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"I think the political power of billionaires is vastly overestimated." At the very least, this ignores the effectiveness of a large number of right-wing billionaires in affecting legislation, especially at the state levels with the Koch Brothers and ALEC. And it totally ignores the effect in getting federal judges confirmed, especially through Leonard Leo and the Federalists. Yes, it's not clear that billionaires don't seem to be able to consistently elect specific candidates. But that's a very partial criterion, so partial that it vitiates Scott's point here.

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You have two 11s with no commentary after the first one

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Sep 22, 2022·edited Sep 22, 2022

Schilling's the closest one to the truth. I think Scott severely underestimated how rare the combination of [traits] that these people have, and by traits I also mean [born in a certain year] or [be in the right place and the right time to have an interest in such and such]. Traits are high-dimensional and thus could be compared to finding "the love of my life", only even harder because we're talking about businesses here.

The counterfactual for Amazon existing isn't an Amazon equivalent some years down the line, it is of it not existing at all. If you're in a country where nothing ever gets done, innovation stalled, people are rent-seeking left and right, and entropy generally leads the way, I think Scott would see how rare the existences of them are. Doesn't mean that people have to kowtow and be subservient, but it means that the environment in which they can build what they built (with thousand others in their companies) is much more important (e.g. maximizing the # of outlier results) and that what they've built were not just statistical inevitability.

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Sep 22, 2022·edited Sep 22, 2022

Natural monopolies are a tough deal for the second-smartest would be billionaire in the room, but as a consumer they're pretty great. Bezos is not the only one who benefits from Amazon, part of the Natural Monopoly on Retail surplus is already distributed directly to every consumer in the form of low prices, 2 day delivery etc. I trust Jeff Bezos to generate enough surplus to provide for himself while providing me good service far more than I would trust a Nationalized Amazon.

>You would have to estimate some kind of primordial rent on the concept of retail monopoly. But part of Bezos’ accomplishment was causing this particular slot to exist. Also, how would you calculate that??

Much like Georgism, this idea hinges on government technocrats will somehow perfectly precisely pricing everything while entirely escaping the countless biases, corruptive influences, and incompetencies that have plagued every government since government began. I doubt they could.

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Sep 22, 2022·edited Sep 22, 2022

re: #2 and estate tax

1) Daniel Halliday in The Inheritance of Wealth: Justice, Equality, and the Right to Bequeath argues that a Rignano scheme is the "right" way to tax inherited wealth. Rignano (1870-1930) is a forgotten Italian engineer turned amateur political philosopher who proposed that estate taxes should be "progressive over time". Numbers made up for illustrative purposes: you can give you children 80% of your wealth. They can give their children 50% of the wealth they inherited. Your grandchildren are taxed 100% of the wealth they inherited from you. (Others, including Robert Nozick, Ernest Solvay, and Francois Huet have proposed similar schemes, so Rignano wasn't the first just kinda of the "early but most developed" theory on the subject.)

2) Step-up basis isn't really a "loophole" in the usual meaning of the word, though I realize "loophole" gets bandied about freely in discussions about taxes.

It has been a part of the tax code from the very beginning in 1916. From 1916-1921 ANY gift (not just estate bequests) was given step up basis. In 1921 Congress passed a law (with no especially clear rationale) that removed step up basis from gifts but kept it for bequests. The step up basis for bequests was actually removed in 1976 but was shortly after reinstated due to massive lobbying by rich people.

The thing to keep in mind was that all the staffers were basically inventing tax codes from scratch back in the 1920s. They weren't lots of existing examples or a deep theory on how it should work. There was even some Congressional hearings leading up to the 1921 law where the nation's leading tax expert said some things that, to us now today, seem illogical and bizarre. But they were just trying to figure this stuff out.

The real problem is the post-1976 caving to rich lobbyists.

(Yes, I know that I know that I've spent way too much time learning about the estate tax.)

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"Has anyone ever modeled how much a Bezos-tier billionaire could sell his stock for?"

If you are managing an investment fund, this is an important problem, and people spend a lot of time modeling it. In short, there is a trade off between how fast you want to sell it, and the price you get. It looks like Amazon trades around 58 million shares per day, at $118 per share that is about $7B. If Bezos wanted to sell $100B, that is 14 days worth of volume. If he tried to do it in a single day I wouldn't be surprised if it did drop 50%. If he spread it out over a year (assuming 250 trading days), he'd still be something like 5% of volume! If he did plan to sell that much, I expect he would do it over the course of multiple years.

For a concrete example, look at the stock price of PARA over Jan - Apr 2021 -- that was basically the result of one guy buying and liquidating a ton of stock really fast

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Sep 22, 2022·edited Sep 22, 2022

Why can't Bezos liquidate his stocks for close to market price?

Imagine the federal government printed off 1 trillion thousand-dollar bills, then decided to hold onto them, maybe displaying them in some ultra-secure way for people to come look at, but never spending the money. How would this impact inflation? Not at all, because the supply of money (M1) hasn't changed. It's not until the government decides to spend its quadrillion dollars that we'll see inflation from it, due to supply and demand. The dollar's value goes down when there's more of it.

Bezos not selling his shares creates an artificial scarcity of Amazon stock. Once he starts liquidating, demand will go down. "More people will come into the market because they see Amazon is discounted!"

No. Because the new mix of investors isn't in it for as long as Bezos. They won't maintain the artificial scarcity. Some will trade this year, this month, or faster. There's more stock circulating. More supply means lower price. Investors know this already, so they won't see the stock as a bargain.

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What's missing is the things billionaires do with their money. We see this most clearly with Elon Musk. Musk invests in new startups. But other billionaires do the same thing, only without the fanfare. Their investments are what drives technology to grow faster and faster. Why is it that the US is this technological power house, and no other country even comes close? Because these billionaires and their millionaire employees invest in more viable technological startups.

If we damage this engine, we might not be able to restart it.

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> Is this because of Bezos’ legacy of good policy?... I predict that Amazon will continue to dominate its market long after Bezos is gone (not necessarily forever) and this will be mostly because of lock-in / inertia.

I don't think continuing to execute good policy is inertia, it's an accomplishment on its own. You need to clamp down on sources of friction within the company and respond to outside challenges (e.g. government policy changes), or keep generating new good ideas quickly enough to stay ahead of the breakdown/decay that happens by default.

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RE: The "luck vs skill" argument, my simplistic, not-quite-motivational-speaker model is thus:

Talent is training plus experience, multiplied by aptitude. Applying talent weights luck in your favor, creates more opportunities for luck, and helps you better capitalize on getting lucky/mitigate bad luck.

All of the biggest and best in a field get there, to some degree, because they got lucky. But they had to do a lot of work to actually *use* that luck.

Which is why those on the top feel like they earned their victories (because they usually did), while others think they just got lucky (because they usually did). It's easiest to notice this with streamers and other content creators. Top streamers work just as hard as the mid- and low-tier ones, but the big ones got a "big break" (or two, or three) and were able to capitalize on that, catapulting them to stardom.

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If Bezos wants to spend money, he doesn't need to sell his AMZN stock. Banks will lend him large sums of money with the AMZN stock as collateral. Ultrarich founders often use this approach to avoid diluting their ownership, paying taxes on gains, and affecting the stock price.

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Re: #2 "I agree that estate taxes are the right solution, although I would go further: the main problem with the current estate tax is the stepped-up basis loophole, and anybody who isn’t talking about that in particular falls under suspicion of not being serious."

I really don't think this comment makes a lot of sense. A better rule of thumb is that anyone who refers to stepped-up cost basis as a 'loophole' falls under suspicion of being not serious.

It isn't at all a loophole in the sense that the vast majority of people use that word, it is a feature that a lot of people dislike.

And either of an estate tax or a capital gains tax sans step-up would accomplish very similar things, so I really don't see why you would demand someone care about both, especially about the one that is obviously more distortionary to capital markets (i.e., the capital gains tax).

Even for the most simple use case, publicly traded stocks, the technology for properly keeping track of cost basis wasn't wide spread until the 2010s, and workflows from major custodians are still woefully inadequate (and they only became responsible for keeping track of cost basis in the middle of the last decade, before that it was on you, dear taxpayer, and ultimately still is).

We are now at a point where the argument for the step-up in cost basis for logistical purposes is really starting to get very weak, at least for publicly traded assets, but the case for eliminating the step-up isn't that obvious (versus, e.g., a higher estate tax or a lower estate tax exemption).

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"I’m not sure what to make of this but it’s pretty interesting. If a truck driver with some extra cash had decided to spend it on Amazon shares in 1995, he would be a multi-billionaire now. Would we call that unfair, or begrudge him the money? And surely for Bezos to profit off Amazon is fairer than for random uninvolved people to do so, right?"

Isn't the point that under Scott's system you would tax Amazon so its total value would be reduced to the extent it is attributable to its monopoly status, so none of Besos, his parents, nor the warehouse employee would have got 10,000x returns.

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Sep 22, 2022·edited Sep 22, 2022

>Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium, will people still say “Yes, but once in elden days upon Earth-That-Was there was a site called MySpace which was on top for about two years and then Facebook beat it, so it’s not a natural monopoly! We could still get a replacement at any time!” I’m not claiming I am sure Facebook is a natural monopoly. But surely we should be updating our chance of this a little for each year that goes by without it being replaced. How much?

Stages in life of a natural-monopoly industry:

1) Industry becomes profitable

2) People build companies to fill niche, grow rapidly

3) Once the customer base is entirely absorbed by these companies, competition marginalises companies according to some combination of "smaller" and "worse"

4) Stable monopoly, no-one can compete absent massive shock or regulation

(This sounds a lot like your subculture-cycle thesis.)

Being ahead during part of stage #2, and even early in stage #3, doesn't necessarily imply you'll be the one to get the stable monopoly in stage #4. Facebook vs. MySpace wasn't "MySpace had an established, fully-grown social media monopoly; Facebook overthrew it". It was "MySpace had a head start in the race, but Facebook caught up *before* MySpace could cement a monopoly" (Facebook had got more users than MySpace by the time MySpace started losing them - MySpace was *still growing* while Facebook was catching up, implying that this was around the stage 2/stage 3 changeover).

So MySpace is not evidence against social media being a natural monopoly, simply evidence that in the early stages of a natural-monopoly industry, there are multiple jockeying players due to the time required to scale up.

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In #12 you say you don't think Billionaires are powerful and then list a bunch of people who work in media, neglecting the obvious example of Rupert Murdoch who owns major right wing media companies in America, England and Australia including Fox News. Perhaps he's a low value add billionaire who happened to stumble upon a natural monopoly/unexploited market niche in right wing news that would have been filled anyway. Or, maybe he's high value add and keeping Fox News et al from moving to the center to gain market share makes him one of the most politically influential figure of the post-1990 world.

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As for #1, an approximation might be to treat domain names as "land" and Georgistically tax them. How much is "amazon.com" worth? (A figure can be gotten e.g. by requiring them to post an ask price and requiring them to sell the domain to anyone offering 120% of that up front.) Tax them 5% of that every year.

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“ I hear this “billionaires only have paper wealth” thing a lot, but I feel like it needs to be fleshed out more.

How much actual spending power does Jeff Bezos have access to?

If he sold his stock, he would have to pay capital gains tax, but I think that would only lop off 20% or so.”

Yes but while I agree in taxing Bezos more heavily there would a bit of misreporting going on of someone’s wealth if we push CGT up to 80% or more for very high earners. We still would probably describe his wealth as what he owns in stock rather than what spending power he could ever realise from sales after tax.

