"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.
They didn't have billionaires in the 18th century but our first president was among the wealthiest people in the country when he was elected, as well (though his wealth was tied up in real estate and he was habitually cash-poor).
He was a billionaire, maybe, assuming he's not lying about that (HA!), but that's not what got him elected. What got him elected was star power mixed with an unbelievable ability to read the room. There are a hell of a lot more billionaires than there are Trumps - maybe Oprah could do the same? I can't think of anyone else.
But T didn't become that by being a billionaire, he became that by being.... T. You could maybe say that being billionaire *is* part of T's identity, that he could never have developed his... Interesting personality without being a billionaire, but then there are countless other parts, from writing amazing twitter dunks to coming up with inventive playground insults for his successor.
Regardless, I think the whole form of this argument is wrong. You have just 1 (very dramatic, and very true) example of an element belonging to set X and satisfies predicate Y, and you conclude that the typical element of X satisfies Y? I'm sure you can find plenty of humble beginnings in power holders in any age (even after filtering propaganda). Do poor farmers or rank-and-file soldiers hold a lot of power because $RANDOM_DICTATOR was once one of them?
For what it's worth, I think Scott is wrong. He laser-focused on the literal definition of doing politics (donating to campaigns and running for positions) and missed more interesting things. In democracy, Power is distributed, this is usually a compliment by democracy fans, but it's also a source of vulnerabilities. There is plenty of outlets to power that you can influence at every level : you can host a really cool party or "charity event" where plenty of senators attend and have a very friendly and totally-not-suggestive talk with them, you can mention to your friend in the defense industry that $MIDDLE_EAST_POLITY could benefit from some good old democracy, who then mentions it to his friend of friend of friend in a relevant committee somewhere. You can hire talking heads with impressive credentials to talk about your ideas, and no matter how dumb they are there will always be a $19TH_CENTURY_PHILOSOPHER or some other Smart^Tm guy who advocated for something vaguely resembling it. Money buys beauty and young age, Money buys good-looking women (and men) to constantly pose around you, rubbing some of their sex-derived status on you (and taking some of your wealth-derived status, but you have plenty of this). Autocracy doesn't get a free pass either (and they impact democracy btw : Money makes you friends with $US_SUPPORTED_DICTATOR, who in turn can affect your democratic country and the rest of the world), but it's already fashionable to point out all the ways that is so, less fashionable is how democracies' distribution of power doesn't actually make them more resistant to manipulation. (At best, they are more resistant to centralised manipulation, but this is little consolation in our current context.)
He didn't not become president (directly) because he is a billionaire, he didn't win by draining his war chest, and it's really not an example of billionaires using money to create political influence. Almost no other billionaires, even the ones much wealthier than Trump, would stand any chance of being elected regardless of how much of their wealth they poured into the campaign.
I'd love to see any data on that; I'm not sure it's accurate.
That said, the standard complaint is that right-wingers invest in infrastructure for the long term, and lefties invest in immediate outcomes, at the expense of the long term.
FWIW, it's commonly known that it's relatively easy to get good-paying gigs at right-wing think tanks and publications and political groups, and difficult to do so on the left.
I certainly wouldn't say "surely". Billionaires are enough different from voters in general that you can't assume any polling errors will be strongly (or even at all) correlated between the two groups.
That's not a random survey, and there's no indication it's weighted, so this is pretty much as useless as an Internet survey, or me asking every rich person I know -- all kinds of self-selection bias. A better measure is linked in the article, where Forbes used FEC data to dig up the money contributed by billionaires to the Trump or Biden 2020 campaign, because where you put your own money says a lot more about where your sympathies lie. The results:
I'd like to see a non-Trump survey, as my understanding is he's broken the party in half. But maybe non-Trump surveys are too old to reflect today anyway.
He has not broken the party in half such that half would rather vote for Joe Biden than hold their nose and vote for Trump. In 2020 Biden got a mere 6% of Republican votes and 14% of self-described conservative votes[1]. Absolutely, millions of those Republicans and conservatives would rather have voted for someone other than Trump, but "a Republican/conservative other than Trump" wasn't on the ballot, only Joe Biden.
>FWIW, it's commonly known that it's relatively easy to get good-paying gigs at right-wing think tanks and publications and political groups, and difficult to do so on the left.
This is because the supply of left wing academics outstrips the demand while the reverse is true on the right. And also because left wing academics are more likely to stay in universities. If you add up research funding by political affiliation of the recipient then the left wing absolutely swamps the right because most academics are left wing. Especially the kind that does political research. But of course that means there's more funding per conservative academic.
This is also why conservative news media have better revenue numbers and (often) profit margins than progressive or liberal media. Less competition.
They donate to woke-adjacent liberal political causes. Not to the communist party. It's a very effective way for wealthy groups to:
a) feel a good conscience about being one of the "good ones", in tune with the progress of society, and not a caricature of a 19th century greedy industrialist, and
b) keep the leftwingers busy with stuff that does not threaten the existing wealth distribution
Haha yeah, exactly, once you word it like that it's no longer that strange. I'm not saying the fight it's one-sided in the culture wars axis (e.g Roe vs. Wade in the US, Sweden's change of government, etc etc). But liberal billionaire "influencers" are definitely leaving their mark. I feel the canary is how most large corporations are really going out of their way to *appear* woke be it in hiring processes or PR campaigns.
Actually I think this is off the mark. I don't think corporate wokeness is a result of liberal billionaires influence, I believe it's the natural aggregate result of essentially all middle and upper middle corporate management being politically active left.
It's both an expression of their actual desire, a way to virtue signal, and an immune system against conservative management
Also, (more at Trebuchet) nobody wants puberty blockers for 6 year olds and it's a tremendously obvious motte and bailey.
>puberty blockers for 6 year olds and it's a tremendously obvious motte and bailey.
I don't think it was meant entirely seriously, and I also agree it is not a mainstream/actual position.
I would suggest though that absolutely some chunk of the population larger than "nobody" (and relatively politically salient currently) DOES want whatever the equivalent is.
We had one of the most well respected charter schools in our community (that is impossible to get into, my kids couldn't get in) get branded as basically "bigoted" (among some decent % of the upper middle class parents who send kids there). Why?
All because a kindergarten teacher didn't want to make the whole class about one 5 year old who liked to wear dresses. The parents seemed to demand for a whole distortion of the curriculum and a week (more?) spent on the fact their son was really a girl. And when the teacher was like "sure he can wear what he wants and we will use whatever name/address, but we aren't making it into a big deal", the parents flipped out and acted like the teacher was putting the kid on the fast track to suicide.
The school stood behind the teacher, and the parents went totally nutso and were very effective at getting IDK 20-30% of parents to treat the school like it was run by nazis.
Anyway, I am sure if there were puberty blockers for 5 year olds, those parents would be prescribing them.
There is a rather obvious theory here, considering that we live in a democracy: right-wing billionaires are more effective than left-wing billionaires because the causes promoted by right-wing billionaires (like lower taxes) are just more popular to start with among the electorate than the causes promoted by left-wing billionaires (like laxer criminal laws).
This is probably flirting close to the boundary of what is unacceptably political to discuss here, but if you're discussing outcomes in a liberal democracy you probably have to take into account that getting anything done will be easier if you go with the grain of popular opinion, compared to against it! (You can try to affect popular opinion, so that your successors will be more successful than you, but this seems like the kind of long-term thing that the *left* is much better at than then right.)
I also think that popular opinion is understood very poorly. While public opinion polling asking about an election between multiple candidates is usually OK (in the US at least clearly getting worse after an accuracy peak in 2004-2012, though so far only down to 1990s norms or so), public opinion polling about issues is awful. In countries that have lots of referendums (in the First World, this means basically the US and Switzerland), issue polling and referendums tend to paint very different pictures of public opinion. In particular, on "economic" issues basically everywhere referendums tend to return more right-wing results (more support for tax cuts, less support for social programs) than issue polling.
For what is worth, the actual yes/no referendum results here in Switzerland are usually not a surprise with regards to the opinion polls. There may be some bias in the expected percent, I honestly cannot say anything about that, but at the end of the day I wouldn't say the popular opinion is poorly understood.
>but this seems like the kind of long-term thing that the left is much better at than then right
Well, given that left managed to claim the mantle of "progress" for itself they're clearly in an advantageous position. Whatever changes stick are their victories, ones that don't are forgotten, while the right's lot is forever retreating, their successes only temporary setbacks on the path of "progress".
The Kochs? No, but he's got a point with the Federalist Society. I'm sure this isn't quite right, but it looks roughly like they popularized originalism through sheer force of will. And they burned Roe to the ground. I'm in absolute awe.
But how much has money driven the success of the Federalist Society vs. ideas and persuasion? It's budget is something like $20 million / year and that's from dozens of larger donors (some of which are billionaires, but afaik it's largest donations over the years don't appear to exceed single digit millions) and many smaller ones. That doesn't seem to require billionaires (it's < $0.50 / registered republican). I don't think it's influence proper is best described as billionaires throwing money around.
I second this. I joined the Federalist Society primary because I read Scalia's book in undergrad. The organization had some interesting speakers, but I doubt they paid a lot of money to get them to come. And in a world where the federalist society didn't exist, Conservative law students would still be reading Scalia's writing and meeting to talk about them.
Now the federalist society was able to convince politicians to adopt their lists for judges, but again it wasn't about paying anyone. They just had arguments that would get the results Republican politicians wanted.
Okay, the federalist society receives very little funding, so that takes us back to my original point - why are right-wing donors able to accomplish so much (with so little)?
Because the things they win on (which aren't actually that many, see immigration, culture war, etc) are narrow and achievable, and play INTO the system.
The Federalist society exists because law schools are and were radically to the left of the American populace. There was a need for a different way of vetting judicial candidates, a process that would happen with or without them. Its not like the federalist society is uniquely good at this. You'll notice that progressives have a near 100% satisfaction rate with their judges.
OTOH, no matter how much you donate to BLM, that money has no method for reducing black criminality, thus no way of reducing police-black interactions without the result of widespread violence in places where 90% of people are going to object to.
Can you name any effects that Soros has had at the state level?
