daniil Medvedev is currently ranked World's No. 1 male player and he's not confining himself to only playing tournaments in Russia.
Interesting. What do you think would happen if we took all sponsorship out of sports? Say there was a sport where the players were banned from receiving sponsorships, or getting paid for playing. They still get public accolades for winning - indeed, we'd make sure we televised big games and had news/TV reporters conducting high-profile interviews of the winners on the field and in a newsroom after a win or loss. Players still train and play in expensive gyms and world class facilities, with highly-paid coaches, assistants, medical staff, etc. The only difference is that all players get essentially the same compensation for playing the game, whether they win or lose. Would the competitive nature of the game be enough to keep it exciting/interesting?
Imagine we took that same scenario, played out over a few decades to reach equilibrium, then suddenly allowed players to begin receiving sponsorships. How would that change the game? (speaking specifically of the performance of the players on the field)
Fortunately for us, the NCAA ran this experiment. Its biggest confounder is probably the potential of a small fraction of players to get lucrative professional contracts, but since most have no hope of such contracts, we should be able to deduce something from the 95% of players who just walk away with a scholarship and often an undergraduate degree.
So, I woke up to this, and someone has probably already made substantially the same point before, so anyone who's already seen it among the 600+ comments there are now can ignore this-
But I think that the counter to this argument is that it's not about rewarding the first person to reach the goal, but creating the incentives that encourage anyone to aim for the goal at all. If Jeff Bezos hadn't founded Amazon, would someone else have created a massive online retail/distribution giant in its place? Probably, assuming the business incentives still existed to make that a worthwhile thing to do. If companies above a certain value were required to be broken up, that would almost certainly have prevented it, and if individuals weren't allowed to own controlling stakes in companies, that would likely have prevented it as well. It's difficult to arrange business regulations which *prevent* people from sometimes becoming billionaires which don't leave the average person worse off in some ways.
In the situation where God declares that there's treasure on the beach, the person who claims it may have not have *earned* it as much as the person who goes to the trouble of narrowing down exactly where it is, but if for some reason God really wants someone to claim that treasure, he's better off not waiting for someone to prove themselves worthy.
The question that I find interesting is did Bezos intend to create Amazon? The Amazon we now have, which is venturing out into making TV shows, etc. instead of the Amazon he started off with, which was "replace physical high street bookshops with retail ordering, like catalogues but you do it over this new-fangled Internet".
What really sold me on early Amazon was "hey, all these hard-to-get or out-of-print books are available there!" That's what I still use Amazon for, except now I get everything downloaded to Kindle for PC instead of hard copies. I don't want or need Amazon Fresh, Prime, Music, Alexa, or the TV streaming service (though I admit, I have used the clothes and some other departments shopping so I have branched out from books).
Bezos may have intended to set up "online retailing". Did he envisage, back then, the behemoth Amazon would become? Did he lead the way in diversifying into other areas, or did he follow the leads of other companies and of employees in his own company?
If there was a point when he switched from innovating to imitating (e.g. 'everyone is running digital music/streaming services, we should do and use our market dominance to crush the competition') then how much of the added value did he create and hence 'deserve'?
I think being at all realistic, one has to recognize that the most wealthy people aren't necessarily creating *that* much extra wealth relative to what someone else would have created if they hadn't been around. But without him, Amazon wouldn't exist at all, and he did lead it to a lot of growth. The question of whether, as a society, it's okay for us to let some people become so extraordinarily wealthy, is less a question of whether he "deserves" or has "earned" it, and more a question of whether we're better off if we disallow people from owning controlling stakes in companies they created above a certain value, or break up companies if they achieve a certain threshold of value. And I think in both cases, we'd actually be worse off, that we'd be "buying" the prevention of multibillionaires at the cost of a significant amount of societal welfare (and I say this as someone who has taken considerable advantage of Amazon services which I don't think it would have been able to develop without such a huge investment into its infrastructure.)
Whether he "deserves" such extreme wealth, and whether we'd be better off as a society if he didn't have it, are different questions.
An interesting real world model of who finds what was already actually there first and how that plays out in both creating billionaires and creating a dependent underclass is the 1848 and 1849 gold rushes in California. The first movers made a lot of money, the second plus movers did make some or nothing, but the fact of the gold rush created follow on opportunities to exploit that created other billionaire classes. That there are follow on opportunities to exploit is entirely predictable of any new innovation, but *what* those will be aren't necessarily and both are impacted by other events that happen concurrently but not because of the new innovation (in this case California statehood, the transcontinental railroad, etc.). Wouldn't any taxing scheme impact those follow on opportunities, so that it's not just about taxing the first mover?