Note: this isn’t the same as the obvious enough fact that a billionaire can’t sell all his stocks at once, because he won’t do that.

The situation is different when the tax rate is always very high, imagine a very high and inescapable tax of 99% on CGT. Is a billionaire (in stock) actually a billionaire?

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"The reason I am writing this on Substack and not some Microsoft comment board is because of an antitrust lawsuit."

The MS antitrust trial, like most antitrust trials, reached an absolutely pointless verdict. It had MS donating software to schools, further entrenching its monopoly. I recognize that RedHat credited the trial with buying it some breathing room. But... presumably that breathing room closed up when the trial did.

"Come on! It’s obviously a combination of talent and luck!"

Is luck different than risk? I mean, Bill Gates had family connections that the average person does not have. They allowed him to get his interview with IBM. Luck, like being born into a family with already high social status, is potentially a different entity than the ambient risk involved in starting a business. Both of these things are potentially relevant.

I feel like we're potentially conflating two very different arguments here.

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One of the things that wasn’t really mentioned is whether Amazon actually adds the value to the economy that its valuation would justify. There was a lot of “Amazon adds 100B” to the economy in the last posts but is that true, or is it partially or mostly rent seeking?

In a world without Amazon and no equivalent Amazon competitor I assume we would be going to the websites of the company we wanted to buy from, having googled it, or visited a local shop.

With regards to websites this is only a slight friction these days (particularly with Apple Pay or google pay and devices remembering credit cards) and it’s how I buy groceries, laptops, candles, cleaner robots etc. Although I use Amazon as well of course, in its absence there wouldn’t be an economic collapse.

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The estate tax point makes many questionable silent assumptions. E.g., high gift taxes, to prevent avoiding the death tax by giving away large amounts pre-death. And giving money to government bureaucrats is likely to be more beneficial than having it be invested in profit-seeking ventures. And that the result of all this won’t cause some other dodge that is even worse for society generally. I guess most people are comfortable ignoring those, or taking them on faith.

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It's not “retail giant” that is the source of Amazon's billions, it is network effects. So who gets the money? Or will there just be none?

I say abolish copyright and patent law first.

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Sep 22, 2022·edited Sep 22, 2022

Re #6 and the illiquidity of billionaire wealth.

If Bezos announced he was selling all his stock it would definitely drive the price down significantly. Even if he says it's only because he wants the cash, and not a reflection of his opinion of the future value of the company the market will take it as signal that he (who is in a position to know better than anyone else) doesn't think Amazon is going to grow spectacularly in the future. Even if he needed the cash, if he believed that he could do things like get a large loan at low interest rate that is collateralized by his AMZN stock. For instance, this is how Elon Musk was going to pay for a big chunk of his Twitter acquisition. The Musk-Twitter case also provides another piece of relevant evidence: when Musk started selling some of his TSLA stock to get cash for the part of the TWTR deal he was paying in cash, TSLA stock went down more than he expected and he had to stop selling. That might actually be part of the reason he's been trying to get out the deal (well that and the market crashing, TWTR being worth a lot less now and him being stuck paying the price he negotiated before the crash, and Musk himself being worth significantly less because TSLA price also went down).

On the other hand, 150B is a *lot* of money. He can't easily spend that much on personal consumption, even if he goes on an art work, mansion and yacht buying spree. Whatever he needs for that he can easily sell enough stock without having large impact on price.

In cases where you could actually spend tens of billions or more, you can usually do it without selling stock. If you want to give to charity, you can just give the stock - much more tax efficient.

If you want to buy a large company, you can buy it with your stock instead of cash.

If you want to set up a large foundation to pursue some long term goal of yours, you can endow it with stock.

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"I think the political power of billionaires is vastly overestimated."

It can be, but I think something like the Federalist Society kind of disproves this.

Eisenhower wrote in 1954,

"Now it is true that I believe this country is following a dangerous trend when it permits too great a degree of centralization of governmental functions. I oppose this — in some instances the fight is a rather desperate one. But to attain any success it is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything — even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon “moderation” in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H.L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid"

It's pretty clear those Texas oil millionaires and their compatriots spent the next 60 years building a network of foundations/societies/groups to increase their numbers and to sound intelligent. It was a roaring success.

Just pointing to X dollars from billionaire Bob couldn't get Y elected is not the greatest test.

X dollars to foundation Y means that when random party member Z is elected, they have a prewritten law on hand that suits billionaire Bob perfectly. This is the way influence works and it is a great return on investment.

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The Epic Store example is really interesting because it shows that truckloads of money aren't enough. ES is universally reviled by gamers because everyone knows it's bundled with weird Tencent spyware, and even though they give out free games left and right nobody in their right mind will buy something on Epic instead of Steam. Whenever a game announces it'll be ES exclusive everyone groans. Gamers hate ES even when grudgingly accepting freebies from them.

On the other hand, Steam is comitted to "just working", having a very customer-friendly design philosophy, and overall being a great product that - so far - is not ran into the ground by MBAs seeking to maximize short-term profit. Combined with network effects, they are completely invincible to external disruption.

Are Steam profits fairly earned? It's debatable, but I'd say yes - they are defending their niche on their own merits, with the first mover's advantage acting as a force multiplier.

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Sep 22, 2022·edited Sep 22, 2022

As far as luck vs. talent, it's mathematically trivial to show that in an open competion, the difference in outcome between high-talent individuals is essentially entirely attributable to luck. Talent matters when you're talking bottom decile compared with top decile, but inside that top decile, it's mostly luck, and let's be honest, that's mostly where the conversation is happening in the first place.

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> Some people say that if he sold all his stock at once, it would go down a lot. But why? Because people thought he was selling because he knew there was an impending catastrophe? What if he said “In one year, I will sell all my stock, just because I want access to the money,” and then did that?

The "I want access to the money" is the key point. You don't sell *just* for bathing in your money, Uncle Scrooge style. You sell because you want to do something with the cash *now*. (Most) buyers know this, and that you as a seller will take a somewhat lower sell price in exchange for actually being able to sell. It's the cause of the whole price spread. If you want to sell *all* your stock, you must have a very good reason to want to sell it *all at once*, and this reduces a lot your ability to negotiate. It's not even like the discount on price that is usually applied when mergers happen - in that case there's always a "keep operating as usual" option. But Bezos wanting to sell all his stock - that sounds like for some reason he doesn't have another option.

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Re: #12, M-ldb-g recently wrote a post on the same topic: https://graymirror.substack.com/p/on-money-and-power

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great

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I don't think you're taking #9 seriously enough. It's not the downside of your business potentially failing. It's the opportunity cost of giving up a lucrative "safe" job for a moonshot. Anyone with the brains to start Amazon can certainly earn enough to have a decadent standard of living and/or retire early by working an incredibly stable job in medicine, finance, tech, or consulting. By trying to found Amazon, you're not just risking being unsuccessful, you're giving up an easy path to wealth for a low chance at a very high wealth and a high chance of mediocre to bad results that are far far worse than what you would have gotten by not being an entrepreneur at all. I don't think entrepreneurs are underpaid (adjusted for risk), because if I did, I would become one instead of taking the easy path that I'm on.

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I think your response to 9 is only true in very rare cases. Yes, if your startup lasts long enough to hit a 10+ figure valuation like WeWork you aren't ending up in the poorhouse if it fails. But the vast majority of startups fail very early on (95% don't make it to year 3). These entrepreneurs are just average people putting their house and life-savings on the line, and when their business fails they are significantly worse-off than the counterfactual world in which they did not risk their capital and held down an average job. They're stuck in a huge pile of debt and have often forgone a salary to help grow the business - by contrast their employees are out a job, but otherwise unscathed.

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"For example, if you get VCs to fund your startup, they pay most of the costs, you either pay yourself a small salary as CEO or don’t, and if your startup fails, they lose their investment, you keep your salary, and you probably go and found another startup or get a good management position somewhere else."

And if VC fund your startup, pay you a small salary as CEO and it succeed, how much of the billion dollars worth of stocks end up in your pocket vs in the VC pocket? I'll admit to be a bit further from the startup-funding world than you are, having neither started one nor living in the bay area, but from my understanding you're playing a bit of a shell game here, looking at the funder, his risks and his rewards, shifting the potential risks to someone else, and proclaim "well look, the funder don't risk much anyway" without looking where the rewards end up in this hypothetical situation. Maybe he would have gotten rich, but, ceteris paribus, reaching a given level of wealth require greater success as they reduce the risk they take via external funding.

That being said, there are two more things I want to point out.

The first, least interesting one is an anecdotal evidence against the "if someone filled this market, then someone else would have soon after anyway", and that's Colombus. By 1492, the Carrack, one of the ship model that was used for his (re-)discovery of the new world, was in use for decades, if not centuries (at least from what wikipedia tells me. Maybe what a carrack changed over time, but I have found no evidence it did). Therefore, the technology to cross the Atlantic was there, and the investment needed (3 months of supplies) was well within every atlantic-facing european polities of the time. So for potentially centuries, the empire-on-which-the-sun-would-never-set ticket lied on the ground, nobody daring to pick it up (or maybe even thinking of it) to see wether it could be cashed out.

Then there is a question that arise from this focus on billionaires: would things change if, instead of Jeff Bezos funding Amazon, it was a collective of a thousand Jeff Bezos funding Amazon and ending up each with a wealth of 1 millibezos? Is the redistribution of surplus a concern because of corporations that exploded in value, or because of centralized private owership of said corporations?

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Sadly, your comment in 8 exposes a severe lack of economic understanding (basic supply and demand and market clearing price). Yesterday, less than 0.5% of AMZN shares were traded. Massively shifting the supply curve by having a buyer willing to liquidate a much large block of shares and you will massively shift the equilibrium price.

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The innovation results from allowing people to own their publicly traded companies and make huge sums of money are amazing. I don't understand why we even need to consider killing the goose here. Billionaires provoke too much jealousy? Some of us find it unaesthetic for great wealth to exist? "It isn't fair"?

None of these arguments or any other I've seen persuade me in the slightest. I don't think we have a problem.

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Look, we "solved" this problem a long time ago. It's called progressive taxation. Now in fact the kind of progressive taxation we have leaves some big loopholes, so if you are in the right position you can have no "income" to be taxed, and we could fix that. But we don't need a whole new conceptual framework for figuring out how to tax people with really high incomes.

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On money not being effective for politics.

This idea sounds pretty counterintuitive on priors and I don't think that the amount of evidence from the old SSC essay is enough to compensate for it, considering it didn't really explore some of the obvious possibilities.

I would expect money on politics to be somewhat a zero sum game between two opposing parties. It's less important how much you invest in absolute scale, just the fact that it's about the same as your opposition. Dramatically increasing the amount of money in politics wouldn't change much because both parties will do it.

On the other hand, I also suspect that the returns from investing into politics are mostly long term. It's not just how much dollars have been thrown on campaining this year, it's about steady supply of dollars being thrown throughout time.

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I find it very odd that when we look at something like sports we think it's all talent (Usain Bolt = fastest man in the world, not lucky) but when we look at something like business we think it's often luck. Don't get me wrong, luck plays a role, but talent exists and there is a tail where super-talent exists.