I'm not trying to play a 'gotcha' game here. I think that both sides see the grass roots on their side and the astroturf on the other side, and this is a natural behavior. If you're [generic 'you', not a specific commenter] on the right, you see (or are told) that Soros is a major player on the left; you know what groups he's contributed to (which are now tainted by and attributed to him); finally, you know what causes they focus on. Since you disagree with those causes, you assume that rational people would also disagree, and therefore you believe those causes are only supported by the left because of Soros. At the same time, you see the grass-roots support for causes on the right, and so it doesn't matter whether the Kochs or ALEC also support those causes. I'm on the right and I see this logic on my side all the time. I also definitely see it on the other side as well (switch left/right and Koch/Soros).
Do Koch/Soros have an impact? Yes, but at the margins. The Kochs can, say, reduce the support among Republican politicians for measures against illegal immigration, at least until the Republican base revolts and puts a Trump or DeSantis into office. You can only keep kicking the problems that get pushed to the side down the road for so long before the problem gets to the stage that the public wants things fixed.
I think that Soros hasn't had much effect at the state level; he seems mostly focused on DA's and maybe state attorneys general.
And the Kochs has had a huge impact on state legislation through ALEC, and the formation of right-wing/libertarian networks.. There's nothing like that on the Sorors side.
You have an implicit theory of political science here, but I'd like to see some empirical data.
I worry that any analysis like this is going to run afoul of different natural strategies. Sure, perhaps the Kochs invest heavily into state legislators and Soros invests heavily into DAs, but the net effect for any American is going to be that the billionaires have some influence over the politics they live under. (As it happens, ALEC doesn't have anyone listed in California, whereas I had to spend a year dealing with the aftermath of Chesa Boudin's bullshit before I moved out of SF, so personally at least I feel bitterer about one of them.)
Is ALEC supporting anything that Republicans wouldn't support anyways? 'Republicans being organized is bad for Democrats' isn't news.
I think people have a very rosy view of how government should operate, and assume that their side of the political spectrum operates that way ("grass roots") while the other side is uniformly corrupt ("astroturf", ie, phony grass). I've always assumed the truth for both sides is somewhat in the middle, in which case what ALEC is doing is just politics as usual, but because it's the right doing it and its working, it's somehow bad.
From my perspective, it doesn't matter that Soros is backing the DA's responsible for the policies that have led to a massive upswing in crime, what matters is that DA's are pushing policies that have led to a massive upswing in crime. People on the right who hyper-fixate on Soros as boogeyman aren't helping; time and effort spend blaming Soros is wasted time and effort that could go to fix the problems. The voters don't care about the whole Soros -> Open Society Foundation -> bad DA chain; they should care that the DA's inability to punish criminals is leading to more crime. And they're starting to realize that, as witnessed by the recall efforts.
I would normally encourage Democrats to waste their time on the likes of the Kochs, except the ability of the left-establishment to use the power of government to punish their political enemies is setting off gigantic alarm bells in my head.
They really haven't donated *that* much to ALEC. Like, well below billionaire-level donations. If this level of donation can supposedly accomplish so much, the question remains why rich liberals can't have such a big impact.
I think Scott is correct in the sense that a billion, by themselves, can't decide unilaterally to push for a certain policy and have it adopted. But as I understand it many billionaires are very interconnected, and I would not be surprised if there was a lot of behind the scenes coordination occurring that leads to political change, and this coordination would be invisible to most people as it wouldn't occur in the simplified picture of "look at how much money an individual billionaire has donated".
In particular the Bloomberg example is not illustrative at all. He jumped into the race extremely late, when many people had already made up their minds over the last year. Had he decided to join the race at the beginning, spent billions, and then lost, I think it would be more supportive.
He is deeply unpopular and almost certainly would have had no hope no matter how early he joined the race and how much he spent. The issues wasn't not enough people had a chance to come to support him, people just really did not like him. I doubt there's morethan a handful billionaires who could get themselves elected in the US at all without at least spending decades of working towards it.
I don't think this is true. Bloomberg entered way later than all the others, so late that he didn't even compete in the first four primaries, and still came quite close to overtaking Biden as the final anti-Sanders candidate (and given Sanders' unpopularity and the Democratic primaries' majority requirement, not shared on the Republican side, this very likely means a Bloomberg nomination).
I don't know how he might have done in the general election -- I think he would've lost fewer voters in places like Florida to socialism fears than Biden did, but he might've been a worse option for more old-fashioned swing voters -- but making it to the final two is already pretty good.
The Democratic primaries require the winner to get a majority (>50%), whereas the Republican primaries merely require them to get a plurality (more votes than any other individual candidate). This is beneficial towards populist candidates running in a crowded field: Trump won the 2016 Republican primary because, despite the fact that the center-right establishment candidates got more support than him overall, there were a bunch of them and he got more than any of them individually. Sanders couldn't have pulled the same trick; if Buttigieg, Klobuchar, Bloomberg, and the other moderates had stayed in the race and pulled support from Biden, causing Bernie to get more votes than any individual moderate, then no one will win and the Democratic National Convention will hold a second vote among delegates. This difference in primary rules is argued to be one of the main reasons that far-right populist conservatives have taken more power in the Republican Party than far-left populist radicals have taken in the Democratic Party.
Hmmm. Interesting. I myself would have put more emphasis over the long term on the role of Democrat party super-deligates and other anti-populist, pro establishment factors.
In any case, using Trump as an example of 'far right populism' may be accurate, but it ignores Romney, Walker, and the last two decades of rather staid Republican nominees.
I don't think he's deeply unpopular in Blue circles, though probably less popular now than before he ran. I voted for him for mayor back in the day, when I lived in NYC for a hot minute.
But . . . he was a Republican. And he just decides he's going to be a Democrat, and his first elective office should be President? Fuck that. Go pay some dues. Somewhere. Be the Democratic Senator from New York. Or Governor. Or Commerce Secretary. Something. You don't just get to join the party and run for the top job. The gall of of that put a lot of us off.
I don't think you're completely off the mark, billionaire donors (both Republican and Democrat) do have some impact on the political climate. But I also think you're vastly overstating both the degree of the influence that billionaires have overall, and the degree to which it's a conservative Republican phenomenon rather than a bipartisan one. (In fact, the Koch brothers themselves are an example, since they've donated to organizations that promote liberal views on issues where their views skew left, like immigration and drug reform.)
I also think Trump was elected for a whole slew of reasons that have little or nothing to do with him being a billionaire. Sure, having all that money helped, and he wouldn't have been able to pull so much media attention in such a short timeframe without being wealthy to some degree, but in a hypothetical universe where Trump "only" had $50 million, I think he still could've pulled it off. On top of that, I don't think Trump's views reflect the will of the overall billionaire class. If anything, the surge of Trump-style far-right populism seems like an argument against billionaire power, since I suspect that most billionaires would greatly prefer to have the center-right Romney types leading the conservative movement.
It reminds me of a popular tweet I've been seeing in trans communities lately, about how J.K. Rowling isn't "just" a famous person ranting on social media, she's a billionaire and thus far more dangerous than any random internet celebrity. I really think they've got it completely backwards: The fact that J.K. Rowling is influential has virtually nothing to do with the fact that she's a billionaire, except in the sense that both are a result of her being a famous and (until very recently) widely beloved children's author. Compare famous and widely-beloved author Neil Gaiman (who's quite wealthy with his net worth of $18 million, but nowhere near being a billionaire) with billionaire investor Warren Buffet (one of the richest people in the world, but not especially well-known or well-liked outside of finance circles). If you asked me which one could do more damage to the cause of trans rights if they suddenly decided to go on a transphobic crusade, my money would absolutely be on Gaiman. Honestly, I don't think it's even close.
One of the counter-arguments I've heard is that someone who wasn't wealthy simply wouldn't have the time and energy to go on ideological crusades because they're too busy trying to get by, but that's broadening the goalposts out into orbit. At that point, you're not just talking about billionaires, you're talking about "people who have enough money that they don't need to work," and that category includes people who aren't even millionaires! But talking about how hundred-thousandaires have a disproportionate amount of control over politics doesn't have quite the same ring to it.
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.
Exactly. This is why Sears, KMart, and all the other retailers can't/ couldn't match Amazon in the online retail space.
I tried to shop Sears online a few times because I had Craftsman brand equipment, but the process was just too painful. Sears web designers were too interested in showering me with advertising than closing the deal.
Yes. At a certain level of scale, e.g. Unilever, you'd get what is expected of them to make. Incremental product improvements, a lot of material science, new patents, new products to make life more luxurious, and many others. Life wouldn't be the same sans it. But at the same time, they wouldn't be the one to make an (for lack of a better word, pseudo-orthogonal) breakthrough, nor would a guy just randomly spawn in the middle of a population distribution to act as a business Messiah like it's some CIV game and you'd have one every 5 years.
Thank you, but Scott still provides by far the biggest dose of insight here. It's just that I'm not on the hook for ~2 long essays a week on a broad range of interesting topics, so I can deliver concentrated doses of insight in my strongest areas.
Amazon retail is prob. the least convincing case of would not exist (though I'm not sure a counterfactual world has free 2-day shipping). But something like Amazon AWS? Tesla? SpaceX? I could easily believe nothing like those would exist in a counterfactual world.
Walmart.com does a pretty good job at doing what Amazon.com does but not quite as good, much like Bing seems like a perfectly good search engine that just happens to be a little bit worse than Google.
If google never existed, some other company would have been the leading search engine, would have made the early money, and would have hired all the people that ended up largely being the ones that made google better than yahoo. May not have been exactly the same, or gotten good as quickly, but the counterfactual non-goggle search engines would look a lot different to google than the actual ones do today.
Interestingly, Google's search has been getting worse for years, by many accounts, and yet no competitor has been able to dethrone it. Maybe providing good search just becomes increasingly difficult, due to the endless arms race vs SEO and other bad actors, and so nobody can do it better enough to get people to switch.
Google is well known and easy to use. There's no active reason for someone to leave Google for search, and they're already there. If Google were new, now, it would have a very hard time gaining traction and would go the way of Google+ in short order.
To dethrone Google now, you would need a significantly better product (which is likely very hard to do) that most people would recognize as superior, or for Google to trash their own product. That second option seems more likely to me, and is the reason that I hear more often for why people choose a different search than that the other search is better made.