The thing is, I don't see how to avoid regulatory capture and killing innovation (so not feasible to tax billionaires a lot unless you're either tolerating significant tax cheating and/or just going straight to socialism and nationalizing the thing) and that many will suffer as things play out from any game changer innovation even if you eventually get to the place you want to be (more people better off). It's almost as if we think there's a way to prevent the latter and that doesn't seem realistic.
See, I honestly can't follow the argument that someone will say "Well, if I can only make $1 billion instead of $20 billion, then I won't bother with my innovative creative new idea, I'll go work for somebody else and make $2 million".
It may be very annoying if the government tells you "The company is worth $20 billion but you can only be worth $1 billion", but on the other hand, isn't "You are guaranteed to be worth $1 billion" better than nothing? Half loaves and all that?
Maybe this can replace the Chart blaming the Christian Dark Ages for why we aren't all uploaded androids living on colonies in other galaxies - it's the Entrepreneur Spite Gap! All those people who through the ages said "Well if I can't have it *all*, then I'll have *nothing*" and they refused to innovate because they couldn't be a millionaire/billionaire/trillionaire and out of spite remained a penniless pauper grubbing for stale crusts, and without their Novel Inventions, we never got to have a hyperloop running straight to Proxima Centauri 😁
You'd think re: the money as an incentive to innovate and technically I agree given after a certain point how can there be more marginal utility in another dollar (especially given that it starts to get hard to spend after a certain point)? But this discounts those upfront years when you aren't rolling in it, it's just an idea only you and if you're lucky a few partners believe in and are devoting insane hours to, and it just feels like you are getting regulated, taxed, and fee'd to death with low profits because customers refuse to pay or haggle excessively - slogging through that morass (and knowing you'll have to) skews the incentive to start somewhat. Plus, we don't see today's super rich behave in this manner either, they still tend to on average hoard, penny pinch, tax evade etc. to keep their bank balances high - so that says something about how the marginal utility of adding to actual cash in hand somehow doesn't seem to fade even as it stacks up.
I mean, if they got to $1 billion on anything other than pure altruism, you'd basically *expect* them to at least slow down (if not stop) once they hit whatever cap this hypothetical government is adding here.
And do they keep the power from their ownership (arguably what that $20 billion represents in the first place), or are they required to give more and more of it away as the company continues to grow?
If the former, you've just made their $20 billion opaque: "there are shareholders, and then there are *shareholders*".
If the latter, who is receiving this (increasingly-less-partial) ownership? At least 20 people (and counting) given the premise, otherwise one of *them* would pass the $1 billion cap. So now you've got a miniature Senate. Or Supreme Court, or whatever. What you don't have anymore is an executive. Rule by committee is, empirically speaking, very, very slow.
What I always find funny is that Amazon should not exist. They should have been beaten to the market by Sears in the US and either Eaton's or Consumer Distributing in Canada. And yet none of those businesses which already had much of the groundwork set up for catalog ordering, warehousing, etc., were able to do the same thing. Their direct competitors - chain bookstores - had the resources to provide the same service and stamp out Amazon almost immediately, and yet they didn't.
So not only do you have someone who managed to break into an industry which already had many businesses which had the resources to outdo them, they managed to drive other established major retailers into bankruptcy.
There certainly is an amount of luck involved. But it also involves a certain amount of vision, tenacity, and leadership to make that happen.
Agreed about the vision etc. but it is also undeniable that there was a hefty chunk of luck involved.
Bezos founded Amazon in 1994, right at the start of the dotcom bubble. It could have gone down with many of the other fledglings of that time which thought that they had cracked the code to getting rich quick. It is understandable why the big businesses like Sears didn't have the turning circle to convert their business to online-only retailing, and why the chain bookstores thought that this wasn't a big competitor: they were moving into adding on extra value like cafés in bookshops, and who was going to bother ordering a book online when they could just buy it right away at their local bookstore? Maybe if you were some guy living in the sticks with no bookshop or amenities near you, but that was a niche market, let Amazon have it if it wanted.
What Bezos did that *was* smart was build a brand. He understood marketing, and he copied the idea of the big brands, who moved in first and established themselves. Once people use your product's brand name as the reference for the entire field (e.g. people saying they will "hoover" instead of "vacuum" the sitting room) then you've got it made.
So working hard on building the brand and managing to be one of the survivors when the bubble burst are indeed the victories of Bezos and Amazon.
The article seems to mix two ideas, what is a fair or just system, and what is an efficient system. The answer to each is not independent but you need to be clear which is which.
To the degree that anyone who becomes very rich has certainly had some luck (and probably a lot of luck) then having very rich people is never going to be 'fair' and perhaps this provides a moral justification for progressive taxation that fits with most people's moral codes. Whether this is a good idea from an efficiency perspective is another question however.
As an aside, in many countries there are lotteries which are very popular. The participants know that the winner becomes very rich and that is entirely down to luck. And yet people do not seem to regard these as particularly immoral, presumably because all participants no the deal and are participating of their own free will. The belief that it is you who could be the lucky one one day seems powerful as a justification for large luck-based rewards.