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"And the reason they all failed, is that none of them were run by billionaires"

so this part is demonstratively false, because for the critical early period of SpaceX Musk wasn't even a billionaire. this article https://hbr.org/2022/07/does-elon-musk-have-a-strategy says that "Musk has consistently had a lot at stake in his companies. His initial investment into SpaceX was $100 million of the $175.8 million earned from the sale of PayPal. He would continue to invest his entire personal wealth into SpaceX and Tesla until 2008, when he ran out of money and had to borrow from friends."

and both SpaceX and Tesla almost failed in the depth of the GFC. He got lucky and managed to raise external financing etc. but it was close.

Did having substantial means help him get these companies started? sure. But it didn't require billions and billions, and thousands of other people would have had the financial means to do it, they lacked the skills and the conviction (recklessness).

I've seen even more ridiculous claims about how the fact his (scumbaggy) father lent him and his brother some small sum (in tens of thousands) to start their first business and how that means all Elon accomplished all his life derived from (apartheid) white privilege, etc.

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Sep 22, 2022·edited Sep 22, 2022

In response to:

"Suppose Jeff Bezos just really loved founding businesses, and couldn’t imagine working for anyone else, and he would found and run Amazon for $10/day, just enough to live in a tent in one of his warehouses and eat cold beans."

I'd say even we discover some kind of super-Bezos who will start companies and find new market niches for $10/day, we should pay him more, for a few reasons:

1) I would want this hypothetical super-innovator to be able to casually buy the medical care, therapy, and personal relaxation that he might want. A person who is super-useful to society like this *should* be able to use money to get some of the everyday issues out of the way. Otherwise, if we pay him "just enough to get by", we end up with a sick, stressed out, performing-below-optimal super-innovator. And maybe we only get 20 years of awesomeness out of him, instead of 40 or 60, when he dies lonely of a heart attack at a too-young age.

2) It sets a bad example for the NEXT company founder. There's probably a guy out there who could be motivated to found cool companies on the margin, but when he sees it pays $10/day, he's opting out.

3) Maybe we want the super-Bezos to have the resources to attract a mate? And then to have or adopt kids, so he can pass on his values and worldview to heirs? Might just get someone who excels like him, maybe even in other fields, not just business.

4) It offends my sense of justice. If we pay super-Bezos $10/day, and somewhere out there, we have a person making six figures being basically a parasite on the system, it seems wrong. (Picture the worst obstructionist bureaucrat, or an ambulance-chaser lawyer, or a vapid celebrity, or whatever person you think most counter-productive in society who makes big bucks. Heck, go with outright criminals).

Having people who are "part of the problem" prosper and make many orders of magnitude more than the super-Bezos would offend me. In the same way that socialists are upset that CEOs make 250 times as much salary as a their workers, there are people would be just as upset if society under-rewards the super-Bezos innovators who make our lives better, relative to people who are much more a negative to civilization.

Turning current billionaires into a new exploited class would be the fastest way to get people saying "Huh, maybe Atlas Shrugged had a point..."

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Sep 22, 2022·edited Sep 22, 2022

"I think the political power of billionaires is vastly overestimated."

This is incredibly naive, and really ignores the facts on the ground. I think you may have been distracted by looking for trying to _buy elections_, which is not how influence works, and, as you say, is at best slightly effective.

Intuition pump: if Jeff Bezos calls up a Senator and asks for a meeting, and so do I, who did you think is going to get a meeting?

Intuition pump: who do you think can write model legislation that benefits them, fund think tanks to write papers about how it's a good idea, pressure the newspapers they own to write favourably about it - me, or Jeff Bezos? And so whose policy preference is likely to get implemented? Me, who called my representative and left a phone message, or Jeff, who presented them with finished legislation that already has broad support in the public and the legislature and all they have to do is introduce it?

And finally - if we agree it's better to be a billionaire, and we live in a democracy where billionaires are vastly outnumbered, why don't the plebes vote to share out (some large fraction the of) the wealth of the billionaires? Is it because ordinary folks really believe that that wouldn't help ordinary people. I don't think so. It's because billionaires hold extremely outsize control of the levers of power, and work hard to make sure that's not on the table.

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The paper wealth thing is *important*.

It's not about how much money Jeff Bezos could get access to - consider the alternative reality where Jeff Bezos cashed out for $30,000,000, and paid his parents back with ten times their investment, and went on to retire.

To become a proper billionaire, you don't just need grit and luck. Those two things are important, but the most important factor is actually this: You want to be wealthy more than you want to be rich. Money is like power, and power is not the same as freedom. In order to attain either, you must use them in particular ways, which preclude you from using them in any of the ways you actually want to use them.

In order to be a billionaire, you can't cash out as a millionaire and buy a mansion and a yacht and live a supremely wealthy lifestyle. You have to wait. And wait. And wait.

We should celebrate billionaires - not for their wealth, but because of all the consumption that getting there required that they forego, for the personal austerity it required, and for the fact that they funneled the vast majority of their personal resources into society instead of themselves.

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Sep 22, 2022·edited Sep 22, 2022

I'm struggling to identify what problem we are trying to solve. Bezos (and small number of other people) have billions of paper wealth from founding extremely successful companies. They and their progeny (and some number of philanthropic organizations) will want for nothing.

In the counterfactual world where Bezos doesn't have $140B of stock I don't think the question about what harm it would cause is whether or not Amazon exists, its a world where the Xth most successful online retailers doesn't exist and the overall impact on growth and innovation. How many marginal founders are discouraged? How many marginal investments never happen?

Assuming the downside is that the world is X% poorer or growth is X% slower by overshooting balancing the incentives to take risk and preventing 'unearned' billionaires what is the upside?

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Giving workers a share of stocks and dividends should be standard practice. But I think Matt Pencer miss the point : Bezos could afford to gamble on Amazon because he was not living paycheck to paycheck (and anyway had parents able to invest 300 000 dollars to back him up if needed...). Most of his warehouse workers could simply not afford these investments, even if they were just as bold and intelligent as Bezos is.

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This notion that fortunes gained through hard work or cleverness are somehow more legitimate than fortunes gained through luck strikes me as wrong. It's pretty clear that our intellect and capacity for hard work are themselves largely products of luck. Does this mean we shouldn't be entitled to their full benefits? I think not.

Why not simply recognize luck as just another inalienable aspect of our selves that we have full ownership of? After all, we are all forced to bear the consequences of very bad luck individually - just ask Steve Jobs or Kobe Bryant. Their personal fortunes couldn't save them and no amount of redistribution is going to protect you from the consequences of a currently incurable disease or rapid deceleration. If we have to bear the full burden of so much of our worst luck, it's only fair that we should be entitled to the full benefits of our best luck. Whether someone is very lucky enough to become a multibillionaire by creating a popular new product or by being born into the right family, they should be entitled to their exceptional fortune.

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"I’m still not sure about this line of thought. How is this situation? Do we think Mark Zuckerberg wouldn’t have founded Facebook, or Bill Gates Microsoft, if he could only get $1 billion? Can people really tell the difference between $10 billion and $100 billion? Has Jeff Bezos even spent $10 billion?"

I used to argue this point the way you are now, and I no longer agree with it. The counterfactual is not a world where we have complete control and can look at Jeff Bezos and magically reduce his wealth in hindsight, perfectly determine the correct level of wealth at various stages, etc. Functionally, we have to use legal mechanisms, laws, and generally applicable processes in doing this. Unintended consequences is a huge problem here, especially because the political pressure to make this happen is coming from the same sector that wants to implement real Socialism - they could potentially win in direction and in magnitude and not just direction, and then you and I both agree that we're losing something of real value.

One of the things that made Amazon so successful was that Jeff refused to pay dividends on profit and continually reinvested into the company. This was a very poor business decision for a lot of people (there's even an episode of Futurama that makes fun of this plan, referring to Amazon as a risky investment), but it was the real key to his long term success. Tell me what point in that process we should suddenly start taking away his "excess" wealth? The value of Amazon stock was going up pretty quickly, but Jeff himself and the other investors were making very little from it. This ties in with the other point about his wealth coming just from Amazon stock. Had he been concerned that hitting a certain wealth level would have gotten the federal government to take a look at his operations and confiscate the "excess" amount, then he really would have been better off sticking with the investment job he had before.

You asked about whether he could sell his stock. This is a complicated question, because you have to find a buyer. If you've followed the Elon Musk/Twitter situation, you can see some of the complications of lining up capital - for $200 billion there's essentially no way a single buyer could even try it. You hinted at a decentralized approach - many small investors. There really isn't a $200 billion pool of money waiting around for purchasing stocks like this. Unless the stock was significantly cheaper, people would have no reason to invest more money than the otherwise planned to do so in stocks, or to sell off other stocks in order to buy Amazon. If they did, we'd also have $200 billion of other stocks being sold off and all the market problems that would cause! Jeff could probably put up every stock he has for sale (assuming market rate) and may not actually sell it all for years to come. I haven't checked, but I'm sure there's lots of Amazon stock available for sale right now, yet it's not all being purchased at one time.

Jeff is stuck with Amazon stock as his wealth, for many years to come. He may not mind that, but he doesn't have a choice. Similarly, Mark Zuckerberg is stuck with Meta stock, and I'm sure he would prefer to have that money somewhere else due to how volatile Meta stock is.

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Re #8: Travis Kalanick sold out of his entire 2.8-billion Uber stake without a huge effect on the price. https://www.cnbc.com/2020/02/06/travis-kalanick-left-1point2-billion-on-table-by-dumping-uber.html

He had at that point been kicked out of the CEO position, but Bezos is no longer running Amazon so it's a reasonable comparison.

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Sep 22, 2022·edited Sep 22, 2022

I'm surprised you have such confidence in the estate tax. I've always heard it's a high-distortion low-revenue tax. People figure out ways around it. MR has covered this repeatedly, and usually folks here have more awareness of that:

https://marginalrevolution.com/?s=%22estate+tax%22

Georgist land-value taxes & consumption taxes seem sufficient to deal with idle-rich heirs.

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"(sports are a useful sanity check here; some teams are clearly better than others - but also, two good teams that play each other ten times might get five wins each)"

Wouldn't the correct analogy be which 30 people become one of the starting quarterbacks in the NFL? The answer to that seems to be almost 100% talent/hard work, with talent being the much bigger factor.

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Bezos can't sell all his stock because the "stock price" of Amazon is just a convenient fiction. It's nothing more and nothing less than "the last transaction of Amazon stock was at price X", i.e., how much you'd have to pay for a single share of Amazon right now. Multiplying this by the number of shares always yields an overestimate of how much the company is actually worth. This is easy to visualize with an order book, i.e., a sorted order of potential buyers in descending order of price they're offering.

Now, for stable and boring companies, the order book is pretty flat, as pretty much everyone agrees on how much the company is worth, and in particular, there is more demand for the stock than there are units of stock. The price can still change quite dramatically (for example, shipping companies' profits respond very strongly to economic boom/bust cycles), but everyone's value for the company goes up and down in lockstep. So whatever the current stock price, that's real wealth.

Now, in contrast, consider a less certain business like the latest DeFi startup, AI lab, etc. The price of this is often driven by hype that's not shared broadly by the market. Let's say there's 1000 units of stock, and 5 people clamoring to buy it at $1000, and everyone else is only willing to buy it at $1. There's a very steep drop in the order book. The company isn't worth $1'000'000, but this fact is not immediately exposed to the world if the owner sells less than 5 shares. The owner has quite a lot of wealth on paper (and will even have to pay taxes on the inflated value!), but he's not holding much real wealth.