> 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,
Strongly disagree. We're talking about the counterfactual United States where, like, Jeff Bezos died of a heart attack in mid-1994. Presumably other countries like, I dunno, Myanmar would not have produced an Amazon in that counterfactual universe but that hardly seems relevant. The US would still have been around.
Indeed a quick look at Wikipedia shows that a Cleveland bookseller started books.com in 1992. (And a UK ISP offered online shopping from multiple stores in 1994 before Amazon launched.) People in developed countries would've kept banging their heads against the problem of selling stuff online, and it strains credulity to suggest that no one would've come up with an Amazon-shaped online retailer at some point.
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.
I expect Trump's 2017 sanctions blocking Venezuela's state-owned oil company from receiving CITGO remittances and restructuring its debt on US markets played a bigger role.
This isn't a convincing argument for those who aren't already convinced.
All sorts of things can be done badly and they won't work, but if they're done well they will...and I think that's a valid rebuttal to what you're saying.
Valid only if you aren't thinking very hard. Certain systems and structures encourage greater probabilities of certain things being done well, and certain systems and structures encourage greater probabilities of certain things being done badly.
Exactly. Yes, some of the impacts of billionaires may be bad. But the alternative isn't utopia, it is bureaucrats. Government run by incompetent to corrupt to just evil bureaucrats. I will prefer the tyranny of Amazon, Tesla, & SpaceX every time.
This is kind of tangential to the point, but I want to say it because this kind of thing gets brought up in political/economic arguments a lot:
Socialist dictatorships like Venezuela often nationalise key industries like oil and then mismanage them - I am not disputing this, it's observable fact and it's a strong argument against allowing such governments to develop. But people often assume that reason this happens is because socialist dictatorships are run by hopeless utopian idealists who don't understand how anything works and are naturally bad at management - this no doubt happens occasionally but for the most part it would be difficult to be more wrong: most socialist (and other) dictatorships are run by ruthless, savvy powermongers who care 500x more about maintaining their own wealth, power, and prestige than the wellbeing of the country, and because power in dictatorships functions by cronyism, the nationalisation campaigns mandated by socialism become an excellent vector by which they can assure the loyalty of the machinery of power by handing the right people nice, juicy, embezzle-able chunks of industry that they're neither qualified nor expected to run well. It's a power game at the root, like it always is.
Well, in Norway at least they've been managing hydropower for a century under a Georgist model, and Oil for about 50 years under a similar system. Not perfect, but I think the results speak for itself.
Personally I don't have a coherent theory about how to treat Amazon at the moment and thus no particular policy proposition for that sort of thing. But the idea that we don't have empirical real world examples of being able to properly handle natural monopolies --or that it's impossible, because governments can be bad sometimes-- is just false.
I don't think that the government can't handle all natural monopolies. Hydro, Oil, and other natural resources are great examples of things where prices are anything but arbitrary and competition is at a global scale; at that point it's just execution which the government can handle well enough when money is flowing out of the ground. (Albeit not always, another commenter mentions Venezuela)
I'm more concerned by non-resource industries which would rely more heavily on the judgement and fairness of the government in pricing intangibles. Determining a fair price for the countless layers involved in retail, and avoiding political pressures at every level, seems far more difficult to me than the examples that you (correctly) list as working fine.
I see! Glad to have that established then. One possible rejoinder is -- why does it have to be the government that figures out the price? I can easily imagine a world where we have enough open data to do mass appraisal both inside and outside of government.
Another rejoinder is that there are many other mechanisms by which rent value capture can be achieved without having to rely on an explicit assessment step.
A third is that -- we already have property tax assessments. Everybody agrees that they could be improved somewhat, and I think we should put a lot more time and effort into this sort of thing.
As for Amazon specifically -- yeah I don't have a coherent theory worked out about them specifically. Something about it deeply unsettles me, and I don't buy all the arguments the Amazon defenders make, but I have no specific policy to recommend in that particular case.
1. If the government is ultimately enforcing whatever system to stop billionaire founders from keeping a bunch of the surplus, then I don't see how you avoid the government setting the price. Eventually the government's going to have to make a report saying the natural monopoly on retail is worth X so you owe us Y. And while yes you could come up with any number of 'fair' appraisals the government is going to have to decide on one of them, which is again subjective.
2. Businesses already have some of their rent value captured by Income Taxes, and much of the the theoretical rent value that could potentially exist has to be remitted to the consumer in the form of lower prices and better service, or the monopoly will evaporate. Amazon could attempt to capture more of the surplus itself by increasing every price by a buck and switching to 5 day shipping, but it would just lose dominance and end up with nothing. I don't think this current system needs improvement, unless somebody can do what Amazon does, better.
3. The current state of property tax assessments does not inspire much faith that the government can do this sort of thing in a fair, unbiased way without political distortions and corruption.
Again, I don't disagree that if there was a magical SuperBureaucrat 6000 that could effectively operate this, it might work. I am extremely skeptical that it could possibly work in the real world essentially due to Human nature.
> 3. The current state of property tax assessments does not inspire much faith that the government can do this sort of thing in a fair, unbiased way without political distortions and corruption.
What sort of evidence would convince you otherwise? Do you believe the system is impossible to reform at all? And RE: "fair, unbiased way without political distortions and corruption." What about less political distortions and corruption?
Anything can be "reformed". I don't think anything can convince me that a government program can be free of corruption, incompetence, lobbying, and other political pressures.
The one thing I appreciate about governments is that it is rather obvious in their case that any wealth past [median wage * number of hours worked] is borrowed power, getting others to somehow assent to your use of their time (through inertia, coercion, manipulation or simple fads), not someone's rightful possession.
When heads of State behave like heads of companies, we call that a kleptocracy and generally agree that it's bad. Mugabe probably was a super hard worker and one-in-a-million talent at military dictatorship, still not okay.
so i think you are possibly right (Norway is doing a good job) but do have to point out that we lack a definite counterfactual. Khrushchev also thought soviet retail stores did a good job until he saw American supermarkets. US shale industry seems way more dynamic and technologically innovative than any work Statoil has done on the NCS (where by the way operating costs are always way way higher and safety red tape way more cumbersome than equivalents on UKCS. Probably good for the workforce but they are far from optimizing the economic yield of their ventures). Success here seems to me more clearly due to natural plenty combined with small population that benefits from it (Gulf states comparison come to mind) that exceptional bureaucratic competence.
So even though I don't like Amazon (not a fan of the user interface, and don't trust the quality), and don't use it (while Amazon has a huge market share, it isn't 100%), its existence and dominance still harm me.
Not only does it not directly benefit me, it makes prices I pay from other shops higher. Amazon Retail actively harms me, and I have no choice in the matter.
Any app you use? Any web service your employer uses? Any factory whose fault detection is done by some element of computer vision and that produces anything you use? Any produce from a field inspected by agricultural drones that you consume? Odds are, the answers to those and other questions are yes, and further odds are, many of those use AWS. Which happens to be an even more valuable part of Amazon than retail.
I consider AWS a separate company worth a whole separate conversation from one about Amazon Retail. The discussion is specifically about the Retail monopoly!
This seems like a reach. I suspect Amazon's existence in online retail saved you money overall, despite you not using them.
The main point of Sussman's article is that Amazon can pressure brands into increasing their price in other stores. It does this by punishing sellers who price their items too high by changing the "Add to cart" button to a "See all buying options" button. Customers can still buy it, but it's an extra step. If the seller wants the "Add to cart" button, they need to sell it for the same price everywhere.
Sussman then argues that it's more expensive to sell on Amazon, so sellers are forced to charge more than they might in traditional retail stores.
1. Amazon takes a much lower cut (~15%) than brick and mortar stores traditionally have. However, then the seller still has to ship their items. Amazon pays sellers a credit for shipping, but it's not usually enough to cover the full amount. So Amazon can end up costing the seller more or less than physical stores, depending largely on how much it costs them to ship items.
2. Minimum Advertised Price policies were around long before Amazon. They'd be still be common, regardless of Amazon.
3. Sussman isn't able to quantify what cost increase Amazon caused for consumers.
4. Competition from inexpensive items on Amazon (and online retail in general) pushes down prices at physical stores as well.
5. Amazon's tactics here are friendly to their customers - it clues us in when an item is overpriced or may not be authentic. I don't really see it as sinister.
Retailers *do* have their own websites. This is one of those inconvenient facts that everybody keeps completely losing when we talk about Amazon as a natural monopoly.
1) Amazon is competition, keeping pricing honest and making sure that niche retailers can directly compete against big retailers by taking advantage of Amazon’s fulfillment.
2) Amazon often delivers better or equivalent prices than a manufacturer can using their own storefront while providing better customer service and fulfillment. Most retailers couldn’t manage two-day before Amazon and they’re still struggling with it, Amazon is providing one-day or same-day now, and guaranteeing free refunds and returns.
Amazon doesn't "keep pricing honest" at least to the extent that it literally prevents (by contract) retailers from selling their goods at lower cost anywhere else, thereby preventing any savings on overhead to be passed on to the consumer by their disintermediation. And sure, you can always opt not to be on Amazon as a sellers of goods, but it's not clear that that isn't economic insanity precisely because of Amazon's enormous reach and network effects.
It seems perfectly clear. Can companies survive and thrive without selling on Amazon? We know the answer to this question is yes because we observe they do. This “enormous reach and network effects” doesn’t seem to have the effect you predict.
Since your second point fails the first point doesn’t hold water.
Clearly, because people choose to use Amazon despite a wide range of competitors, including Walmart.com, which has a similarly wide range of products for sale.
how old are you? I remember the days when i had to individually go to different websites to shop for different stuff online, price compare manually without being able to trust the retailer to not (overly) gouge me, go read online reviews to see whether that retailer ships reliably and actually has stuff in stock when they say they do or just hold your money while they order themselves, reenter my information every time i buy from a new website, get to checkout page to discover they plan to overcharge me for shipping, not being able to return stuff or only return with a big restocking fee + return shipping costs (or at very least having to pay attention to terms & conditions carefully each time when buying), losing track of where and when i bought stuff when i want to buy something again later, and getting inundated by spam mail because every website i bought lampbulbs or whatever 15 years ago still wants to send me deal emails (and asks for log in information i've long forgotten when I try to unsubscribe).
I did that stuff for years, and it was extremely unpleasant, and let's not go back to that.