This is mostly an argument that "deserve" isn't that helpful a concept on a societal level. Replaceableness argument is fair enough but you could go much further. Bezos' parents invested a bunch of money in early Amazon; if his parents weren't well-off American citizens would Amazon exist as it is today? Or what if he had gone to worse school? Maybe there was a particular teacher that really inspired him that other potential entrepreneurs didn't luck into having, and without which he would have ended up some highly paid non-billionaire investment banker, did he "deserve" that teacher? Also he clearly lucked out in the genetic lottery, another thing he didn't deserve. He must have worked extremely hard but there's probably genetic factors to that too!
And at the end of the day if you peel away the layers of explanation enough you find Laplace's demon, giggling madly at the idea that a particular organism "deserves" something that was predetermined by the boundary conditions of the universe.
But even if you throw away any claims of just deserts you can still pretty easily argue for or against billionaires, it's just the typical boring but reasonable left/right debate. Against billionaires: diminishing marginal utility of wealth, so you should tax rich people more and ultrarich people the most. For billionaires: low taxes encourages risky entrepreneurship which improves overall living standards.
Good comment, but here's a question: you can make a case that Bezos doesn't deserve to keep say ~90% of his current wealth like how Scott does above, but under this logic, who does deserve it? Logically, I would say only one or all of the following : Amazon employees, investors, or customers. I don't see anyone actually making any arguments to this effect, though. I see people on the left saying Amazon should pay its employees more, but without offering much of a justification beyond "because they can," which isn't terribly convincing, and its worth noting that they say this about every company, seemingly, not just category killers like Amazon or Costco or whomever. I think the more common position, though, is that Amazon and Bezos ought to be taxed heavily, and the added revenue used to pay for spending that benefits either the public at large or specific interest groups, and this seems far less justifiable to me.
I think I wouldn't make a case either way about whether Bezos or employees or customers or the public deserve the money most (though I'd argue you're underestimating the contribution of the public/the government, because stable rule of law, property rights, and infrastructure are important to any business). The point is that the concept of "deserve" evaporates when you look at it closely so doesn't deserve any moral weight. The relevant question is how to balance the incentives/diminishing marginal utility tradeoff.
Yeah, I largely agree; I guess my point, not well stated the first time was that if desert does evaporate for an individual or set of individuals, a lot of people seem to assume that the money or property in question is then fair game for public use, but that doesn't follow.
I would also just make the point that while stable rule of law, property rights, and infrastructure are indeed great and necessary, I don't see that the provision of these services entails any sort of open-ended financial commitment to the government on the part of Amazon anymore than it does me. Amazon uses public roads, so do I, and the roads are maintained largely via gas taxes, which presumably we both pay in proportion to the amount we use the roads. If more maintenance costs are incurred, just raise the gas tax accordingly, no? I don't think one can argue that just because Jeff Bezos used publicly financed roads to generate a large portion of his wealth, that now requires him to, I dunno, fund Medicaid and SNAP or student loan debt relief. Ditto for the rule of law and property rights.
Until Amazon does manage to replace every single flesh and blood employee with robots, AI or any combination thereof, the employees *do* contribute to the success of the business. The customers *do* contribute by continuing to patronise it, if we all decided tomorrow that we'd shop local etc. instead, Amazon would be worth zilch and Bezos - well, he probably has enough investments, property, etc. socked away that he would still be very rich, but he wouldn't be multi-billions rich.
So if Bezos 'deserves' his current wealth due to the success of Amazon, would he 'deserve' to lose it all if people switched loyalties to another brand?
I do think it's not so much about "fairness" or "who deserves what" as proportion. But then again, I'm probably influenced by subsidiarity in my thinking: https://en.wikipedia.org/wiki/Subsidiarity_(Catholicism)
The thing is, billionaires (Bezos) don't really have $200B. If they get to keep $200B, they will be taxed 33% or whatever the tax rate is. They got paid at going rate of capable CEOs and that is the cash they have in their bank accounts. In a way system already works, just that if you have money to spare, you can hire smart people to find the loopholes for you.
I should add here that personally I think any govt should incentivize people to create more value. Most govts are poor capital allocators and inefficient. They are good at policy and creating specific ecosystems. That way, people are better off if a bunch of entrepreneurs are competing to create more value for everyone. A social construct around it is how everyone measures their worth by comparing to the next guy, and that is probably a bad starting point.