You see this pattern in silicon valley over and over. A company is valued extremely highly based on "potential" and "growth", even as it runs at a loss for years on end. Investors have strong incentives to keep the price propped up as long as possible, as they might be able to cash out before it all implodes. For startups not yet on the stock market, you'll often hear news of them "raising a series C round at a $1B valuation", which doesn't have to mean anything more than some sucker was willing to pay $1M for .1% of the company.

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Sep 22, 2022·edited Sep 22, 2022

Re: #2, "This isn't a moral problem" / wealth redistribution

--

The root of every problem is a moral problem. Should we redistribute 5% of billionaire wealth only to the typically, socially responsible? The West has transitioned from having approximately the same values that become increasingly bent, twisted in their application and finally tossed to recognizing any two people with similar opinions as being a minority that should be protected.

--

"The Founders [of the U.S.A.] wished to achieve a national majority concerning the fundamental rights and then prevent that majority from using its power to overturn those fundamental rights. In twentieth-century social science, however, the common good disappears and along with it the negative view of minorities. The very idea of majority—now understood to be selfish interest—is done away with in order to protect the minorities.

This breaks the delicate balance between majority and minority in Constitutional thought."

--Allan Bloom, Closing of the American Mind, 1987

[edit/add]-------

"Incentives are the most powerful force in the world and can get people to justify or defend almost anything. When you understand how powerful incentives can be, you stop being surprised when the world lurches from one absurdity to the next."

--Morgan Housel, Incentives: The Most Powerful Force In The World, Sep 20, 2022

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I had been convinced that the power of money in politics is vastly overstated, but Bloomberg actually made me update to think it is *more* significant than I had realized. He had no natural ideological base in the party, hadn’t been running all year the way everyone else had, and the field was already saturated, and armed with nothing but money, he *still* managed to get nearly 20% of the vote on Super Tuesday! He didn’t do as well as Sanders or Biden, but he beat everyone else (though it’s a bit hard to judge because many of them dropped out a few days earlier and many Warren supporters voted strategically for Sanders).

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founding
Sep 22, 2022·edited Sep 22, 2022

It's strange to me that in your response to Metaphysiocrat you didn't address the other half of his point. If you don't believe that power inequality is problematic for billionaires, then why do you believe their wealth is problematic at all? As he says, raising the poverty floor is a far more important goal, unless you believe that extreme wealth leads to problematic extreme power.

Combining this with John Schilling's excellent answer, I think the type of power created by extreme wealth is actually mostly a good thing. Elon being a prime example, but there are many throughout history. If extreme wealth, as you say, does not confer extreme political power, then the primary channel through which it can be expressed is extreme consumption, or extreme innovation. Since consumption is at least somewhat self-limiting (and to the extent that it isn't, it makes the wealth disappear anyway!), it's not clear to me exactly what the problem you're attempting to solve here is.

This is the abstraction of the point raised by Schilling that you excerpted: Yes extreme wealth creates extreme power inequality...and that's a good thing. We need people with the power to act autonomously in the world in order to make progress. Is our selection process for that power perfectly fair? No. But it's pretty good. Elon2 might be 99.9% as good as Elon1, or maybe Elon2 is even 101% as good, but Elon1 got a little luckier. However, it's clear that they're both very good allocators of capital, and if we're just flipping a coin between them, we probably won't go too far astray. It's hard to imagine a better system in expectation. Keeping in mind that the purpose of an economy is not primarily moral justice, but a better functioning world for all.

Considering the counterfactual world where we were to take, say, the top 100 Elon's and allocate capital to them in perfect accordance with their quality as businessmen/innovators, how many SpaceX's would we get? I think Schilling's answer is that rather than getting 100 SpaceX's we would get 0. This seems to me to be the "hard problem of the anti-billionaire argument". In the absence of extreme pools of private capital, where do we source the extreme innovations from? Sovereign wealth funds like Norway's aren't going to do it, and even VC isn't risk hungry enough for a rocket startup.

As an aside: for the issue of billionaire's selling their stock and depressing the price, this is definitely a real thing, but it is mostly beside the point. It's true that if Bezos liquidated Amazon stock tomorrow, he would get far less than current_share_price * bezos_share_count. This is a simple function of how liquidity works in markets and is true of any very large buy or sell, not just that by an owner of the company (although owner selling may carry extra information and have even greater impact, if its known). Market makers respond to the buy/sell imbalance by shifting the midprice around which they provide liquidity. This is how the market adapts to shifts in demand. Bezos liquidating his entire portfolio would obviously be a dramatic shift in that imbalance. However, the reason this issue is mostly beside the point is that, while he wouldn't get say, $200B, he would still likely get at least $100-150B or something in that range, and the difference there is probably mostly immaterial to the substance of the issues under discussion.

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One thing billionaire CEOs can do besides selling shares is borrow from the company. No capital gains tax. I believe Levine covered how this works before, unless I'm thinking of someone else.

On influence - I'm glad to see truism challenged but this understates the power of media, which shifts salience any direction billionaires want. That won't allow them to elect anyone they'd care to, but powerful distraction tactics at least.

One other reason that there isn't much money in politics is that politicians are cheap. So many of them become lackeys for anywhere between 100-300k. Why spend more when you don't have to?

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I would be curious to see how Scott's intuitions would change were he to spend a little time working in business.

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An economically rational entrepreneur isn't incentivized by becoming the next Amazon. If you look at the distribution of possible gains from starting a company, Amazon is a long tail gain (low probability of large return). The rational entrepreneur should be motivated by the the mean gain from starting a company. If we lop off the long tail with taxation or public policy, the probability weighted gain(expected return) hardly moves at all.

Now you might reply that the entrepreneur is motivated by that long tail even though it not entirely rational. And you might be right. But once you admit the entrepreneur is not rational, the foundation of the neoliberal incentives argument falls apart. (For example with irrational entrepreneurs the best public policy might just be to use advertising to deceive the entrepreneur about the size of the long tail; encouraging a lot of investment at very low cost)

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Facebook in a millenium?

My bet is Fb in 10 years a shadow of its former self. It's already peaked. Generational turnover and surprising devopments will change its place.

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What seems to be missing here is a discussion of investor behaviour. Yes, Bezos in the early 2000s is motivated by a desire to 100x the Amazon share price for his personal gain. But in order to do this, he needs money to invest in increased capacity, and Amazon is not reliably profitable enough to generate the funds he needs. The old joke that "Amazon is a charity operated by its investors for the benefit of the consumer" points to the fact that for most of Amazon's existence it was dependent on investors to fund its expansion.

If, by some law or regulation, Bezos were prevented from 100x'ing the value of his shares, that might have affected his motivation. But he also has some intrinsic motivation to run the biggest and best possible online store and infrastructure provider in the world, and so he plausibly might have continued even with a much smaller payday on offer. The same is emphatically not true of the investors who bankrolled the operation, who only did so because of the very real prospect of future share price increases.

It is hard for me to imagine a scheme which prevents individual founders from benefitting from massive increases in the value of the firms they found, while continuing to allow investors to benefit from the same. And the systemic effects of reducing returns for investors would seem to be at least as large, if not much more so, than the effects of reducing returns for founders.

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It bothers me that people complain about the resources that billionaires have at their disposal but not about the resources that politicians control, which are greater by orders of magnitude. There are cities and counties, run by small groups of people, with budgets larger than Bezos. The teachers' union in my state (Maryland) can buy way more votes than any rich person.

The concentration of resources and power is greatest in government, and yet people want to take money away from billionaires and give it to. . .government.

If you feel like "This is democracy. It's ok for politicians to have power over resources, because they are accountable to me," well, go ahead and believe that. I need to be convinced. To me, the only case for democracy is that it provides a peaceful means for solving the succession problem.

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Sep 22, 2022·edited Sep 22, 2022

"And effective altruism tried to use $10 million of Sam Bankman-Fried’s money to get a biosecurity expert elected to Congress in Oregon. They were pretty smart about it: chose a district with no incumbent, found a really amazing candidate with an incredible personal backstory, pulled out all the stops. They spent the third most of any race in the country - about as much as it was possible to spend, I don’t know what else you could even spend the money on - and they lost by a landslide in the primary."

No, they *weren't* smart about it, and here's why I think that. When I read about this, I did a little digging because, to me, it didn't seem to fit with my mental image of Oregon. Here are the results of my rigorous research (and if they want to throw good money after bad and send a few of Bankman-Fried's bucks my way for the sake of after-the-race analysis, I won't say no).

(1) The 6th district is new, being carved out of existing Districts 1, 3 and 5. These are all reliably blue, having returned Democrats in the last election, So it's not unreasonable to think they'll return a Democrat this time round, too.

(2) But is it reasonable to think they'll select Carrick Flynn instead of one of his rivals?

(3) So who are the likely voters, and what are their likely interests, and who are the rivals? When I saw one of them was well tied-in with the union, I said to myself "Yep, that's the one".

(4) Okay, what is the economy of the district (and it's nearly always the economy, stupid) so as to see the interests of the voters (not the EA people who think biosecurity is aces and everyone should think it is aces, too) and what they are likely to be concerned about and how they'll vote.

https://oregoncapitalchronicle.com/2021/12/21/oregons-new-congressional-district-has-a-diversity-that-likely-limits-a-lean-too-far-one-direction/

"The new 6th Congressional District will run from southwest Portland with a slice of Washington County, south through Yamhill, and include the Salem area. The new 6th, then (somewhat like the 5th), will include three distinct pieces: The Portland metro piece (on the southwest side, including Tigard, Tualatin and Sherwood); Yamhill and Polk counties, which include rural areas and small and mid-sized cities, and the Salem area, a mid-sized urban area with an identity distinct from the other two.

Most of the land area will be in Yamhill and Polk counties, but more than two-thirds of the votes will come from urbanized Washington and Marion.

This is a geographically coherent area (Highway 99 runs like a string through the middle of most of it, except Salem) but most people here probably won’t think it fits together.

The northern reach near Portland, where almost half of the people live, think of themselves as Portland metro people and may be a little discomfited jostled in with those non-urbanites. This suburban area touching on southwest Portland, including much of southeastern Washington County, will include more than a third of the district’s voters, but well shy of half, not enough to control election decisions outright. A candidate still would need to pick up additional support in other areas to win.

The cities of Salem and Keizer together have about 218,000 people, just under a third of the new congressional district, which is less than the Portland metro section but enough to provide an essential difference in the vote totals.

And the Yamhill County and most of Polk County see themselves as separate from either Portland or Salem. Yamhill and Polk together have almost 200,000 people, but about 25,000 of those Polk people are in West Salem. Small town Polk and Yamhill make up about a quarter of the new district.

These are three distinct constituencies, and all have enough people that a candidate will ignore any of them at their peril."

So there's a mix of college towns/urban sophisticates (ahem) and rural/small towns out in the boonies. Assuming the college towns will vote for Flynn (because he's been off to college and the Big City too, and the issues he is pushing are more likely to match with what they are interested in), will that be enough?

No. He has to appeal to the people of the "hills and hollows", and although he comes from that background, he's long enough gone for it not to count. Even if people are sympathetic or like him, he's not really a native anymore, while his rivals have stayed behind, lived there, and established track records in politics there.

So the EA campaign was dumb because:

(1) too much "Portland metro" mindset. They assumed that because Flynn was running on an issue that they think is Big Important, the voters will also think it is Big Important. Bad assumption.