I think the difference between shopping at Amazon vs. shopping at <x> is that <x> was often a brick-and-mortar shop experimenting with online. Their incentive was to say "me too" but attempt to nudge you to their physical shop.
Yes there were a number of online-only sites in the dotcom era. Many of those were intended to capture venture capital money rather than build something real.
And it's still somewhat the case. I ordered shoes from a large-but-niche retailer online, and though they were very good with some difficult customer service issues (probably stolen from my porch), it was still a bit of a shock to pay so much in shipping, to see the currency converted at the final checkout step, to have the delivery be in weeks instead of days, to pay unexpected duty fees, to go back and forth on email about the missing delivery... I will order there again because the product is excellent but heavens it made Amazon look futuristic by comparison.
well i mean you don't even need price comparison websites - google shopping does it for you right in the search results (btw quickly checked out pricerunner - 2.6m products across 6.1k shops seems low no? can you always find the exact SKU you are looking for? amazon claims 350m items listed dunno how that number would be for UK only) but that process is still what I consider manual price comparison. I need to click through each individual website, check the price scrapper got the correct number, check they actually have that item in stock, check it's the right item/size, check shipping charges/tax, check shipping time etc. and do that for at least the 3-4 first listings on the search, sometimes many many more. It can be fairly painless or quite painful depending on what one is looking for and whether one knows exactly what one wants before starting the search, but it's much worse than just shopping on amazon. I still do it occasionally so i know.
Out of curiosity I just checked and I made an average of around 180 orders per year from 2017 to 2021 on Amazon (one every other day! many of these were for multiple items! all of these are for the personal use of our family btw.) I would've gone absolutely crazy and definitely would've bought a lot less online (to be debated elsewhere whether that would've been a good or bad thing...) if I had to spread and track these purchases across a hundred separate web storefronts.
Amazon has been getting notably worse as a service over the last few years. (Removed various options from the searches to push recommended results, lack of quality control, app crashing on my phone despite it basically being text and images which is a solved problem, etc.). Being in a monopoly position means you can be worse than potential competitors but it doesn't matter and you just extract rents.
Amazon has been getting notably better IMHO. From 2-day guaranteed delivery on some products, to 2-day on most, to next-day and same-day delivery on very many, the delivery standard keeps getting pushed up. The availability of products, previously staggering, is now colossal.
As far as your problems with searches and app stability go… I have to think part of that’s on you for extrapolating your experience to others. The app doesn’t crash for me basically ever, and they’re offering more custom tailored searches for different storefronts and it’s very easy to exclude recommended results. Virtually everybody I know uses Amazon as a first preference and has nice things to say about it.
But when they don’t use it or can’t find what they want, they buy from another retailer with a slight shrug. Which is quite a bizarre image if you believe Amazon’s a monopoly.
I shop routinely at Amazon, never had the app crash, and frequently compare them to alternatives. For most non-food non-bulk things, they remain the best option by far.
Maybe. Something I find myself doing increasingly these days is searching up stuff on Amazon to get a sense of the variety of widgets that do X, their relative cost, what people think of them, what features are valued or not, which companies do a good job and which don't -- and then seeing if I can buy direct from someone more local, or who might offer a better price. I succeed in getting a better deal elsewhere maybe 25% of the time. But that means I'm exploiting Amazon -- I'm using all this information they centrally gather and publish for free, and then they're getting $0 of my eventual purchase.
This is much more plausible than when Amazon first got started, because back then everybody else's online commerce was complete crap. But nowadays it's easy for even the smallest firm to have a first-class e-commerce operation, so that is much less of a problem.
Which is to say I feel like Amazon is creeping towards the position that the brick-and-mortar stores got put in by Amazon itself, back in the day (which is where the person goes to the store to check out the selection, compare prices, examine the merchandise, talk it over with salesmen -- and then did the actual order with Amazon because it was lower cost or faster). They're providing so much valuable information in one place for free, and the ability of consumers to take that information and go elsewhere to actually buy has become so much easier, thanks to Google and turnkey e-commerce software, I think Amazon's ability to use any putative monopoly power to hike prices well above equilibrium is limited and probably growing weaker with time.
What's great for a consumer are not monopolies, but low prices, good service and so on. Private companies provide these things because if they didn't, other companies would eventually outcompete them. A profit-oriented monopolist has no incentive to provide these things because by definition they have no competition. The only remaining factor to maximise is profit, with all the consequences that entails.
Can you elaborate? How can they "force" them not to do this? Let's say I started a startup that would simply sell products for lower prices than Amazon and still make a profit, because Amazon is over-pricing them. What would they do to me?
Amazon will penalize their own sellers if their prices are not generally below non-Amazon average selling prices. Amazon has huge volume but takes a larger cut than many other sites. Accordingly, sellers are left with the choice of not selling elsewhere or jacking up prices elsewhere.
The problem with this whole chain is that Amazon is not a monopoly at all. There are thousands of online stores, selling just about anything you would want - more than is sold on Amazon. You can shop Walmart's site for a wide range of products, or shop various legacy store's sites for their product lines (Home Depot or JCPenney or whatever), or go to one of thousands of niche online sites you've never heard of and buy whatever you want (I looked up chainsaw sellers for another post). Amazon is now not, and never has been, a monopoly. They offer some really good reasons to *want* to buy from them, which are by no means necessary - as you can tell by the plethora of competing options.
This may be a marginal example, but I find that any used book I want to buy is almost always cheaper on eBay than on Amazon. Sometimes the same seller lists the same book cheaper on eBay than Amazon. As a seller, I also prefer eBay because of lower fees.
Maybe there's something I'm not getting here, but I'm still rather baffled at the use of the word "Monopoly", natural or otherwise, for a company with a 38% market share.
There are two different meanings of "monopoly", it seems. This is the best quote I could quickly find:
"A pure monopoly is a single supplier in a market. For the purposes of regulation, monopoly power exists when a single firm controls 25% or more of a particular market."
(I've seen multiple differently worded definitions of monopoly - but essentially they seem to fall into two meanings, one about being a single supplier, and another about having power to control a market)
In this case, as I link to above, Amazon Retail has a large enough market share it can threaten suppliers, and so control prices in other shops as well as its own. This falls into the "monopoly power" category.
This seems naive with respect to how business operates. It's a fairly rare actual real-world business that *doesn't* have a supplier, a customer, or both to which it has to be pretty sensistive, because the relationship going bad would be a major hit. A local pool supplier and a big HOA customer. A golf course and the local landscape company. The landscape company and the local nursery. A mall and its anchor tenant. A gas station and a local company with a big fleet of delivery vehicles. And so on.
In the real world, prices and contract details are *often* not sometimes set by consideration of your business relationships. They aren't usually hugely out of whack compared to what would happen in a hypothetical ideal Invisible Hand free market in which each business had infinity competitors and infinity potential customers, but they're also not identical.
So to the extent Amazon "threatens" suppliers and is able to nudge prices around -- this by itself is as common as crabgrass in business. It's only if Amazon had the ability to double or triple prices, relative to their natural level, or drive strong competitors entirely out of business, that its power would reach historically unusual levels.
> 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.
The solution is 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 is also required to sell their monopoly rights to anyone who offers to pay this self-assessed price, which is how they are compelled to make accurate assessments.
I'd recommend this paper for further reading on Harberger taxes
No it's not a wealth tax, it's a monopoly tax. It theoretically could be applied to all forms of private property. Basically, if you want exclusive rights to anything you have to pay the tax, and someone else can bid a higher price to buy the monopoly from you.
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.)
Rigano was a socialist who explicitly created this scheme to gradually transfer all private property to the state. So unless you are going to explain why your particular conception of the idea is different, you need to provide a full justification/argument for socialism per se for anyone to take this scheme seriously.
My comment explicitly mentions many others with similar schemes. Are you going to name call all of them as socialists instead of actually engaging in good faith? Claiming Robert Nozick is a socialist is not a strong position.
Nothing about progressive taxation over time requires complete transfer of all private property to the state.
It's not "name-calling". He literally identified as a socialist, and the purpose of this scheme was explicitly to nationalize all wealth, not marginally increase tax revenue.
> So unless you are going to explain why your particular conception of the idea is different, you need to provide a full justification/argument for socialism per se for anyone to take this scheme seriously.
That's a non-sequitur. Gradually nationalizing inheritances long after one's death doesn't result in socialism.
That doesn't necessarily make it a good idea, because the devil is in the details:
1) If generation 0 founds a successful company and bequeaths ownership to their heirs in generation 1, and the company gains in value, how would that gain be taxed when bequeathed to generation 2?
2) If generation 1 inherits a certain amount of money, and they invest in the stock market, and those stocks gain in value, how would those gains be taxed when bequeathed to generation 2?
3) If generation 1 inherits a certain amount of money, and they use that money to found a successful company, how whould the inheritance to generation 2 be taxed?
Having gone through several estate transitions, I see stepped up basis as a valuable way to reset the process and reduce complexity and future errors. If one owned telecom and energy stocks before the split ups, the process of reissuing and tracking new stock issues was a nightmare. To pass on that mess for generations would be a landmine for potential abuse IMHO.
I much prefer an estate tax on the current value or a tax on gains at death vs. carrying unrealized gains forward. A current value tax seems the simplest and may be harder to game vs. taxing gains. The tax code could even offer a choice like the standard deduction vs. itemized deductions. The other advantage is that stepping up the basis allows the beneficiary to rebalance without incurring additional tax, which can be a significant benefit and may induce more prudent decisions.
Hey, it might also be guilt-by-association (if the implication is that, because Rigano was a socialist, any policy ideas he had must be fundamentally socialist in nature) or a slippery slope argument (if the implication is that any move towards even moderately left-wing economic policies will inevitably lead towards full socialism and the total transfer of all wealth to the state). But you're right that it's definitely a fallacy of some kind.
Let's start with a standard defense of the right to bequeath: If estate is taxed at 100%, the future decedent finds a way to within their lifetime spend it or give it to causes more valuable to them than the public fisc. To the extent this is wasteful and we would like their wealth to remain invested on a longer time horizon, maybe 100% estate tax isn't the right idea. You don't have to agree with this defense -- but regardless of whether you agree with it, the Rignano scheme doesn't improve on it. Under the Rignano scheme, there is still a generation that faces confiscatory estate tax rates and would rather blow it on whatever during their lifetime than let it go to the tax man. And if regression to the mean is a thing, the preferences of the third or whatever generation are probably less optimal than the preferences of the founder for how one disposes of wealth under fire sale conditions.