The thing that this misses is the thrill of the hunt, which has it's own reward. Humans do things they enjoy because they are challenging. Being financially rewarded is helpful, and enough is important. But how much is enough? It is not billions. When I was a kid, we criticized Brazil for the discrepancy between the owners and the workers in terms of compensation. Here in the USA the managerial class is compensated by a factor of 300X the rank and file worker (don't quote me on this, maybe it's just CEO's) which is absurd. No human is "worth" 300 times another human, regardless of their skills or intellect. We need to reform our culture to place engagement and interest in the activity more centrally than financial reward, and we need to uncouple wealth from virtue. The wealthy have replaced the monarchs, especially since their wealth is deemed to reflect their intelligence and virtue rather than their luck and ability to extract value from the rest of us.
Okay, then let's make it a proper hunt. Governments don't get to seize his wealth and Bezos gets to keep every cent of the putative $200 billion or whatever Amazon is valued at today.
But right from the start, all entrepreneurs and innovators and value-creators are working under the conditions back in the day. You take on all the risk, and if it works out you get very, very rich, and if it doesn't, you lose your shirt.
No tax breaks. No loans at favourable rates. No incentives to come set up in our state and we cut you a deal. No bail-outs for being 'too big to fail'. NO LOBBYING OR LOBBYISTS.
Jeff (or Elon, or Richard, or Tom, Dick and Harry) want to set up their own business, let them go right ahead. But they don't get handouts (unless from friends/family who want to invest in the start-up) or leg-ups or special considerations, even if they do make it to be mega-big. They get taxed like you and I and the rest of the working joes do, they want to squirrel money away in Swiss bank accounts or Caribbean tax havens, sure go ahead, they can play spy vs spy with the government on that as always.
If Jeff wants a mega-mega-yacht, he can earn and keep the money to pay for it. But he can't shop around for "so who is gonna offer me the biggest bribe to set up in their city?" for his second headquarters, he has to abide by tax and labour laws and all the rest of it.
If you don't want government sticking its fingers in your business pie, fine. But you don't get any favours from government either. Just be treated like every other citizen living and working in the country. And then I'm happy for you and your hundreds of billions. There's that (in)famous quote from Warren Buffett about 'my secretary pays more tax than I do'. Let Warren have his riches - and let Warren pay much more tax than his secretary on them. 'Oh I only get paid a peppercorn salary, that's what I pay tax on' and the bulk of the income comes from dividends etc. managed so he pays little to no tax but has the benefit of hte money? Then if he gets the benefit, he also gets the liability.
Set things up that way, and I think there would be far fewer people talking about "deserving" and calls for seizure and redistribution.
This article seems to assume the reward is always for being "first" to the scene. While this is certainly part of it, it's missing a large piece of the picture. Why is Zoom the dominant meeting platform throughout the pandemic rather than Skype?
As an attempt to think logically about these issues, I think this is a nice piece, but in the end my instinct is to reject the premise. I strongly suspect none of us would be happy living in a world where "who deserves to have how much money and why" would be put to a democratic vote. Two wolves and a sheep deciding on what to have for lunch....
Are you really comparing two random people to wolves and a sheep to a billionare?
How else other than the peacefully resolution of conflict (aka the political ordering of society) are these decisions made.
I suppose a philospher king or Solomon might be better than the "democratic" political order, but it could be a lot worse.
You made something so it's yours. Ok well your parents made you so everything you made is theirs? Or, the land upon which you stood to make something and the natural resourses of the earth required for the making of the thing were not made by you, so where is your claim then?
"Democracy is two wolves and a sheep voting on what to have for lunch" is a quote attributed to Benjamin Franklin, and yes, I would say it applies in such a case. There are a lot more average people than rich people, and in a democracy, votes are what ultimately matters, much more than money.
To answer your question, I don't see this as a conflict to be resolved. Jeff Bezos has a lot of stuff. I do not have as much stuff. There is no conflict here, though, unless one of us decides that we should have some of the others' stuff. I would advise people to strongly avoid that type of conflict in the first place, though, by simply not trying to take other people's stuff. There are a lot of historical examples where that's gone very very wrong, just in the last century or so. I'm sure there are even more examples if you go back further, like the French Revolution or the Tai Ping Rebellion.
If everybody globally had enough "stuff" and there was no rent seeking behavior we might be in a different place. But there is still abject poverty - less than before but it still exists.
Unless you are an anarchist, government has legitimate authority to tax for the common good. So how do we that? That is a political question decided thru democratic republican primarily general with majoritarianism, unless you're China in which case the party decides. ( Or in some places by a dictator or oligarchy)
The political question can be guided by principles. What are those principles?
Here's an easier question: should we continue to allow billionaires to pay a lower tax rate than your local dentist?
The income tax hits "earned" income hard. But the loopholes for building a corporate empire are huge. Consider what should be an accounting identity:
Corporate Growth = Retained Earnings + Fresh Investment
Now take that formula a look at the history of the size of Amazon and the amount of declared earnings and fresh investment. No relation whatsoever for the early years. Mr. Bezos had the equivalent of an unlimited IRA.