(2) they should have, but plainly did not, anticipate the fuel for attack ads that the outside investment would provide. Flynn's party rivals jumped *hard* on "why are these outsiders interfering in Oregon local politics?" and this permitted them to portray him as the tool for people who had no ties to the area to use him and it for their own interests:

https://www.wweek.com/news/2022/05/04/the-6th-district-food-chain-how-crypto-swallowed-the-race-for-a-new-congressional-seat/

"Jon Isaacs, who was Sen. Jeff Merkley’s campaign manager on his first run for the Senate and is currently organizing an independent expenditure for Portland City Council races, says there’s “no comparison” between the campaigns he ran and the one he sees for Flynn. (Isaacs has given to Salinas.)

“Carrick Flynn could be anyone,” Isaacs says. “He has no campaign of his own. He has no record of community involvement. There is one person who appears to have little to no interest in Oregon, and he’s picked [Flynn] and he’s going to spend what it takes to get this person elected.”

(3) this was symptomatic of their misunderstanding of how politics works - the eventual winner who beat Flynn, Andrea Salinas, was involved in the creation of the new district. "Mr. Smith Goes To Washington" is a great movie, but it's a movie, not real life.

"State Rep. Andrea Salinas (D-Lake Oswego), who had served in the state Capitol for six years after first working as a lobbyist, led the effort to draw the new maps for Oregon’s six congressional districts. (She chaired the special committee in the Oregon House.) By Oct. 5, eight days after the Legislature approved those boundaries, Salinas was seeking the seat for the 6th District—some of which overlaps her legislative district. Her own home was not inside the new district’s borders.

...Salinas won the endorsements of key Democratic interest groups (the Oregon League of Conservation Voters, Planned Parenthood, Service Employees International Union) and has raised $520,000."

(4) this was also symptomatic of their misunderstanding of how campaigns work (and a lot of this is on Flynn himself, since he was the one running for office, after all) - local issues, local issues, local issues. What do the loggers, forestry workers, viticulture workers, the people in the rural and small town areas *want*? Flynn versus Salinas was "Vote for me and I'll head off to Congress to work on some airy-fairy project none of you have ever heard of" versus "Vote for me and I'll work for more money in your pay packet (and also your union is backing me)". Gosh, I wonder who the guy who works in the local feed store is going to vote for?

I'm a representative of the typical idiot in the street, and I'm here to say that to win elections, you have to bring issues down to the level of the idiot in the street. "How does this affect me? How does it harm/benefit me?"

Flynn may have had a point about biosecurity, but he didn't bring it down to the level of "how does this affect me?" He should have run on "Remember the Covid restrictions, when you couldn't hold your wedding or go visit your dying grandma in the hospital? I'm going to work so this doesn't happen again, and here's how".

The mistakes EA made were thinking the issues they are concerned with are issues ordinary people are concerned with, that throwing huge amounts of money at it will win the campaign, and that their candidate would appeal to the normies because, uh, he comes from a normie background himself even if he did pull himself up by his bootstraps. It's the same mistakes as Hillary Clinton's Big Data driven campaign made. It wasn't smart, it was dumb.

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Sep 22, 2022·edited Sep 22, 2022

I’m interested in that argument about the John Stewarts of the world being more politically powerful than the billionaires.

It makes some sense. If a class of people were truly politically powerful, wouldn’t that manifest in part as the ability to divert people’s critical energy elsewhere? That is one of the key skills of a good politician.

Hence the partisan rancor over “the Hollywood elite” vs “the 1%.”

A useful heuristic might be “if they’re accusing some other group of being too politically powerful, they are probably about equally powerful.”

Groups that are truly disempowered seem to go into survival mode, trying to figure out how to get by and accept or join the powers that be.

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Scott I think the issue here is that the EA attempt to get a Congressman was actually a shit job. They did terrible. I would go so far as to say that they did a Bernie 2020 presidential campaign level terrible job. And that is a pretty damning comparison because, and I say this as a dedicated Bernie 2016 supporter who even went to Iowa in 2020 for him, that campaign was horrifically bad.

The EA guys had no idea what they were doing. Firstly the race didn't have an incumbent but it did have a much more "in line with the constituents" existing candidate. Secondly when you want to create attention for a specific issue you do very different things than what you'd do to actually win.

The EA candidate was viscerally offputting and so was the campaign strategy.

What you'd want to do if you were serious about winning an election is to keep your pet issue as a moderate part of a campaign based on 9-14 other popular issues.

This is why people like Thiel pick a candidate who is on track with the other major issues in the Republican party but who has agreed to follow their direction on the pet issue that most voters aren't even thinking about.

Also a large part of the power than leftists believe wealthy capitalists wield is not about acute instant spending to achieve a goal but long term spending and media manipulation and lobbying existing congresspeople and slowly insinuating themselves into the political eco system.

Like Donald Trump. Trump donated heavily to both sides including famously the Clintons. He was in the social circles of NY and federal politicians. He was all over the media.

In fact when Sanders taught at Harvard as a guest lecturuer in the 80s he gave a famous lecture about the wealthy.

"The national and NYC media spent more time on _____ than on 3 billion people living in poverty. And that was before the divorce!"

Blank is obviously Trump if it wasn't obvious in context and based on the divorce part.

Also typically you would run more than 1 candidate. Run 10 candidates in primaries and hopefully one gets in. And if you end up with extras who get in, that is a win/win. Look at the strategy that the AOC associated movement uses. They ran lots of people besides her.

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> How much actual spending power does Jeff Bezos have access to?

Tens of billions of dollars. (Citation below).

> Some people say that if he sold all his stock at once, it would go down a lot. But why?

It would, but I think this is a red herring. Bezos would not do that; he would just sell "small" chunks for a few $B at a time.

https://markets.businessinsider.com/news/stocks/elon-musk-jeff-bezos-tesla-amazon-stock-sales-insider-ceos-record-2021-12

It's widely reported when Bezos sells a chunk of stock. For example he sold ~$10B in 2020 (I think in 3 or so tranches), a year when the stock price appreciated by something like 76%. Sure, that put some downward pressure on the stock price, but so what? It still went up by 76% YoY. As others have noted, if he tried to liquidate his entire position, this would probably tank the price. But that action would be insane and no "paper billionaire" would do that (absent some urgent need for huge amounts of cash), so we don't need to model it. What actually happens is that they sell a "small" chunk at a time, which allows them to cash out without moving the price too much.

Another dynamic that is a bit obscure is that if you are Musk, you can take out a bank loan, collateralized by your TSLA stock. In 2019 he had something like $0.5B of such loans (https://financialpost.com/personal-finance/high-net-worth/elon-musk-short-on-cash-keeps-borrowing-more-and-more-money-even-as-tesla-stock-surges). Sure, you pay interest, but 1) your stock is going up faster than the interest accrues, and 2) you'd probably prefer to pay 6% interest on a loan even if your stock only appreciates at 6%, because then you still control the voting rights associated with the stock. But 2) is extremely theoretical; if you are a paper billionaire, then almost by definition you hold lots of stock in a hyper-growth company - remember that these companies are growing at 20-30% YoY or higher, sustained for a decade or more. (https://www.macrotrends.net/stocks/charts/TSLA/tesla/stock-price-history). Normal intuitions about the rate of growth of wealth do not apply here.

If you want to take a look at the mechanics of what happens when a multi-billionaire needs, say $44B to buy something, you can look at Musk's acquisition of Twitter. That was some syndicated debt (persuading bankers to invest), some cash from Musk's account, and some bank loans to Musk backed by TSLA shares. E.g. see https://www.theverge.com/2022/4/22/23036479/elon-musk-twitter-bid-private-equity.

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> 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.

I think this puts too much certainty on what founders have "worked out" when they start a company. And it misses a point about the long-tail of the distribution of outcomes.

As a founder you're doing some calculation of EV on your shares. But it's a really hard calculation to do; is my chance of becoming a unicorn 0.1%? Or 0.01%? Hard to model, and makes a huge difference in the EV.

Most of your EV is in the "we sell the company for $10M-$1B" range. While it's possible you'll found an AMZN and get a $1T company, I don't think any founder is putting much weight on that outcome when they start the company and commit to the hard work.

Frankly, these days if you're concerned about EV you go to FAANG, because the EV is way higher there (and with immediate liquidity and much lower variance, too). This might make us worried about reducing the EV of founding a company by taxing multi-billionaires. But since almost all of the EV is in the "I get < $100m" range, I'm not convinced that taxing billionaires actually affects founder motivation much.

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"Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium, will people still say 'Yes, but once in elden days upon Earth-That-Was there was a site called MySpace which was on top for about two years and then Facebook beat it, so it’s not a natural monopoly! We could still get a replacement at any time!'”

I think we'd still have people saying Facebook could be replaced, but they'd stop mentioning Friendster and MySpace at all. Instead by then Facebook-3022 would be so deeply embedded in our infrastructure and society that imagining its fall would be more like the end of a great empire or religion. The comparisons might be the fall of Rome, or the rise of Christianity, things that happened despite seeming so unlikely beforehand. Or the end of the greatest Chinese dynasties, which even at their height knew they weren't eternal ("The empire divided, longs to unite, united, longs to divide.").

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Nobody else came up with the controversial (made fun of by the media at the time) idea of an internet bookstore. Nobody else figured out that if they could build the software, systems and logistical stack to handle 5M ISBNs that they could handle a 100M SKUs. Nobody else figured out that bad news about an internet bookstore hurting brick&mortar would be good for business.

Bezos wasn’t replaceable. We’d still be shopping in the 90s.

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> The majority of Bezos's wealth is essentially from gambling on Amazon stock.

I don't think this is the right lens.

You can claim that the counterfactual was for Bezos to sell all his shares and cash out at a "mere" $200m in 1997, and so by keeping the stock he's effectively buying and holding at that price. But in that counterfactual world Bezos isn't CEO in 1998, and therefore (I strongly believe) Amazon isn't a $1T company in 2020.

As a CEO, you simply can't sell all your shares and keep your job; it's your job to be long on the company. Your board would kick you to the curb if you sold most of your shares; the expectation is that you hold those shares to align yourself with the shareholders' incentives, which is maximizing the long-term value of the company (at least, long-term share price is the goal for a growth company; the dynamics are perhaps arguably more short-term for dividend-bearing value companies).

Indeed, Bezos started steadily selling small chunks after the IPO: https://www.forbes.com/sites/rachelsandler/2021/06/24/heres-how-much-money-jeff-bezos-has-reaped-from-selling-amazon-stock/ -- as a simple example if you sell 1% of your holding per year then the total number of shares sold per year decreases, but for Amazon, the price of each year's sale increases.

> In all, Bezos’s Amazon stake has dwindled from 42% in 1997 to 10% after his sales this year

In summary, Bezos's wealth came from signing up for a deal where he was heavily incentivized to maximize the value of the company and therefore his shares, and then he spent most of his professional life dedicated to that mission. You can't separate the founder's dedication to the job from that crazy financial bet on being long their company even after it's worth $1B; it's the same thing, and I believe it's why the best founders are so impactful.

> I think Bezos should be rewarded for being so bold.

One important thing to note is that to the extent you think that Bezos (and his ilk) just gambled and got lucky, you also should not care about taxes disincentivizing founder innovation. I agree Bezos should be rewarded, but I'm more interested in rewarding him for being one of the best CEOs of our generation, and for having the vision to stick to his mission for so long, rather than just for making a bold financial bet. I struggle to see much impact on innovation by heavily taxing someone that wins $10B in a bet.