I'll note that the whole "step-up basis" thing would have seemed much less of a big deal prior to ~1970 - inflation massively changes the implications of a capital gains tax on nominal value, and shifting to fiat currency massively changes the amount of inflation an economy expects.
"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
Investment banks and other financial intermediaries also help company owners do this, via a combination of option-hedging and sales, where they can take possession of $1b in shares, buy options to hedge losses over the next 3 months, and slowly liquidate both the position and the hedge.
They also can lend money on the basis of the shares and take possession later, often as a way to get around rules about selling shares early, or needing to declare the sales at the time / before they have access to the money.
By design, index funds track the composition of an externally-defined index such as the S&P 500, and changes to the composition of that index are announced in advance. Rebalancing causes enough buy/sell pressure to move prices, so in some cases traders can make a profit by front-running the move, buying a to-be-added stock ahead of time and selling it during the price bump caused by the rebalance. (Or selling/removed/rebuying, for the opposite case)
Index composition/re-balancing aren't necessarily announced in advance - the rules are set, and (broadly) well known and understood by those market participants interested enough to be paying attention. So, yeah, any FTSE/MSCI product, or the HKSE Tracker fund (a right big bastard), the rules would be well known, so, yes, there would be "front-running" once a quarter or so. But, until the actual close on the day, you would never be *quite* sure just how *close* you would be.
Other market participants might only act once the changes had been officially announced - after the close, so they would have to act on the next open. (This potentially gets more than slightly iterative in the run-up.)
The thing here is "well-defined" or "externally-defined". Brown's problem was that neither were quite true of the reserve situation, and yet he still shot his mouth off (at Mansion House?). It revealed, at best, a certain amount of naivete on the part of the Chancellor with regard to how markets actually worked - by continually processing new information(*) - or may be it's much worse than that, it's a problem within the Treasury.
(*) Something of a recollection, that I now can't be sure of - someone used the speech and the resulting market moves to investigate, and reasonably prove, a memory or persistence effect within market prices. One of those things that should have been bleeding obvious anyway.
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.
" Some will trade this year, this month, or faster. There's more stock circulating. More supply means lower price."
That's kind-of true unless companies issue dividends, in which case the supply held in reserve by the owner doesn't really change in value. And a somewhat equivalent argument can be made for when they don't issue dividends and/or do buybacks in place of dividends, based on the ability to find private equity funds to buy companies and privatize profits instead of issuing dividends. Though this likely fails at the scale of Amazon.
It also fails with American tech stocks, which trade at insane multiples of revenue because everyone keeps expecting "growth" instead - and that expectation would rationally decrease if Bezos sold out.
Don’t agree. It would be disastrous, because it’s a direct threat by the government that they can cause terrifying amounts of inflation just by being careless, and you have to factor the probability of a careless mistake (such as breaking the glass) into the value of future investments. By taking this action, you’ve taken concrete steps to step very close to a cliff. That you didn’t hurl yourself off is good, but you’re still balancing on the edge where before you were safely behind the railing.
That said you’ve got the rest right. Bezos’s unwillingness to sell or liquidate has a direct effect on AMZN prices.
This seems unlikely not to affect inflation - the bills are in existence and can be spent at any time (or robbed and then spent).
Also a lot of people are saying "well Bezos could sell out and not affect the price using <scheme>". I haven't seen anyone mention that Bezos' selling would affect people's perception of Amazon as being a good investment - can you trust that whoever buys the stock will be competent?
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.
To be pedantic, I expect that a large portion of venture capital funding comes from people with merely dozens of millions of dollars, but billionaires are the ones who can afford to personally fund a start-up rather than be part of a pool of money managed by someone else.
Maybe. I would guess one's willingness to chip in $250k-$1M in cash to a VC venture probably begins around $10-25 million net worth, which is consistent with what you're saying. Whether there are more VC firms that consist of ~100 such people than those that have ~10 much wealthier people that can invest $10M at a time, I don't know, that's above my investing grade level.
> 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.
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.
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.
Underrated comment, and this is true for more than just stock. Buying a distressed company with a lot of assets and then reshuffling them into a different business with a better asset-branding fit (made the term up) and then using it as a collateral (including the business model of the second business itself) could be very profitable.
hmm it works at small scale but not at large one. For one thing banks require very low loan-to-value for these loans so he could only get liquidity for a minority of his stake. But that's still a huge sum of money. But then one needs to think about how he is going to service the interest (Amazon doesn't pay dividends...) especially in a rising rate environment like today. And he'd be adding leverage to his balance sheet which is a dangerous thing to do and good way to get rich as well as to get poor real quick.
> But then one needs to think about how he is going to service the interest (Amazon doesn't pay dividends...)
Not necessarily. A growing company that doesn't pay dividends would still experience price appreciation. In expectation, risky (volatile) Amazon stock should grow at a faster rate than the interest on a secured loan, so the loan interest could be recapitalized (paid by taking out a further loan) and still result in a declining loan-to-value ratio.
In the opposite setup that is financially identical (i.e. it's still a margin loan), if you borrowed money in 1995 at prevailing secured-loan rates to invest in Amazon stock, you'd be very wealthy today.
this all works super well backward looking. As someone who has personally a HELOC on my house outstanding to fund some personal investments I can tell you it feels very different if you don't have a crystal ball. My HELOC interest has already doubled in last year (as HELOC is not fixed rate unlike standard mortgages), and with the stock market in free fall and private equity exits all but frozen the cashflow i was counting on to fund that interest looks unlikely to materialize for next 12-24 months at least. Am actually looking to get another job to generate that cash.
Or to take a more Bezos relevant comparison - Mark Zuckerberg saw his net worth go from 125bn to 55bn in the past 9 months. What do you think would be happening to him right now if he had borrowed aggressively against his FB stock last year (to invest in some other crap that is also way down)? People somehow equate loans with free money when it's just additional risk/reward that can work out either way.
If you're talking about funding other mega-cap ventures, you are correct.
But if you are talking about funding personal expenditures, anything Mr Bezos might do for his personal enjoyment still amounts to a small fraction of his fortune, and yes that includes the half-billion dollar yacht. His personal hedonism is a rounding error.
The amount of stock you need to sell to service the interest is MUCH lower than the amount you need to sell to get the amount of cash you borrowed. Musk and Bezos are selling shares for cash too, it's not either/or.
The key thing to note is that these hyper-growth companies are appreciating at 20-30% YoY or higher, and so the normal rules of retail investing just don't apply. If TSLA tanks, Musk will get a margin call on his loan, sell some tiny fraction of his stock to close the loan out, and still hold a big chunk of TSLA (though to be sure, he might lose on the trade vs. just selling the shares up front). If TSLA keeps going up, then he's given up some of the gains, but didn't have to sell his shares.
You're right that it's a high-risk play. But the floor is extremely high, Musk is not going to ruin himself with this bet.
Thanks for following up with that data point. This is probably a good baseline for "worst case" for this strategy; staking 20% of your shares for loans, then getting hit with a 95% stock price reduction.
I would note that Musk's loans looked to be more like 1% of his total wealth at the time of that article I linked, so I think my statement above still holds. (Sure, if he held on all the way to a 95% reduction in his portfolio, naively that leaves him selling 20% of his remaining 5% to repay the full 1% loan. And it's just a margin call so you don't have to repay the whole thing.)
I would also note that in this case, the founder had already handed over the reins to another CEO, so this doesn't really fit with the broad category of concern that we were discussing elsewhere, where the founder loses control of the company because they had to come up with more cash.
oh yeah totally agree foley was fired and the chairman stuff was just a fig leaf anyways. It was just an example of how margin loans can be really dangerous for certain types of high vol stock (Tesla historically would have said is in same zip code as Peloton in terms of downside potential although maybe they are past that now) when combined with certain types of overly optimistic founder personalities (is there another founder type I know, but i've listened to foley speak publicly and at investor dinners a few times, the type of perseverance that allowed him to keep trying when hundreds of VCs told him no is off the charts even for entrepreneurs and ultimately blinded him, and Musk is pretty similar probably). Your points when applied to the likes of Bezos I'd say are 100% relevant. Amazon stock has a real floor (even a regulatory breakup would arguably boost the SOTP valuation in short term, and they can boost profitability whenever they want if they needed to) and his borrowing against his shares is something of a free lunch (although even there I could see a scenario where he ends being worse off ultimately vs. just selling stock and eating the taxes, e.g. if raising rates makes rolling over the loans unpalatable and he is forced to liquidate stock at bottom of the cycle - the two things being pretty correlated. e.g. AMZN is down 40% from peak already - that difference is 2x Jeff's marginal cap gains rate (no state taxes in WA IIRC) so if he sold anything before stock recovers he'd be worse off by having borrowed)
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).
"Loophole" implies a certain narrowness, something that requires a degree of intent and planning to exploit. South Dakota trusts are a loophole. Carried interest might be a loophole. All one needs to do to benefit from basis step-up is die with appreciated assets.
A "loophole" is I think by usual definition a bug, not a feature. The people who created the law, regulation, or whatever wanted to achieve X, but because of some clever or obscure thing they didn't anticipate, it is being used to achieve !X. If the people who wrote the law wanted it to achieve X, and it achieves X in approximately the way they wanted, then lots of *other* people disliking X doesn't make that a loophole.
It's possible that you could get a "loophole" by deliberate design through principal-agent problems, if e.g. a legislator delegates the actual writing of the bill to a staffer who is in the pay of some special interest and knows his boss's review of the draft will be too cursory to catch a clever bit of trickery. But I don't think that's the case with stepped-up cost basis.
If it was explicitly a campaign issue where the MP ran on a promise of taxing the billionaires into oblivion, or something like that, it would probably count as a malicious loophole. Otherwise, the voters are selecting a representative who will have to use his best judgement on how to represent their top-level interests and aren't always going to agree with or even understand the details. People who make sausage for a living, necessarily do things that would gross out most of the people who eat the stuff.
"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.