Not only do retained earnings magically turn into expenses for tax purposes for growth companies, securities laws make starting a competitor using funds from middle class investors very expensive.
Once over the hump of getting part of your business to be profitable, a creative entrepreneur gets extra cheap capital to play with up to the point where diseconomies of scale finally kick in. Jeff Branson did the same starting with a record club. Once he had the income stream he could say "Screw it; let's do it," to some smart people and just make things happen.
Quick search in the comment section turned up three uses of the word "privatize" and no uses of the word "commons". The problem with Bezos isn't that he's getting too much credit for a good idea first, it's that the entire space that he occupies is a form of theft of something public, as was Microsoft, Google, Facebook, and all the big recent billionaire-creating enterprises. The other problem is that even to the extent that what he is creating is not just privatizing the commons because he was the first one there with fencing materials, it's that Amazon itself creates actual harm, like a form of pollution. Are there good things about Amazon that aren't just the commons sold back to us? Maybe. But there are for damn sure things about it that are worse -- more addicting, more trivializing, more materialistic, more self-centered -- than any form of commerce previously devised. The same is at least as true for Google and the rest.
Focusing on the billionaire at the top is popular among those who need human faces to have grievances about, but the systemic problem is vast and mostly underground. This is why it wouldn't really help to bring out a guillotine (though it might not hurt either -- more testing is needed to answer this).
Can you explain what commons Amazon has fenced off? What used to be public that Amazon privatized?
Yes, I can. But first I would ask if your question is in good faith, or if you're doing the "Can you point to something obvious and concrete to demonstrate a subtle and complex point? Oh you can't? Guess you're wrong!" or "I'm not interested enough in what you've mentioned to look it up on my own but I want you to do a big homework assignment on this topic that I probably won't read".
I'm not assuming you're asking in bad faith, mind you -- just checking.
I'd say I'm genuinely curious/good faith, but also quite skeptical? To me, Amazon seems like such a clear example of a company that does something that has been private for a very long time (selling stuff!) in a different way (on the internet!) - i just don't see where the commons come into it at all. But I'm open to learning more or hearing a different perspective, whether or not I'll end up agreeing with you.
Especially given the value of Amazon is heavily driven by AWS. What commons is AWS fencing off?
Fair enough. I find it a fascinating direction of thinking, starting with the insight that there are many forms of commons, some of them quite subtle. We can ignore the grosser kinds: how Amazon relies heavily on public or formerly public infrastructure (roads, the post office) at a deep discount in a way analogous to Walmart helping its underpaid workers sign up for Medicaid, or the (demonstrated) way it will steal a design from a sub-retailer, have some company in China make knock-offs that it sells as "Amazon Basics", and then ban the original retailer. Let's further ignore the way Amazon simply does a better job of tragically exploiting the global commons both ecological and human -- these are deeply troubling but only a bigger, harder version of what it replaces.
Rather, think about commerce as a cultural commons, an idea-space in which it is possible for humans to interact (originally, I give you this gourd and you give me that digging stick, or later I give you this arrow-head and you give me that fish hook). Amazon is slowly acquiring this space itself, the whole process. In the same way that we all increasingly check Instagram or whatever to see how our families are doing, we check Amazon to see if a product exists -- and to buy it without reflection if it does. If a cousin is not on IG, he slowly disappears from cognitive view; if a product is not on Amazon, it slowly disappears in the same way. Don't believe me? Try experiencing how painful it is to buy something you've been buying for years on Amazon somewhere else.
More subtly, there are common social goods that are disappearing faster than old-growth forests, things like ability to delay gratification, to budget, to fix or reuse things, to make do without. Many of these can be lumped together under what salesmen used to call "sales resistance". Community networks of a sort that can be called "knowing people who know how to get stuff" are also casualties. The list can go on -- all that's necessary is to ask "what is it that this billionaire supposedly adds in value and where is it coming from, how is it making us all poorer?"
If it helps, I'm also completely boggled by your comment and have the same question John did.
Tbh, Scott, you brought this on yourself with the book reviews of Lacanian theory, starting with Sadly, Porn. In grappling with Lacan I've now read three books and a variety of essays by Slavoj Zizek, where we find statements such as:
"[...] which designate three domains of what Hardt and Negri call 'commons,' the shared substance of our social being whose privatization is a violent act which should also be resisted with violent means, if necessary: the commons of culture, the immediately socialized forms of 'cognitive' capital, primarily language, our means of communication and education (if Bill Gates were to be allowed monopoly, we would have reached the absurd situation in which a private individual would have literally owned the software texture [of] our basic network of communication)"
In order to figure out where Zizek is more Hegelian than Lacanian apparently I have to read Hegel, and frankly I'm getting too old for this shit.