> If a truck driver with some extra cash had decided to spend it on Amazon shares in 1995, he would be a multi-billionaire now.

Scott, I think you might be off by an order of magnitude here; if there's a 1000x increase in stock price since the IPO, you need to invest $1M to become a billionaire. I think a risk-tolerant truck driver would need 10x the yield to become a billionaire; I think a plausible blue-collar "all in" bet is on the order of $100k, and coming up with $1M seems a stretch. You need to get your hands on Amazon stock before the company is public in order to get these kind of gains as a non-rich person, which in practice means being an early employee.

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"maybe Saudi Arabia would capture the majority of value in the world"

this fundamentally misunderstands the nature of value and the conditions that make it possible for two people to trade.

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#5: Basically the issue with the railways is that they set the shipping rates for everything in the country, unlike now where we have a government-owned highway system and thousands of trucking companies ranging from huge fleets to "guy with a semi." If you were growing wheat in North Dakota, cotton in Alabama, or some other commodity crop destined for a far-away wholesale market, you were stuck paying whatever shipping rate the rail company told you to pay, and they had no incentive not to squeeze you as far as they could as long as you just barely stayed in business. In many cases the railroads owned the mills and the bakeries and the textile mills too, so you were basically growing a crop with nobody else to sell it to and stuck just taking a price. By 1900 or so the farmers were starting to band together into coops so that they could all negotiate together with the rail companies as a unit, but obviously you had to coordinate huge numbers of isolated rural landowners to get a movement like this to work (this is where the Grange came from - once a big political power in the US).

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Sep 22, 2022·edited Sep 22, 2022

Re. this:

<QUOTE>

The strongest force in the universe is leftists’ tendency to spot that some part of business can potentially benefit from something other than pure grit and talent and say “Aha! So all the rightists who say it’s 100% pure merit ability are wrong and therefore it’s 100% pure privilege and luck, zero way ability can ever possibly matter”

But the second strongest force in the universe is rightists’ willingness to spot that some part of business can potentially benefit from something beyond pure random dumb luck and say “Aha! So all the leftists who say it’s 100% luck are wrong and it must be 100% merit!”

Come on! It’s obviously a combination of talent and luck!

</QUOTE remark="why is substack's comment markup still so primitive?">

I've commented on this phenomenon before, but...

Humans don't naturally have the ability to suppose that an effect has more than one cause, or that a statement like "The rich got rich on their own merits" can be anything other than entirely true or entirely false. Many can say "Some X are Y" or "Not all X are Y", but most drop even these non-quantitative "quantifiers" when they combine two claims to make a deduction. "All of the rich got rich partly by luck" + "all wealth gotten by luck is unearned" => "None of the rich earned any of their wealth."

This may be because these are linguistic statements, and language is barely innate, having been only recently tacked onto human thought processes. When it comes to inference made by combining linguistic expressions, only people with mathematical training are even aware of possibilities in-between True and False.

This seems to people with mathematical training to be an outrageous claim. But keep your eye out for people dropping quantifiers, and rounding off "some" to "all", "not all" to "none", "probably" to "P = 1", and "maybe not" to "P=0", and you'll see this is the default human behavior, in reasoning if not in .

Plato and Aristotle excluded all statements that weren't both universally quantified, and either absolutely True or absolutely False, from philosophy, delegating them to the wastebin of "mere opinion". But we don't do this just because of Plato and Aristotle. Most people in most cultures have done this throughout history, and the most-prominent exceptions are ones like Buddhism and post-modernism that just throw up their hands and say that you can't say anything: "it is inept to say is, or is not, or both is and is not, or neither is nor is not".

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As a first few thousand Microsoft guy, options had made me a few million by my mid thirties/ten year point.

Like most people I know I diversified into newer startups, I binged on cars, homes, schools, so a decade later I was wondering how I’d cover college fees.

You have to respect those people who stay loyal to their twenty-something vision. But I treasure the career I have now where all I care about is my 50 -something vision, and don’t care less about whether it nets me a Ferrari.

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> To the extent you're providing better value than all the other competitors who come along over the years, you should reap proportionate rewards.

I think this is an area where first-principles discourse becomes a bit hand-wavy, and you need to actually look at 1) empirical economics theory, 2) antitrust enforcement cases.

For example, FTC vs. Facebook: https://www.ftc.gov/legal-library/browse/cases-proceedings/191-0134-facebook-inc-ftc-v

With the famous quote from Zuck:

> One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”

Followed forty-five minutes later (presumably after his GC called him and reminded him that all these emails would be in court some day):

> I didn’t mean to imply that we’d be buying them to prevent them from competing with us in any way

Facebook is IMO clearly anti-competitive; they deeply understand how network effects function and have bought up competitors with the explicit goal of preventing them from becoming threats.

An interesting question with Facebook is, what if there were no other "social mechanics" and therefore they didn't need to do anti-competitive things like buy potential competitors, and they just acquired the natural monopoly through network effects. Then I think you need to fall back to a classical antitrust analysis to determine if they are mis-using this natural monopoly.

I think in practice, lots of the extremely big companies do have monopoly power in some area (or at least anticompetitive practices), and the big questions are whether monopoly is inherently bad (see Milton Friedman) and whether we should discourage monopolies that benefit consumers (see Ben Thompson on Aggregation Theory).

One of the nice things about focusing the discussion practically on antitrust is that by construction it doesn't affect any but the very largest companies, and indeed keeping markets competitive is good news for future founders (though it does depress the market for acquisitions somewhat by removing e.g. Facebook as a potential buyer of Instagram). Making markets more competitive means it's easier to start something new and grow it. So Zuck might "only" have $1B in the bank if Facebook was prevented from buying up future threats, but that's still a nice reward for adding a bunch of value to peoples' lives. And it means that instead of Zuck going from $1B to $100B, there is room for a bunch of other people to come in and grow their ideas to $1B too. And if Zuck can out-compete everyone in a well-regulated and fully-competitive market, then maybe he did earn that $100B fair and square.

It's a lot harder to become a multi-billionaire if you can't monopolize something; Thiel's "competition is for losers" is worth noting.

> For example, at the limit, if Amazon is strictly 0.001% better than its competitor (eg they’re exactly identical otherwise, but Amazon’s goods each cost one cent less), then it might end up with 100% of the market share... I realize this example is unrealistic but hopefully it shows what I mean by “value added” vs. “value needed to attain/maintain a natural monopoly”.

I think the key thing here is that you can come along later and try to analyze whether Amazon is extracting rent; if it is, they are misusing their monopoly power. If it is not, perhaps they are simply using a natural monopoly to benefit the consumer (economy of scale being passed on as lower prices, say). But it's hard to detect ex ante.

Before proposing something completely novel like a Georgist Idea Value Tax, I'd be interested to consider a deep-dive comparison between the EU and US systems of antitrust, as they have quite different philosophies. How many billionaires get minted in the EU vs. US? How many of those are from arguably-monopolistic companies? Does the EU's strong antitrust regime mostly resolve the problem of anti-competitive rent-seeking that we're hypothesizing here with US companies? Is the "we got here first" rent that Scott originally described _just_ monopoly rent, or is there some other component?

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This is an endlessly fascinating post. E.g., #3 is simultaneously obvious and deep. The idea that anyone could have invested and become fabulously rich is quite compelling. It's not a perfect argument for not regulating billionaires: surely, the warehouse worker with $30K has probably about $0 left for investing, not to mention the know-how, etc. But that seems to be a minor issue.

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Re #7:

Numerical work (that makes intuitive sense) shows that to become enormously wealthy, you need a tremendous amount of luck, and *enough* ability to take advantage of it:

https://arxiv.org/abs/1802.07068v2

How much is enough? Probably not all that much. Is Bezos really one-in-a-million? Probably no more than top 1%. A few people in my college circle were reasonably competent tech people and were in the right place at the right time to be on the ground floor of something that blew up. I know much more talented people that do just fine but didn't hit that jackpot. So, take that for whatever anecdotes are worth.

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I will try not to be too negative, but something about Scott's perspective just rubs me wrong.

I guess I just don’t see the harm in people getting rich by enriching the lives of billions of people. And yes, that is how I view what Bezos and team have done with building the greatest on$line shopping mall in the known history of the universe. This was a huge achievement and I am grateful they did it and wish them well for their much deserved fortune.

Bezos is a billionaire because he entered a structured market competition with some interesting ideas, and he navigated his way from a risky startup to a system that has made a difference in our lives. At each step of the way, on a daily basis, he risked his time, investment, effort and creativity to try to make the world better for us. Good for us, good for him, good for his employees (I know some of these).

We need more Bezos, and I am not concerned about trying to nickel and dime him to discover what the minimum amount would have been to get him to make something just as great. It’s like worrying about giving Einstein too much credit for his theories (sucking up excessive amounts of scarce scientific credit).

The problem with the world isn’t people like Bezos (or Einstein, or even Scott for that matter) getting ahead by improving the world in positive sum, win win terms. The problem is with all the people who are making themselves rich while making the world worse for others (zero summers?)

Thank you Jeff, keep the change.

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Sep 22, 2022·edited Sep 22, 2022

>I’m not claiming I am sure Facebook is a natural monopoly. But surely we should be updating our chance of this a little for each year that goes by without it being replaced.

Facebook *has been' replaced. As far as I can tell, it hasn't been hip or cool for over 5 years now. First came snapchat, then instagram, and now tik tok (yes, I know facebook bought the first two, but there's no reason it had to go that way). There is also twitter. But as far as I can tell, facebook is more or less on the way to being dead.

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> Has any billionaire ever tried something like this, so people could see the results?

Are you *trying* to goad Elon Musk into doing this.

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This all boils down to the unjust power of monopoly in the end. The way to prevent monopolies from devouring all surplus value is (as Georgists say) to tax away the economic rent to which the monopoly owner contributes nothing. Doing so is more straightforward (although still complicated) with natural resources where it is feasible to estimate the value of the economic rent (like land and spectrum), but it quickly gets more challenging when you try to apply it to other categories like online retailers and digital video game distributors.

The solution to this problem of estimating the value of economic rent is, once again, to let the market figure it out for you. This can be accomplished by imposing a Harberger tax, which requires the owner of a monopolized resource to self-assess its value and then pay taxes based on that self-assessed amount. The owner must also sell their monopoly rights to anyone who offers to pay this self-assessed price, which is how they are compelled to make accurate assessments. This system effectively does away with monopolies by transforming ownership into something more like a lease of a public good.

To me, this seems like an elegant solution that cuts right to the heart of the matter while resolving some of the implementation difficulties of other approaches, as well as making the concept of a rent obliteration tax cross-applicable to virtually any type of monopoly.

I'd recommend this paper for further reading on Harberger taxes

https://academic.oup.com/jla/article/9/1/51/3572441.

Rent seeking delenda est.

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John Schilling's comment was excellent, and I think deserves some more attention.

Concentration of wealth in one insightful person certainly does seem to result in far more innovative leaps than when it is done by collections of peoples (i.e. corporations or govt).