Possibly, but that seems like a bad idea then. You need early investors, and Amazon was really bad for investors for several decades - they didn't pay dividends so they could reinvest instead, meaning investors essentially got stiffed except for the promise of stock price increases. Take that away as well, and then nobody wants to invest, and the company never gets off the ground.
>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.
but when does early stage end? Tik Tok is upstaging FB/Instagram pretty massively at moment through innovative use of AI and video-first focus. Looking back 10 years from now if Meta has blown up you can make same argument about them vs. ByteDance. That's just how corporations work, none stay around for 1000 years (and when i see corporate chieftains start growing big heads and drafting "1000 year business plans" it's a good signal to sell)
The social media monopoly seems to be a generational thing. The case for a monopoly windfall tax on Facebook is about the same as for a similar tax on the Beatles.
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.
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.
why just the domain name? why not the trademark itself? why shouldn't we wake up one day and buy a bmw and discover it's now make by geely? that sounds like fun.
Unlike other kinds of IP, trademarks are mostly a consumer protection thing. The presence of a trademark let's a consumer infer about the quality based on the reputation of the marker.
For complex and illegible products (like a BMW) that information is really important and essentially impossible to measure directly.
but what's difference vs. Amazon? how are consumers supposed to know they are no longer buying from bezos?
btw funny and somewhat relevant story: back in late 90s there was a very successful computer shop in my town. they just sold plain PCs but back then it was a great business. Founders bought (and crashed) several sports cars etc. and were generally known for flouting their wealth (know cause a buddy worked there). Well one day they decided to expand the business cause store location had become too small, so they rented a bigger place nearby and moved their operations there. Well guess what some smartass got wind of their plans, took over the lease and opened a new computer store at the exact same location. It had a different name etc. but people just went in anyway either guessing the store changed names but was still same outfit, or just didn't care after all they already came all that way. From one day to next they stole a very large portion of the business of the previous firm. I still remember the website of the old business having that giant flashing sign when you go there warning people in fluorescent letters that yes they had moved and please please don't go to their old location. It was hilarious.
“ 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?
This comment seems to be in the wrong place...
It is. Substacks is the worst lol. Never hit reply from the email.
Excuse me, ma'am, this is the yelling about capitalism thread, not the yelling about Canadian Woodwork Teachers thread.
Blame trebuchet for bringing it up lol.
Aren't trebuchets supposed to bring things up?
Rapidly. With quite a bite of force.
"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.
They didn't have billionaires in the 18th century but our first president was among the wealthiest people in the country when he was elected, as well (though his wealth was tied up in real estate and he was habitually cash-poor).
He was a billionaire, maybe, assuming he's not lying about that (HA!), but that's not what got him elected. What got him elected was star power mixed with an unbelievable ability to read the room. There are a hell of a lot more billionaires than there are Trumps - maybe Oprah could do the same? I can't think of anyone else.
Yeah, he was a billionaire who became president while being massively outspent by his opponent.
But T didn't become that by being a billionaire, he became that by being.... T. You could maybe say that being billionaire *is* part of T's identity, that he could never have developed his... Interesting personality without being a billionaire, but then there are countless other parts, from writing amazing twitter dunks to coming up with inventive playground insults for his successor.
Regardless, I think the whole form of this argument is wrong. You have just 1 (very dramatic, and very true) example of an element belonging to set X and satisfies predicate Y, and you conclude that the typical element of X satisfies Y? I'm sure you can find plenty of humble beginnings in power holders in any age (even after filtering propaganda). Do poor farmers or rank-and-file soldiers hold a lot of power because $RANDOM_DICTATOR was once one of them?
For what it's worth, I think Scott is wrong. He laser-focused on the literal definition of doing politics (donating to campaigns and running for positions) and missed more interesting things. In democracy, Power is distributed, this is usually a compliment by democracy fans, but it's also a source of vulnerabilities. There is plenty of outlets to power that you can influence at every level : you can host a really cool party or "charity event" where plenty of senators attend and have a very friendly and totally-not-suggestive talk with them, you can mention to your friend in the defense industry that $MIDDLE_EAST_POLITY could benefit from some good old democracy, who then mentions it to his friend of friend of friend in a relevant committee somewhere. You can hire talking heads with impressive credentials to talk about your ideas, and no matter how dumb they are there will always be a $19TH_CENTURY_PHILOSOPHER or some other Smart^Tm guy who advocated for something vaguely resembling it. Money buys beauty and young age, Money buys good-looking women (and men) to constantly pose around you, rubbing some of their sex-derived status on you (and taking some of your wealth-derived status, but you have plenty of this). Autocracy doesn't get a free pass either (and they impact democracy btw : Money makes you friends with $US_SUPPORTED_DICTATOR, who in turn can affect your democratic country and the rest of the world), but it's already fashionable to point out all the ways that is so, less fashionable is how democracies' distribution of power doesn't actually make them more resistant to manipulation. (At best, they are more resistant to centralised manipulation, but this is little consolation in our current context.)
He didn't not become president (directly) because he is a billionaire, he didn't win by draining his war chest, and it's really not an example of billionaires using money to create political influence. Almost no other billionaires, even the ones much wealthier than Trump, would stand any chance of being elected regardless of how much of their wealth they poured into the campaign.
Strange, most billionaires donate to liberal political causes. What makes the right-wingers so much more effective?
I'd love to see any data on that; I'm not sure it's accurate.
That said, the standard complaint is that right-wingers invest in infrastructure for the long term, and lefties invest in immediate outcomes, at the expense of the long term.
FWIW, it's commonly known that it's relatively easy to get good-paying gigs at right-wing think tanks and publications and political groups, and difficult to do so on the left.
I certainly wouldn't say "surely". Billionaires are enough different from voters in general that you can't assume any polling errors will be strongly (or even at all) correlated between the two groups.
That's not a random survey, and there's no indication it's weighted, so this is pretty much as useless as an Internet survey, or me asking every rich person I know -- all kinds of self-selection bias. A better measure is linked in the article, where Forbes used FEC data to dig up the money contributed by billionaires to the Trump or Biden 2020 campaign, because where you put your own money says a lot more about where your sympathies lie. The results:
Trump 2020: 133 donors totalling $460 million
Biden 2020: 230 donors totalling $690 million
I'd like to see a non-Trump survey, as my understanding is he's broken the party in half. But maybe non-Trump surveys are too old to reflect today anyway.
He has not broken the party in half such that half would rather vote for Joe Biden than hold their nose and vote for Trump. In 2020 Biden got a mere 6% of Republican votes and 14% of self-described conservative votes[1]. Absolutely, millions of those Republicans and conservatives would rather have voted for someone other than Trump, but "a Republican/conservative other than Trump" wasn't on the ballot, only Joe Biden.
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[1] https://ropercenter.cornell.edu/how-groups-voted-2020
>FWIW, it's commonly known that it's relatively easy to get good-paying gigs at right-wing think tanks and publications and political groups, and difficult to do so on the left.
This is because the supply of left wing academics outstrips the demand while the reverse is true on the right. And also because left wing academics are more likely to stay in universities. If you add up research funding by political affiliation of the recipient then the left wing absolutely swamps the right because most academics are left wing. Especially the kind that does political research. But of course that means there's more funding per conservative academic.
This is also why conservative news media have better revenue numbers and (often) profit margins than progressive or liberal media. Less competition.
Interesting points. Not quite what I was getting at, but worth thinking about. Thanks!
They donate to woke-adjacent liberal political causes. Not to the communist party. It's a very effective way for wealthy groups to:
a) feel a good conscience about being one of the "good ones", in tune with the progress of society, and not a caricature of a 19th century greedy industrialist, and
b) keep the leftwingers busy with stuff that does not threaten the existing wealth distribution
Haha yeah, exactly, once you word it like that it's no longer that strange. I'm not saying the fight it's one-sided in the culture wars axis (e.g Roe vs. Wade in the US, Sweden's change of government, etc etc). But liberal billionaire "influencers" are definitely leaving their mark. I feel the canary is how most large corporations are really going out of their way to *appear* woke be it in hiring processes or PR campaigns.
Actually I think this is off the mark. I don't think corporate wokeness is a result of liberal billionaires influence, I believe it's the natural aggregate result of essentially all middle and upper middle corporate management being politically active left.
It's both an expression of their actual desire, a way to virtue signal, and an immune system against conservative management
Also, (more at Trebuchet) nobody wants puberty blockers for 6 year olds and it's a tremendously obvious motte and bailey.
>puberty blockers for 6 year olds and it's a tremendously obvious motte and bailey.
I don't think it was meant entirely seriously, and I also agree it is not a mainstream/actual position.
I would suggest though that absolutely some chunk of the population larger than "nobody" (and relatively politically salient currently) DOES want whatever the equivalent is.
We had one of the most well respected charter schools in our community (that is impossible to get into, my kids couldn't get in) get branded as basically "bigoted" (among some decent % of the upper middle class parents who send kids there). Why?
All because a kindergarten teacher didn't want to make the whole class about one 5 year old who liked to wear dresses. The parents seemed to demand for a whole distortion of the curriculum and a week (more?) spent on the fact their son was really a girl. And when the teacher was like "sure he can wear what he wants and we will use whatever name/address, but we aren't making it into a big deal", the parents flipped out and acted like the teacher was putting the kid on the fast track to suicide.
The school stood behind the teacher, and the parents went totally nutso and were very effective at getting IDK 20-30% of parents to treat the school like it was run by nazis.
Anyway, I am sure if there were puberty blockers for 5 year olds, those parents would be prescribing them.
There is a rather obvious theory here, considering that we live in a democracy: right-wing billionaires are more effective than left-wing billionaires because the causes promoted by right-wing billionaires (like lower taxes) are just more popular to start with among the electorate than the causes promoted by left-wing billionaires (like laxer criminal laws).
This is probably flirting close to the boundary of what is unacceptably political to discuss here, but if you're discussing outcomes in a liberal democracy you probably have to take into account that getting anything done will be easier if you go with the grain of popular opinion, compared to against it! (You can try to affect popular opinion, so that your successors will be more successful than you, but this seems like the kind of long-term thing that the *left* is much better at than then right.)