Patents expire; but the Bell Telephone Company remained dominant until broken up by governmental action because it had created so much infrastructure. In theory a true competitor to Amazon could arise, but Amazon has too many advantages because it dominates its market niche. It's similar to how mammals were unable to replace the dinosaurs for a period of 150 million years until the dinosaurs became extinct, for reasons mostly unrelated to the existence of mammals. To truly create real competition to Amazon would require anti-trust action or some new disruption in the retail sector, and the company that pioneers the new disruptive technique might become the new monopolist.
Bezos’ billions are invested in Amazon. Do you think if they were transferred to US Fed Gov they would be better used? Does the marginal 200b of federal spending yield more social benefit than Amazon?
I think the question of whether billionaires 'deserve' all of their billions is largely irrelevant and a distraction. If you 'prove' that they don't deserve it, then does it follow that it should be taken away and redistributed? The important question is what effects doing so would have on the creation of value going forward, not whether it is deserved or undeserved. Much of the 'wealth' the billionaires have is in the form of company shares. Who would these shares go to next? Would the government take over? Would the company fall apart and cease to create value if the shares were more finely distributed? I don't know these answers, but my instinct is that this is where the analysis and discussion needs to be.
I think this is fair, pointing towards the weakness of a "wealth tax" approach. But one reason we have such concentrations of wealth is that we have low income tax rates, many exploitable loopholes, and proliferating large-scale rent-seeking opportunities enabled by the growth and sophistication of finance capitalism. These features, which largely postdate 1980, permit flows of wealth towards individuals on a scale that did not exist for the previous half century.
If you were to ask what the ultra-wealthy "deserved" when I was young (the Eisenhauer years; top bracket income tax rate of 91%), the answer would have been framed within a paradigm that simply did not allow for, in current dollars, ten-billionaires. That possibility had been legislated away in the post-Mellon era, and the idea of a Bezos or Musk then would have been comparable to asking now: "How much of their income/wealth do multi-trillionaires deserve to retain?" The expansion of concentrated wealth and wealth-determined power is accelerating on that scale, and that's the future-oriented question I think we should be asking in order to throw light on the present.
If "deserve" is an ethical question, the answer has to be framed in terms of complex ethical judgments about specific means each billionaire uses to gain wealth. If it's a legal question it has to be framed in terms of current laws or the social purposes that we think should govern legal reform. If it's a social and political question, however, it has to be considered largely in consequentialist terms, within a consensus framework of value. I think it is a consensus framework of value in the US that ordinary people should have a significantly wide range of leverage over decisions that fundamentally affect their lives. When you're on a path towards wealth concentrations that point towards financial oligarchy, I think the answer is that no one "deserves" to gain, through economic activity, determinative power over the lives of ordinary people without their active political assent.
But Jeff Bezos wealth is almost all stock in Amazon (and same for Musk, and Buffet and, maybe to a lesser degree since he's diversified some, Gates in their respective companies). It has almost nothing to do with the tax code, income bracket rates, loopholes etc. other than the fact that we don't tax wealth in and of itself (and we didn't in the 1950's either). You could tax their consumption higher, but their wealth wouldn't be significantly changed.
You're absolutely correct, tg56, and I think Laura pointed out some of the problems connected to a wealth tax, which I think would be a poor approach. But I'm not addressing whether we should take away billionaires' wealth, I was talking about the governmental and legal principles under which individual wealth is accruable on this scale. If we feel the scale is socially and politically dysfunctional, undermining the ultimate value of positive features of gross economic growth that capitalism is designed
to generate, then the system should be modified to curtail the trajectory of increasing wealth concentration.
The class of super-rich we have now (which, because of a combination of the Depression and subsequent tax policies had ceased to exist here in the '50s) is a sunk cost. We changed our approach to income (and estate) tax and regulation, and didn't reexamine it as new technologies and financial methods appeared. If we simply ask highly simplified and abstract questions like Scott's in this post, our thought experiments are unlikely either to capture the complexity (both practical and ethical) of how super-wealth is currently generated, or to lead us to decisions that could construct an off-ramp before we run into a geometrically escalating top wealth bracket.
I think a socially holistic view suggests the need for serious reform in the age of financialized capitlism. Earlier comments from posters like Erusian seem to think that this means veering to Marxism or socialism, but optimal policy design is very unlikely ever to conform to one-dimensional ideologies. Decade after decade, I've listened to people use the bete noirs of "socialism" and "communism" to mischaracterize any adjustment of regulated capitalism that swings the balance back towards the 1933-1980 consensus. We have now a hybrid of capitalism and socialism, with huge admixtures of ad hoc pragmatism baked into commercial codes. We made a very large shift toward the capitalist end of the spectrum after 1980. I think we were much closer to having it right in the earlier era, which was generally dynamic in term of innovation and growth, while significantly reducing income inequality and the off-scale concentrations of wealth that characterized the era from 1868-1932.