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Scott writes:

"Come on! It’s obviously a combination of talent and luck! We can debate the relative proportions of each, but it has to be this"

Fair enough, but... both are your rightful property. I haven't heard anyone seriously debate redistributing talents. Even if we had the technology to do so, I don't think people would agree that it could ever be good to diminish your artistry, for example, in order to give someone else extra artistry. Your talents are uncontroversially considered your rightful property. I'd argue that the same is true of your luck. And it derives from the same intuition that applies to talent - you didn't do anything to 'earn' your talents, and yet they are yours. I argue that if you are considered the rightful owner of your own body, which you didn't do anything to earn, then by extension you are the rightful owner of all your luck, good or bad.

I fail to see any principled way of distinguishing between luck that is your property and luck which is not. There are lots of 'aesthetic' judgements about this, with all sorts of people declaring that so-and-so didn't 'earn' such-and-such therefore their goods are rightfully communal property, but I find all such talk disgusting and gross, to state an aesthetic judgement of my own. I hear such talk exactly as if I were listening to people plan to chop off someone else's leg to eat.

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Scott: you don't come out and say it, but implicit in your critique is the idea that it would be better to change to rules to make it much harder (impossible?) for founders to become multibillionaires, and that doing this won't cost much in dynamism. But of course, almost every other Western country does precisely this. So where are the European Apple, Google, Facebook, Amazon, Tesla?

The US is currently about 50% wealthier than Western Europe in terms of GDP per capita (data source: Our World in Data), and the gap is growing. You might think that becoming more like Western Europe is a Good Thing because it is a kinder gentler society, or because the sight of Bezos billions offends you, or whatever. You might be right. But lets not pretend that the cost in wealth and growth doesn't exist.

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Here's a question on this topic I have yet to have answered--how does the *mere fact that someone has more than X wealth* harm others?

Note I'm *not* talking about how they acquired that wealth. Or even what they do with the wealth. Both of those are separate topics with separate solutions. I'm talking about the mere state of being a billionaire (or whatever). How does that harm anyone?

Meet Bob the friendly dragon. Bob literally lies on a bed of gold...not because he went out and stole it from someone but because his presence magically converts any stone within Y feet into gold over time. What does he do? Well, he mostly sleeps for centuries at a time. When he's awake, he's a great neighbor (suitably shapeshifted into human form). Sure, a bit weird, but who isn't. How does Bob's existence harm anyone?

Or take Andrea the Hermit. She hates people to an extreme degree; she is disgusted by having to deal with people. So she lives in the deep mountains self-sufficiently. One day she comes across an old mine with a pirate's treasure worth 100 billion dollars. Has that find changed anything for anyone? Has the world become worse because wealth inequality is slightly higher?

Why does this matter? If power's the problem...fix the power disparity. And start with government, because it has the most of it (no billionaire can legally send goons into my house with guns to shoot my dog because they think I have some substance they like) and is the most free in using it. If the problem is how they acquired the wealth, *fix that*. As in, the specific steps that are the problem. Etc. Going after people based on wealth status doesn't fix any of that; it's a badly-aimed policy at best. And most of the ways people are suggesting involve *giving more power to an already bad actor with tons more wealth and power than the richest of individuals, one that has done precious little good with it.* Yes, I'm talking about the federal government. Have they done good? Sure. But mostly by avoiding negative actions and at most stopping bad actions by others, not by proactive "using the wealth and power for good" actions.

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(Banned)
Sep 23, 2022·edited Sep 23, 2022

I think it's worth pointing out that around three-quarters of Amazon's profit comes from AWS, not its retail business. This is at least relevant to discussions about its retail business making monopoly profits etc. Amazon would be much less profitable without it, and presumably AMZN would be less valuable accordingly, though probably not proportional to its drop in profitability.

Amazon was making around 100-200 million in profit when it founded AWS, so i assume its not strictly the case that it was able to initially create AWS due to having mountains of cash from its retail business, though I'm not sure to the extent that its continued growth depended on years of funding from elsewhere in the business.

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Related to comment 2: I think we can design a system where company shares "expire" after N years without losing much of the incentive to start new stuff, because the discount rates (cost of capital) we use are so high.

I wrote about this idea a few years ago:

https://www.analogmantra.com/blog/2017-06-18-why-dont-shares-expire/

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Sep 23, 2022·edited Sep 23, 2022

*> Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium [...]*

It's extremely unlikely that Facebook will reign unchallenged for the next two decades, let alone the millennium. A new company may take away Facebook's pole position in social media, or more likely, social media may decline in importance to some other sector that Facebook fails to make an inroad in.

Economic history amply confirms this. Most dominant companies today were not around a century ago. In late 90s/early 2000s Microsoft was supreme in the technology sphere, all other companies cowered before it. While it's still a big player it has lost that dominance long ago. We can see the same thing repeated earlier with IBM. Hence there's no reason to worry that this historical trend will be broken by Facebook.

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> if your startup fails, they lose their investment, you keep your salary, and you probably go and found another startup or get a good management position somewhere else

My anecdote:

I work at a private equity firm, which means we are focused on cash flows, rather than growth that a VC firm might pursue.

One of our stakeholders pushed me to interview an ex-startup founder because he had ‘lots of good ideas’. On his resume he had founded four different start ups, each receiving more funding than the last and each ending in bankruptcy. His last startup was very high profile in the region and managed to lose 100m USD.

After that he worked as a ‘Chief Growth Officer’ at an already existing startup and was fired within nine months.

I interviewed him and felt he was full of bravado, but didn’t have much business sense and wouldn’t fit well with the tight cost controls of a PE firm.

So I objected to his hiring, making the point that he has never made money for any company that he worked for and his primary skill seems to be in raising capital which we were not hiring for.

I was overruled, but we still didn’t hire him because he asked for an outrageous salary.

At the time I thought it was crazy how someone can ‘fail up’ so well, and also that I could probably take some cues for boosting my own career.

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Sep 23, 2022·edited Sep 23, 2022

Your analysis of Amazon's stock value is definitely wrong. Amazon's stock has split four times in history. In June 2022 it was a 20-for-1 split, so that 100$ is actually 2000$. Then there were three in the early days (pre 2000): a 2-1, 3-1, and another 2-1. So that 2000$ is actually 16000$. So that 10c initial stock is now worth 16k, a 160,000x increase.

I don't know much about stocks / finance, I just know about this because I used to work there and knew people who had been around near the initial split.

Another thing I heard is that in the early 2000s, I guess the dot-com crash era, there was a time where the stock was performing really badly and a lot of people folded on their investments. I think something like a buy-back program to keep employees from getting disgruntled and quitting? But people who _didn't_ fold ended up making bank because, as we all know, the company did really well later. I heard about it from someone whose opinion was: "if I hadn't caved I'd be retired by now".

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> They were pretty smart about it: chose a district with no incumbent, found a really amazing candidate with an incredible personal backstory, pulled out all the stops

I think it's a really generous read of the outcome if you think "failing miserably" counts as "being smart about it". I read it as: they _thought_ they were being smart about it, but they were clueless, hence they failed. "Ineffective" altruism would be the word for it.

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Sep 23, 2022·edited Sep 23, 2022

Everyone is arguing about Bezos or Musk or Gates (fair enough, as they were/are in the top spot for "richest in the world"), but what is the economic/ethical argument for their ex-wives MacKenzie Scott or Melinda Gates being billionaires in the Forbes 400?

And what about media billionaires? Tiger Woods is a bit on the border with a net worth of 800 Million to a cool billion. But Oprah has comfortably over 2 billion. We are discussing here the innovative surplus of Amazon or having the capital to build rockets, but what is the argument that playing Golf is worth so much? Or having a talk show? Is having the prime time spot on television also similar to an "oil resource" which should be taxted by a Georgist LVT?

I also looked up the richest film actors and Jerry Seinfeld is a billionaire through his decade old sitcom (but it is the slightly poorer Larry David who still puts out good comedy, while the retired Seinfeld drinks coffee). Also Tyler Perry is listed a billionaire through a string of African-American comedy movies (I am a bit puzzled by Perry, I am not an American and never heard of him).

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Yes, of course Bezos had substantial luck.

But what are the policy consequences of that? Estate taxes are a general way to tax luck.

You are arguing for antitrust. Did he luck into first-mover advantage? It's hard to be sure about Amazon. I'm skeptical about most monopoly claims and all government antitrust actions (give me a single virtuous example!). What happened to the 8000 better managers? How many of them entered the same market later? No, surely none of them even started a business. You could ask Bezos where he was lucky. He says that his biggest luck was raising money right before the dot com crash. I'm skeptical of trying to reduce volatility, but there are lots of things you could do to make it easier to start companies and raise money. In particular, build housing in the Bay Area to drive down the cost of programmers. (Of course Amazon is in Seattle, but the salaries it pays seem to be driven by the national market. Also, build housing in Seattle.)

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founding

It is an unexpected delight to be on the subway and find your comment responded to by Scott Alexander.

To answer some of the objections raised - no it would not totally collapse the price of Amazon if Jeff sold all of his stock, but crucially, some percentage of the value of Amazon represents the premium investors are willing to pay for a company managed and owned by Jeff Bezos. We could calculate the dollar value of Jeff management from a hypothetical price after his liquidation, and I suspect it would be more than one billion dollars! Even if his attention is worth only 1% of Amazon’s value that’s >10bn right there.

But I think there’s a larger point here that wealth in the contemporary sense is control over a network of production or distribution. I was just reading Brett Deveraux’s series on Crusader Kings 3 and was struck by way the game models personal control of the apparatus of government as analogous.

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Sep 24, 2022·edited Sep 24, 2022

> I knew I was missing something when I wrote this post, and I think this is it. This is a good match for the Georgist idea that landlords should keep the portion of their profit that comes from hard work (eg construction, maintenance, attracting customers, etc) but not from land rent.

What in the world? That's not the idea of Georgism, it's the idea of communism. (The "Labor Theory of Value".) [1]

Georgism doesn't care whether you are doing or ever have done any work. It doesn't care whether the work was easy or hard. It cares deeply about whether part of your property was naturally occurring (usually defined inconsistently) and about the fine details of ownership structure (more concentrated is better).

[1] Well, in one direction. According to the labor theory of value, you should be paid if you do some work, regardless of whether anyone wanted the work done.

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I think you are misunderstanding what people mean by the power of "money in politics" (at least you are misunderstanding what I mean by the concept). You are only looking at the surface flow of money but not at the political character of capital itself. The power of billionaires/business leaders/capitalists does not stem from the amount of money they pour into political campaigns. In fact, they don't have to pour any amount of money into political initiatives and still wield enormous political power. Here is what I mean:

Capitalism describes a specific relation between capital and labor. The vast majority of people have to sell their labor, i.e. find employment, in order to stay alive, or at least to manage their livelihoods. So becoming and staying employed is the most fundamental material interest of individuals, thus on aggregate, employment is pretty much the most fundamental political interest within capitalism. This sounds very vague but it's straightforward if one looks at the implications at the most basic local level of politics:

Most local political districts have a handful of outsized employers. The business decisions of even a single of these employers can have significant effects on employment in the district. Usually the main economic interests of those employers are mostly aligned and at some level they are loosely organized within some political employers association. If they coordinate their business decisions, they can easily manipulate the district's employment rate by two-digit figures, thus lifting up or sinking down the economic fortune of the entire district.

Thus it is first law of local politics never to piss of the district's major employers. Small shifts in capital allocation can have enormous effects on employment on a local level and can therefore bury any local politician. This is so obvious to any local politician that the omnipresent threat of "relocating operations elsewhere" does not even have to be voiced openly by the big employers. In capitalism, this Sword of Damocles, of induced unemployment as retaliation by large business interests, hangs over the head of local politicians everywhere and affects each and every local economic policy. The long-term success of any local politician thus depends on their ability to please local employers and positively affect their capital allocation (to the detriment of other, less-forthcoming districts...).