I also think that popular opinion is understood very poorly. While public opinion polling asking about an election between multiple candidates is usually OK (in the US at least clearly getting worse after an accuracy peak in 2004-2012, though so far only down to 1990s norms or so), public opinion polling about issues is awful. In countries that have lots of referendums (in the First World, this means basically the US and Switzerland), issue polling and referendums tend to paint very different pictures of public opinion. In particular, on "economic" issues basically everywhere referendums tend to return more right-wing results (more support for tax cuts, less support for social programs) than issue polling.
For what is worth, the actual yes/no referendum results here in Switzerland are usually not a surprise with regards to the opinion polls. There may be some bias in the expected percent, I honestly cannot say anything about that, but at the end of the day I wouldn't say the popular opinion is poorly understood.
>but this seems like the kind of long-term thing that the left is much better at than then right
Well, given that left managed to claim the mantle of "progress" for itself they're clearly in an advantageous position. Whatever changes stick are their victories, ones that don't are forgotten, while the right's lot is forever retreating, their successes only temporary setbacks on the path of "progress".
Do you look at our politics today and believe the Kochs are much more effective than Soros?
The Kochs? No, but he's got a point with the Federalist Society. I'm sure this isn't quite right, but it looks roughly like they popularized originalism through sheer force of will. And they burned Roe to the ground. I'm in absolute awe.
But how much has money driven the success of the Federalist Society vs. ideas and persuasion? It's budget is something like $20 million / year and that's from dozens of larger donors (some of which are billionaires, but afaik it's largest donations over the years don't appear to exceed single digit millions) and many smaller ones. That doesn't seem to require billionaires (it's < $0.50 / registered republican). I don't think it's influence proper is best described as billionaires throwing money around.
I second this. I joined the Federalist Society primary because I read Scalia's book in undergrad. The organization had some interesting speakers, but I doubt they paid a lot of money to get them to come. And in a world where the federalist society didn't exist, Conservative law students would still be reading Scalia's writing and meeting to talk about them.
Now the federalist society was able to convince politicians to adopt their lists for judges, but again it wasn't about paying anyone. They just had arguments that would get the results Republican politicians wanted.
Okay, the federalist society receives very little funding, so that takes us back to my original point - why are right-wing donors able to accomplish so much (with so little)?
Because the things they win on (which aren't actually that many, see immigration, culture war, etc) are narrow and achievable, and play INTO the system.
The Federalist society exists because law schools are and were radically to the left of the American populace. There was a need for a different way of vetting judicial candidates, a process that would happen with or without them. Its not like the federalist society is uniquely good at this. You'll notice that progressives have a near 100% satisfaction rate with their judges.
OTOH, no matter how much you donate to BLM, that money has no method for reducing black criminality, thus no way of reducing police-black interactions without the result of widespread violence in places where 90% of people are going to object to.
On a state level? Absolutely, via ALEC, at the very least.
Can you name any effects that Soros has had at the state level?
I'm not trying to play a 'gotcha' game here. I think that both sides see the grass roots on their side and the astroturf on the other side, and this is a natural behavior. If you're [generic 'you', not a specific commenter] on the right, you see (or are told) that Soros is a major player on the left; you know what groups he's contributed to (which are now tainted by and attributed to him); finally, you know what causes they focus on. Since you disagree with those causes, you assume that rational people would also disagree, and therefore you believe those causes are only supported by the left because of Soros. At the same time, you see the grass-roots support for causes on the right, and so it doesn't matter whether the Kochs or ALEC also support those causes. I'm on the right and I see this logic on my side all the time. I also definitely see it on the other side as well (switch left/right and Koch/Soros).
Do Koch/Soros have an impact? Yes, but at the margins. The Kochs can, say, reduce the support among Republican politicians for measures against illegal immigration, at least until the Republican base revolts and puts a Trump or DeSantis into office. You can only keep kicking the problems that get pushed to the side down the road for so long before the problem gets to the stage that the public wants things fixed.
I think that Soros hasn't had much effect at the state level; he seems mostly focused on DA's and maybe state attorneys general.
And the Kochs has had a huge impact on state legislation through ALEC, and the formation of right-wing/libertarian networks.. There's nothing like that on the Sorors side.
You have an implicit theory of political science here, but I'd like to see some empirical data.
I worry that any analysis like this is going to run afoul of different natural strategies. Sure, perhaps the Kochs invest heavily into state legislators and Soros invests heavily into DAs, but the net effect for any American is going to be that the billionaires have some influence over the politics they live under. (As it happens, ALEC doesn't have anyone listed in California, whereas I had to spend a year dealing with the aftermath of Chesa Boudin's bullshit before I moved out of SF, so personally at least I feel bitterer about one of them.)
Is ALEC supporting anything that Republicans wouldn't support anyways? 'Republicans being organized is bad for Democrats' isn't news.
I think people have a very rosy view of how government should operate, and assume that their side of the political spectrum operates that way ("grass roots") while the other side is uniformly corrupt ("astroturf", ie, phony grass). I've always assumed the truth for both sides is somewhat in the middle, in which case what ALEC is doing is just politics as usual, but because it's the right doing it and its working, it's somehow bad.
From my perspective, it doesn't matter that Soros is backing the DA's responsible for the policies that have led to a massive upswing in crime, what matters is that DA's are pushing policies that have led to a massive upswing in crime. People on the right who hyper-fixate on Soros as boogeyman aren't helping; time and effort spend blaming Soros is wasted time and effort that could go to fix the problems. The voters don't care about the whole Soros -> Open Society Foundation -> bad DA chain; they should care that the DA's inability to punish criminals is leading to more crime. And they're starting to realize that, as witnessed by the recall efforts.
I would normally encourage Democrats to waste their time on the likes of the Kochs, except the ability of the left-establishment to use the power of government to punish their political enemies is setting off gigantic alarm bells in my head.
They really haven't donated *that* much to ALEC. Like, well below billionaire-level donations. If this level of donation can supposedly accomplish so much, the question remains why rich liberals can't have such a big impact.
I think Scott is correct in the sense that a billion, by themselves, can't decide unilaterally to push for a certain policy and have it adopted. But as I understand it many billionaires are very interconnected, and I would not be surprised if there was a lot of behind the scenes coordination occurring that leads to political change, and this coordination would be invisible to most people as it wouldn't occur in the simplified picture of "look at how much money an individual billionaire has donated".
In particular the Bloomberg example is not illustrative at all. He jumped into the race extremely late, when many people had already made up their minds over the last year. Had he decided to join the race at the beginning, spent billions, and then lost, I think it would be more supportive.
He is deeply unpopular and almost certainly would have had no hope no matter how early he joined the race and how much he spent. The issues wasn't not enough people had a chance to come to support him, people just really did not like him. I doubt there's morethan a handful billionaires who could get themselves elected in the US at all without at least spending decades of working towards it.
I don't think this is true. Bloomberg entered way later than all the others, so late that he didn't even compete in the first four primaries, and still came quite close to overtaking Biden as the final anti-Sanders candidate (and given Sanders' unpopularity and the Democratic primaries' majority requirement, not shared on the Republican side, this very likely means a Bloomberg nomination).
I don't know how he might have done in the general election -- I think he would've lost fewer voters in places like Florida to socialism fears than Biden did, but he might've been a worse option for more old-fashioned swing voters -- but making it to the final two is already pretty good.
>>> the Democratic primaries' majority requirement, not shared on the Republican side,
I am not following- can you unpack this?
The Democratic primaries require the winner to get a majority (>50%), whereas the Republican primaries merely require them to get a plurality (more votes than any other individual candidate). This is beneficial towards populist candidates running in a crowded field: Trump won the 2016 Republican primary because, despite the fact that the center-right establishment candidates got more support than him overall, there were a bunch of them and he got more than any of them individually. Sanders couldn't have pulled the same trick; if Buttigieg, Klobuchar, Bloomberg, and the other moderates had stayed in the race and pulled support from Biden, causing Bernie to get more votes than any individual moderate, then no one will win and the Democratic National Convention will hold a second vote among delegates. This difference in primary rules is argued to be one of the main reasons that far-right populist conservatives have taken more power in the Republican Party than far-left populist radicals have taken in the Democratic Party.
Hmmm. Interesting. I myself would have put more emphasis over the long term on the role of Democrat party super-deligates and other anti-populist, pro establishment factors.
In any case, using Trump as an example of 'far right populism' may be accurate, but it ignores Romney, Walker, and the last two decades of rather staid Republican nominees.
I don't think he's deeply unpopular in Blue circles, though probably less popular now than before he ran. I voted for him for mayor back in the day, when I lived in NYC for a hot minute.
But . . . he was a Republican. And he just decides he's going to be a Democrat, and his first elective office should be President? Fuck that. Go pay some dues. Somewhere. Be the Democratic Senator from New York. Or Governor. Or Commerce Secretary. Something. You don't just get to join the party and run for the top job. The gall of of that put a lot of us off.
I don't think you're completely off the mark, billionaire donors (both Republican and Democrat) do have some impact on the political climate. But I also think you're vastly overstating both the degree of the influence that billionaires have overall, and the degree to which it's a conservative Republican phenomenon rather than a bipartisan one. (In fact, the Koch brothers themselves are an example, since they've donated to organizations that promote liberal views on issues where their views skew left, like immigration and drug reform.)
I also think Trump was elected for a whole slew of reasons that have little or nothing to do with him being a billionaire. Sure, having all that money helped, and he wouldn't have been able to pull so much media attention in such a short timeframe without being wealthy to some degree, but in a hypothetical universe where Trump "only" had $50 million, I think he still could've pulled it off. On top of that, I don't think Trump's views reflect the will of the overall billionaire class. If anything, the surge of Trump-style far-right populism seems like an argument against billionaire power, since I suspect that most billionaires would greatly prefer to have the center-right Romney types leading the conservative movement.
It reminds me of a popular tweet I've been seeing in trans communities lately, about how J.K. Rowling isn't "just" a famous person ranting on social media, she's a billionaire and thus far more dangerous than any random internet celebrity. I really think they've got it completely backwards: The fact that J.K. Rowling is influential has virtually nothing to do with the fact that she's a billionaire, except in the sense that both are a result of her being a famous and (until very recently) widely beloved children's author. Compare famous and widely-beloved author Neil Gaiman (who's quite wealthy with his net worth of $18 million, but nowhere near being a billionaire) with billionaire investor Warren Buffet (one of the richest people in the world, but not especially well-known or well-liked outside of finance circles). If you asked me which one could do more damage to the cause of trans rights if they suddenly decided to go on a transphobic crusade, my money would absolutely be on Gaiman. Honestly, I don't think it's even close.