Just to add a thought to my own longwinded post here: One aspect that relates to the form in which super-billionaires hold their wealth concerns tax policy governing its conversion to consumable form (capital gains and estate tax). A progressive capital gains tax and a return towards the 55% taxable rate on sizable estates (including taxing estate holdings of securities) might be a start.
"... the governmental and legal principles under which individual wealth is accruable on this scale."
You mean... freedom?
Individual wealth at the highest scale is most commonly formed by: founding a company, the company grows and becomes very valuable, and so your share of ownership in the company is very valuable. I don't see what particular "system" allowed for this other than "the system that allows people to start companies, and freely transact shares of those companies." The only system that would disallow that is a system without private property rights at all.
"If we feel the scale is socially and politically dysfunctional, undermining the ultimate value of positive features of gross economic growth that capitalism is designed to generate, then the system should be modified to curtail the trajectory of increasing wealth concentration."
Capitalism was not "designed" any more than freedom was designed. Capitalism is literally just a word that describes what naturally happens when you don't have a government that uses violent force to prevent people from voluntarily transacting.
No, I don't think I mean "freedom," Ludex. There is a full spectrum of legal options between absolutist views of private property and systems that do not allow for it.
I disagree with you about "capitalism" as well. I think you are speaking of natural features of markets. Capitalism is a doctrine (hence "-ism") about how such features can and should be exploited by states, and it takes many forms. Anti-capitalist ideologies don't deny the market features you're pointing to; they deny that state licensing of the free opertion of those features leads to the social values they advocate. Note that capitalist governments use force, sometimes violent, to prevent many kinds of voluntary "transacting," most obviously in areas of drugs, military arms, sex, medical services, tax collection, etc. No form of applied capitalism has ever lacked regulation. This thread's discussion concerns optimal standards for regulation, based on social values extrinsic to market dynamics, but granting the positive potential of those dynamics.
> Decade after decade, I've listened to people use the bete noirs of "socialism" and "communism" to mischaracterize any adjustment of regulated capitalism that swings the balance back towards the 1933-1980 consensus.
Here's my issue with this comment. The 1933-1980 consensus was free market, anti-socialist, highly confrontational with Communism, pro-entrepreneurship, pro-military, and pro-big business. It did not involve a wealth tax or corporate nationalizations and was fairly anti-welfare and huge into military spending. Yet I doubt that's the consensus you want to return to. Very often this argument is made not by people who want to return to the Washington Consensus/Great Society but by people who want to move far to its left.
And let's not romanticize the past. The economy of that period was not only less diverse and poorer but also involved immense pressure on workers to be loyal to their company. It was also dominated by big business and still had the very wealthy running around including billionaires. They used to literally sing hymns to the CEO. It was the era of the Company Man and if you want to see what that was like look at East Asian salaryman culture.
I'm quite sympathetic to reforms meant to help the average person. I'm generally for universal healthcare, for example, though I prefer something like the Dutch, Swiss, or Singaporean system to the British or German one. But very often the far left policies that end up following such complaints are neither from the period you're talking about or common in Europe.
Erusan, I agree with some elements of your comment, but not with others. The 1933-80 consensus was far less free market than the 1868-1932 consensus and far more socialist (think of the TVA and Social Security), and the same is true for its contrast to the post-1980 consensus. It was confrontational with Communism after 1946 as a function of the USSR, but not before. It tended to be pro-big business, but certainly less so than after 1980. I'm not idealizing the era (although I'm nostalgic for it, like most feebleminded seniors); I'm speaking of its tax and regulatory policies relative to those we have come to take for granted now.
You are comparing the 1933-80 consensus to contemporary progressive politics, represented by political figures like Bernie Sanders and Elizabeth Warren. As I specified, I'm not in favor of a wealth tax, and you don't have to be a progressive to feel that the regulatory and tax approaches of the New Deal/Postwar period are better models for society than those we follow now--you can be a vanilla liberal, which is the way I think of myself. (Luckily, I really like vanilla.)
As for the "company man" and "salaryman" cultures (the latter really only applies to Japan; other E.A. regions only came to emulate it paertially after the 1970s), you write as though they were coerced. Loyalty to companies was induced through stable employment, promotion, and benefit regimes that could be cohesive or toxic depending on individual corporations, and that were compatible with strong labor unions complementing those white collar cultures. (The other term used in connection with "salaryman culture" in Japanese studies is "lifetime employment culture.")
So far as I know, there were no US billionaires in the '50s, which is why William Richards' 1948 biography of Henry Ford was titled, "The Last Billionaire." Of course, a billion then would have been about 25 billion now, so it might be best to say there were no 25-billionaires in the '50s, while now we not only have a raft of those back, as we did in the Gilded Age and after, but we have 100-billionaires.