Needless to say, this dynamic does not stop at the local level - the local level is merely the level at which these dynamics are most clearly visible. At higher levels the "employment power" of single employers decreases, but this is easily compensated by higher-level coordination, political association and natural class interest. Even at the national level, the global capital allocation of corporations and industries has an enormous impact on the quality and quantity of employment. Therefore, organized capital interests naturally wield enormous political power, simply by determining the allocation of capital and employment. So via employment alone, capital/business/billionaires/the rich (whatever you want to call it) reward and punish economic policies all the way from the local to the global level.

The "money in politics" is not (only) the >money< business >spends< on political campaigns, but rather the >capital< business >allocates< to incentivise policies. Therefore, capital itself is always "political money", because its allocation always has significant political effects. So the reason you see so little "money in politics" is because you are looking at the political effects of >money changing hands<, rather than at the political effects of >capital changing places<.

Maybe a perfect illustration of this is, once again, Amazon. A couple of years ago Amazon announced it would set up a new headquarter somewhere in the US. I don't think the announcement and accompanying media campaign cost a lot of money, nor did Amazon have to spend a single cent on political campaigns (afaik). Yet, local politicians all over the country jumped up, willing to sell their souls and to throw any imaginable local regulation over board, simply to attract a tiny fraction of Amazon's vast capital. On paper, Amazon had to spend zero >money on politics<, but in effect, Amazon dictated (local) politics pretty much for free - i.e. paying via capital allocation, rather than via money transfers.

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I want to dispute that Amazon is a "natural monopoly". I assume the claim meant the online retail, because it is obviously false for streaming and cloud computing.

Per [0], Amazon has about 38% market share in the US online retail market, the next biggest player is Walmart at 6%. While it is certainly hard to compete with amazon head on in their core market (e.g. consumer products, books, computer peripherals), a lot of much smaller retailers can stay in the online market by filling a variety of niches.

While you might be able to order an arduino or raspi from amazon, chances are you would be overpaying and that they the sensors you want are not available, so you are better off ordering from a specialized hobbyist electronics online shop. The same is true for model airplanes, diving masks (because Amazon will obviously not let you enter the desired refractivity per eye), any car components more exotic than motor oil and so on.

If you know what model of something you want, it is expensive and comes in a single box without tons of options (like a power drill or a mobile phone), amazon is an option.

From the perspective of the customer, I do not see any vendor lock-in like Microsoft Windows or Office had back in the day. A customer computer literate enough to create an Amazon account is also able to create an account at basically any other online retailer within minutes.

[0] https://www.statista.com/statistics/274255/market-share-of-the-leading-retailers-in-us-e-commerce/

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On (8) the answer is the Bezos has access to a significant portion of his wealth without selling any stock; in fact there is a whole sub-industry within investment banking which caters to rich founders of listed companies. Bezos (or equivalent) pledges stock as collateral and then borrows to fund his or her lifestyle. The interest on the debt is covered either by salary or dividends, which is seen as low risk by the lender since the founder typically controls the company and hence has significant ability to influence pay/ dividend payout. In addition to avoiding the potential inadvertent signaling effects of selling shares, it is also very tax effective as no capital gain is realized. I guess (based on my job, where I have been involved in assessing these structures) that more than 80% of listed company founders have something like this in place.

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Even if you assume Bezos could liquidate his stock without losing much value beyond CGT (I strongly disagree), its almost certainly the case that if the government attempted to confiscate Bezos wealth through some sort of wealth tax, then this would cease to be the case. If they straight up confiscated (large amounts of) Bezos' and other billionaries stock holdings, then obviously the share market would crash.

But even if they forced Bezos et al to liquidate their holdings to pay a wealth tax bill, I think something similar would happen, and there would be a sell off in companies that have large individual shareholders in anticipation of large sales, and no other rich individuals would scoop up a bunch of "cheap" shares because they would be worried about being made to sell them themselves.

Amazon does not have a value of $1.2 trillion because they own a big pile of resources objectively worth $1.2 trillion. They're worth that much becuase that's what people are willing to pay for the company. If the government taxes this value, they're taking value away from shareholders. They're gaining control of some objective economic resources of Amazon. Which is fine, but you have to understand that a wealth tax is a tax on shareholders, and the more value the government attempts to extract from them, the less they're going to be interested in being shareholders and the less valuable the company is going to be. It has to be this way. Taken to its extreme, this would mean the government takes control of Amazon and would not be able to get any value from trying to sell it - it would have to try and extract value from Amazon's actual assets (minus the humancapital that would almost certainly leave the company). Not that I expect the government to try and do this, the point is the principle it highlights and why wealth taxes aren't going to be able to generate nearly as much as many of their proponents have convinced themselves.

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The fact that there (supposedly) may be entrepreneurs who do it for the love of it rather than the incentive of becoming very wealthy seems completely irrelevant. We make one policy for *everyone*, and the aggregate effect of that one policy is all that matters. If a strong wealth tax leads to less entrepreneurship overall, the fact that some entrepreneurs may continue on working doesn't matter.

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Matt Pencer points in the right direction, but despite recognizing this at the surface level, Scott completely misses the implication. It is a cute observation that ‘a truck driver with some extra cash’ *could* have invested in Amazon much the same as Bezos, but it dodges the point entirely to say “for Bezos to profit off Amazon is fairer”.

The whole point of Bezos being wealthier for investing well is that Capital Allocation Is An Important Job, and you want to give that job to people who are demonstrably more efficient at it. That's it, that's the whole argument.

Capital allocation, or, more explicitly, the decisions an economy makes on what products, services, and structure to prioritize, given the limited resources available to distribute to them, is critical infrastructure on which literally everything else rests. If a truck driver noticed Amazon was the best investment they could make far before anybody else realized that, and invested therein, they wouldn't be rich because ‘noticing Amazon would make a lot of money is the most outstanding act of moral strength and human integrity, for which the economy must shower you with as much wealth as it can muster’. It's because making good decisions tends to be predictive of making other good decisions, so probably this person should be in charge of more capital allocation.

Equally, the problem with taking money from Bezos, on the understanding that Amazon's market position is in large part because of its status as a natural monopoly, such that Bezos keeps his 0.001% share of his value add, and the rest is distributed to the hypothetical runners-up, is not that it's ‘less fair’ or somesuch, it's that now your capital allocation is being handled by people less competent and decisive than Bezos, who will make worse decision than Bezos, and in the process will burn prospective value. Even if you can share this capital allocation 50-50 between Bezos and a runner up whose decisions are only 2% worse, you've still burnt 1% of your capital for no good reason.

‘But!’ I hear the crowds scream, ‘you pretend not to hear the concern! Being rich actually does correlate with having more money to spend!’—and it's true: debate to whatever degree if their wealth is paper wealth, but Bezos and Musk and Gates are all still very, very rich!

But!, I rebound in turn, there is a very good mechanism for dealing with this problem exactly in proportion to the degree with which it is a problem, and it is called Consumption Spending Tends Not To Be Very Profitable. If Bezos spends X% of his wealth on private luxury goods, well, would you look at that, his returns are now X% worse, and all of a sudden (exponential functions being what they are) is no longer responsible for nearly as much capital as before! If someone was X/2% less efficient than Bezos at capital allocation, but had no such wasteful personal spending, now they are better to be in charge, and that's what happens. If someone was 2X% less efficient, well maybe Bezos' personal spending shouldn't be that big a deal-breaker.

It is of course still reasonable to be concerned about the degree of disproportionality in consumption spending possible here, and maybe you want to tax this difference down even at the cost of some less-effective but better-distributed capital allocation, but the solution here is not to mess with allocation of production! Just tax luxury goods! That's it! This directly allows governments to shape expressed consumer demand without fucking with the mechanisms to correctly allocate resources towards satisfying that demand.

(Side note: I'm surprised this wasn't all already said, given at least some of y'all must read Yudkowsky, and he makes it pretty clear how to reason about allocation from mechanistic principles.)

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I don't get this luck VS talent dichotomy at all. What is talent, if not luck?

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Several of the comments focus on the unique capacities of a billionaire. True, but can we define that?

All of us engage in exchanges of value every day. You can easily argue that a billionaire like Bezos created far more value than others. But his wealth is far more a function of his ability to take more from his exchanges than it was about the value he created. Most of us don't want to spend our lives relentlessly trying to take more than we put in. Only certain circles even tolerate this. Most of us don't want to swim in those waters

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Has Facebook been replaced? It seems that the fashion today is to say that nobody uses Facebook any more and Meta is dying and it's all about Tiktok or something now.

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I'll grant viable (sorry STS) re-use of launch vehicles as a hurdle that only a singularly-focused company with a vast amount of capital can cross but how different would a world without (or with a much smaller) Tesla be? Legacy automotive manufacturers are quickly catching up on the electric sports/luxury car market and while they were spurred into action to compete against ol' Musky, I can't see that pushing them to innovate more than a few years faster than the alternative. "What if we made an electric car but for cool people?" is not the kind of thought that only a visionary can have.

My Muskless AltHist would probably look like Daimler AG taking their electric car knowhow from Smart and putting it inside a Mercedes, with other luxury brands followng closely behind.

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An interesting topic to opine upon would be which billionaires are most and least replaceable.

For example, I'm personally highly impressed with Jeff Bezos, not because his original idea was so genius, but because he's stayed focused on executing his master plan for about 30 years now, making a lot of good decisions along the way. And he made a second fortune in the interim off of The Cloud, which he used to finance his original idea. So I'd put Bezos on the Less Replaceable end.

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This debate sort of assumes that we can tweak the amount billionaires keep as a free parameter to see what happens, essentially assuming a world where property rights mean something very different. I view this as essentially theft, so I'm uninterested in policy debates that assume we're willing to do this at large scale.

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Bill Gates's big break came when IBM chose DOS as its PC operating system and then let him own the rights, thinking the real profit would be in hardware. If Gates had not been the beneficiary of this, some other OS owner would have been and the end result would have been the same, just with a different monopolist. The monopoly was created by IBM's misreading the trends and, in a sense, it landed in Gates's lap.

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"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?"

The BBC series Connections w/ James Burke made a pretty compelling argument in 1978 that all progress was less 'great man changes everything in otherwise impossible ways' and more 'accumulation of possibility over time' - e.g. When the conditions are right an idea will emerge regardless of if Inventor X or Y was alive to do it.

https://en.wikipedia.org/wiki/Connections_(British_documentary)

I think most of the arguments about billionaires here is about their ability to pull the ropes sideways to accelerate something when otherwise the current state of the world and the political and economic and social systems within it would delay the idea... if you had a Gates or a Bezos or a Muck with equivalent to modern day power arguing with the Church that the universe was no centered around the Earth (as opposed to poor Galileo) would the idea and the related impacts have propagated faster or slower?

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Something I forgot on this was Elon's argument on taxing/appropriating his wealth. He said all his money is tied up in productive investment and he spends little on consumption, bringing up the comparison of East and West Germany where the west was 5x richer than the east

He used the phrase "capital allocation", with the claim being that people who successfully accumulate capital are fairly de facto the most effective in productively allocating it. If the government taxes capital accumulation heavily not only does it raise the question of incentives and capital flight but of whether the government will apply those resources at a relative loss

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