> You are comparing the 1933-80 consensus to contemporary progressive politics, represented by political figures like Bernie Sanders and Elizabeth Warren.
Indeed. I was explicit about that. If you want to fill in your specific program I can tell you what I agree with, disagree with, or am ambiguous toward.
> It was confrontational with Communism after 1946 as a function of the USSR, but not before.
Incorrect. There was significant persecution of Communists in the 1930s. FDR explicitly defended capitalism as such and the "American economic system" which he contrasted with the USSR and Fascism.
> It tended to be pro-big business, but certainly less so than after 1980.
No, it was more pro-big business than afterward. The New Deal ideal was big business in partnership with government. What happened after the 1980s was the replacement of a regime of direct cooperation with one of more regulation but independence. Which in turn allowed significant disruptions and anti-monopoly cases. You can see echoes of this in how Yglesias argues big business is good because the government can force unfunded mandates and regulations onto them and they just absorb them. That was the Washington Consensus ideal.
> I'm speaking of its tax and regulatory policies relative to those we have come to take for granted now.
Which ones specifically?
> As for the "company man" and "salaryman" cultures (the latter really only applies to Japan; other E.A. regions only came to emulate it paertially after the 1970s), you write as though they were coerced. Loyalty to companies was induced through stable employment, promotion, and benefit regimes that could be cohesive or toxic depending on individual corporations, and that were compatible with strong labor unions complementing those white collar cultures. (The other term used in connection with "salaryman culture" in Japanese studies is "lifetime employment culture.")
They were to some extent. The ability to exit was greatly curtailed by a system of recommendations and where leaving was socially suspicious. Very often quitting the career ladder meant quitting it for good. (Of course, there were also things like a more robust SBA to help people found shops or whatever.) Likewise white collar workers were mostly not unionized. Of course, it's not nearly as bad as many other systems I definitively want to avoid. I at least see the arguments for it.
> So far as I know, there were no US billionaires in the '50s, which is why William Richards' 1948 biography of Henry Ford was titled, "The Last Billionaire."
This is incorrect. There were a smaller number of billionaires and hundreds of spending power equivalents. And a greater proportion of them had inherited their wealth vs today.
Two things. Winner-take-all games for high payouts are an inexpensive way incentivize large groups of people to compete intensely to achieve something socially desirable. The Giants’ starting wide receiver gets a mansion on a hill, social recognition and groupies. But you can amortize this over the 10,000 other guys who worked very hard for years, may have been a quarter step behind and you had to pay nothing.
Second, Amazon’s value is mostly prospective. They’ve just started producing cash flow although not much relative to their >1 trillion market cap. For decades, Amazon mostly just chewed up investor capital to fund operations and growth. How can you say Amazon’s profits have come at the expense of employees or consumers when it has had mostly no profits? I guess you could say Sequoia or Blackrock have been exploited, except that Amazon’s forward looking valuation has made them tens of billions. Maybe it’s future consumers we’re trying to protect—Amazon flexing its monopoly muscles in 2035?
I've heard arguments like this and I have a few issues with them:
I think what's often hard for people to grasp is that Amazon is very likely better than the other company that would have come into existence 2 years later. I like Facebook as an example, MySpace was a huge "unstoppable" social network the day Facebook launched, but the "better" product won out even overcoming the network effects. We should expect that a company that is producing significantly more utility than amazon would push Amazon out of the online retail market (Peter Thiel thinks you need to be 10x better to do this). By analogy, Bezos deserves the profits, not just from the first two years of Amazon, but from the difference between Amazon's quality and the next best competitor (eg eBay), but also the losses for a company that's only marginally better. I think this calculus usually comes out in favor of the existing company, since the distribution is mostly on the "worse" side.
SpaceX is an especially interesting case because there were a bunch of companies getting into private spaceflight around the early '00s, and none of them have gotten close to the level of cheap and abundant launches that SpaceX has. If SpaceX hadn't been founded people would still be making the claims about "space being intrinsically too expensive for the private sector" that used to be everywhere 20 years ago and have basically vanished since. It may not be 2 years but a generation or more before someone accomplishes the same thing.
I think there's also the question of how much of the utility Amazon generates goes to Bezos. There may be some sort of fairness issue if he's getting 25% of the lifetime Amazon Total Surplus, but if he's getting 1-3% the argument is much weaker.
And finally most of the work Bezos is being paid for is work that no one knew would succeed. If a rational analysis of his efforts to make Amazon gave it a 20% chance of success, then 1996 Jeff Bezos is getting an EV of 1/5th of the money he's currently getting, which makes the number a bit more reasonable.
Charles Stross has another take on billionaires. IMO, his most interesting point, is that after a point the marginal utility of being a billionaire has an upper limit.
https://www.antipope.org/charlie/blog-static/2022/05/the-impotence-of-the-long-dist.html#more