One of the counter-arguments I've heard is that someone who wasn't wealthy simply wouldn't have the time and energy to go on ideological crusades because they're too busy trying to get by, but that's broadening the goalposts out into orbit. At that point, you're not just talking about billionaires, you're talking about "people who have enough money that they don't need to work," and that category includes people who aren't even millionaires! But talking about how hundred-thousandaires have a disproportionate amount of control over politics doesn't have quite the same ring to it.
You have two 11s with no commentary after the first one
Restating, hopefully a bit more clearly: there are two highlighted comments numbered "11" in the post. With no Scott's commentary after the first one.
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.
Exactly. This is why Sears, KMart, and all the other retailers can't/ couldn't match Amazon in the online retail space.
I tried to shop Sears online a few times because I had Craftsman brand equipment, but the process was just too painful. Sears web designers were too interested in showering me with advertising than closing the deal.
Yes. At a certain level of scale, e.g. Unilever, you'd get what is expected of them to make. Incremental product improvements, a lot of material science, new patents, new products to make life more luxurious, and many others. Life wouldn't be the same sans it. But at the same time, they wouldn't be the one to make an (for lack of a better word, pseudo-orthogonal) breakthrough, nor would a guy just randomly spawn in the middle of a population distribution to act as a business Messiah like it's some CIV game and you'd have one every 5 years.
Walmart.com comes pretty close, actually.
How can we ever tell if another online market wouldn’t have succeeded? I’m pretty sure something would have happened.
> Schilling's the closest one to the truth.
Yes, John Schilling nailing it in the comments sections, is a recurring pattern.
Maybe this should be the topic of a future article: "Why is John Schilling so insightful?" I'm only half-joking.
Thank you, but Scott still provides by far the biggest dose of insight here. It's just that I'm not on the hook for ~2 long essays a week on a broad range of interesting topics, so I can deliver concentrated doses of insight in my strongest areas.
Amazon retail is prob. the least convincing case of would not exist (though I'm not sure a counterfactual world has free 2-day shipping). But something like Amazon AWS? Tesla? SpaceX? I could easily believe nothing like those would exist in a counterfactual world.
Walmart.com does a pretty good job at doing what Amazon.com does but not quite as good, much like Bing seems like a perfectly good search engine that just happens to be a little bit worse than Google.
If google never existed, some other company would have been the leading search engine, would have made the early money, and would have hired all the people that ended up largely being the ones that made google better than yahoo. May not have been exactly the same, or gotten good as quickly, but the counterfactual non-goggle search engines would look a lot different to google than the actual ones do today.
Interestingly, Google's search has been getting worse for years, by many accounts, and yet no competitor has been able to dethrone it. Maybe providing good search just becomes increasingly difficult, due to the endless arms race vs SEO and other bad actors, and so nobody can do it better enough to get people to switch.
Google is well known and easy to use. There's no active reason for someone to leave Google for search, and they're already there. If Google were new, now, it would have a very hard time gaining traction and would go the way of Google+ in short order.
To dethrone Google now, you would need a significantly better product (which is likely very hard to do) that most people would recognize as superior, or for Google to trash their own product. That second option seems more likely to me, and is the reason that I hear more often for why people choose a different search than that the other search is better made.
> 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,
Strongly disagree. We're talking about the counterfactual United States where, like, Jeff Bezos died of a heart attack in mid-1994. Presumably other countries like, I dunno, Myanmar would not have produced an Amazon in that counterfactual universe but that hardly seems relevant. The US would still have been around.
Indeed a quick look at Wikipedia shows that a Cleveland bookseller started books.com in 1992. (And a UK ISP offered online shopping from multiple stores in 1994 before Amazon launched.) People in developed countries would've kept banging their heads against the problem of selling stuff online, and it strains credulity to suggest that no one would've come up with an Amazon-shaped online retailer at some point.
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.
Look at the quick demise of Venezuela. They bit the dust in about 10 years. Why, but due to government control of the economy.
And American sanctions.
Putatively narrow sanctions with putative humanitarian exemptions can still have wider spillover effects (compare the case of Iran: https://www.hrw.org/news/2019/10/29/iran-sanctions-threatening-health). And already in 2017, not 2019, the US blocked the Venezuelan government — and state enterprises like PDVSA — from selling (and hence restructuring) its debts in US markets (https://cepr.net/images/stories/reports/venezuela-sanctions-2019-04.pdf#page=9).
Why did Venezuela's oil sector fail, they nationalized it. People who had no clue were running the show.
The collapse in oil prices in 2014 made a big difference too, though. But again, unrelated to direct US policy.
Yes, it did, but that didn't cause Venezuela's production to fall to about 1/3rd of their capability.
I expect Trump's 2017 sanctions blocking Venezuela's state-owned oil company from receiving CITGO remittances and restructuring its debt on US markets played a bigger role.
This isn't a convincing argument for those who aren't already convinced.
All sorts of things can be done badly and they won't work, but if they're done well they will...and I think that's a valid rebuttal to what you're saying.
Valid only if you aren't thinking very hard. Certain systems and structures encourage greater probabilities of certain things being done well, and certain systems and structures encourage greater probabilities of certain things being done badly.
I mean, that's exactly why it's not convincing.
If a system encourages things to be done badly, not all things that are done badly can be blamed on that system.
Logically convincing arguments against such systems are not based on anecdotes.
Exactly. Yes, some of the impacts of billionaires may be bad. But the alternative isn't utopia, it is bureaucrats. Government run by incompetent to corrupt to just evil bureaucrats. I will prefer the tyranny of Amazon, Tesla, & SpaceX every time.
This is kind of tangential to the point, but I want to say it because this kind of thing gets brought up in political/economic arguments a lot:
Socialist dictatorships like Venezuela often nationalise key industries like oil and then mismanage them - I am not disputing this, it's observable fact and it's a strong argument against allowing such governments to develop. But people often assume that reason this happens is because socialist dictatorships are run by hopeless utopian idealists who don't understand how anything works and are naturally bad at management - this no doubt happens occasionally but for the most part it would be difficult to be more wrong: most socialist (and other) dictatorships are run by ruthless, savvy powermongers who care 500x more about maintaining their own wealth, power, and prestige than the wellbeing of the country, and because power in dictatorships functions by cronyism, the nationalisation campaigns mandated by socialism become an excellent vector by which they can assure the loyalty of the machinery of power by handing the right people nice, juicy, embezzle-able chunks of industry that they're neither qualified nor expected to run well. It's a power game at the root, like it always is.
Well, in Norway at least they've been managing hydropower for a century under a Georgist model, and Oil for about 50 years under a similar system. Not perfect, but I think the results speak for itself.
Personally I don't have a coherent theory about how to treat Amazon at the moment and thus no particular policy proposition for that sort of thing. But the idea that we don't have empirical real world examples of being able to properly handle natural monopolies --or that it's impossible, because governments can be bad sometimes-- is just false.
I don't think that the government can't handle all natural monopolies. Hydro, Oil, and other natural resources are great examples of things where prices are anything but arbitrary and competition is at a global scale; at that point it's just execution which the government can handle well enough when money is flowing out of the ground. (Albeit not always, another commenter mentions Venezuela)
I'm more concerned by non-resource industries which would rely more heavily on the judgement and fairness of the government in pricing intangibles. Determining a fair price for the countless layers involved in retail, and avoiding political pressures at every level, seems far more difficult to me than the examples that you (correctly) list as working fine.
I see! Glad to have that established then. One possible rejoinder is -- why does it have to be the government that figures out the price? I can easily imagine a world where we have enough open data to do mass appraisal both inside and outside of government.
Another rejoinder is that there are many other mechanisms by which rent value capture can be achieved without having to rely on an explicit assessment step.
A third is that -- we already have property tax assessments. Everybody agrees that they could be improved somewhat, and I think we should put a lot more time and effort into this sort of thing.
As for Amazon specifically -- yeah I don't have a coherent theory worked out about them specifically. Something about it deeply unsettles me, and I don't buy all the arguments the Amazon defenders make, but I have no specific policy to recommend in that particular case.
1. If the government is ultimately enforcing whatever system to stop billionaire founders from keeping a bunch of the surplus, then I don't see how you avoid the government setting the price. Eventually the government's going to have to make a report saying the natural monopoly on retail is worth X so you owe us Y. And while yes you could come up with any number of 'fair' appraisals the government is going to have to decide on one of them, which is again subjective.
2. Businesses already have some of their rent value captured by Income Taxes, and much of the the theoretical rent value that could potentially exist has to be remitted to the consumer in the form of lower prices and better service, or the monopoly will evaporate. Amazon could attempt to capture more of the surplus itself by increasing every price by a buck and switching to 5 day shipping, but it would just lose dominance and end up with nothing. I don't think this current system needs improvement, unless somebody can do what Amazon does, better.
3. The current state of property tax assessments does not inspire much faith that the government can do this sort of thing in a fair, unbiased way without political distortions and corruption.
Again, I don't disagree that if there was a magical SuperBureaucrat 6000 that could effectively operate this, it might work. I am extremely skeptical that it could possibly work in the real world essentially due to Human nature.
> 3. The current state of property tax assessments does not inspire much faith that the government can do this sort of thing in a fair, unbiased way without political distortions and corruption.
What sort of evidence would convince you otherwise? Do you believe the system is impossible to reform at all? And RE: "fair, unbiased way without political distortions and corruption." What about less political distortions and corruption?
Anything can be "reformed". I don't think anything can convince me that a government program can be free of corruption, incompetence, lobbying, and other political pressures.
The one thing I appreciate about governments is that it is rather obvious in their case that any wealth past [median wage * number of hours worked] is borrowed power, getting others to somehow assent to your use of their time (through inertia, coercion, manipulation or simple fads), not someone's rightful possession.
When heads of State behave like heads of companies, we call that a kleptocracy and generally agree that it's bad. Mugabe probably was a super hard worker and one-in-a-million talent at military dictatorship, still not okay.
so i think you are possibly right (Norway is doing a good job) but do have to point out that we lack a definite counterfactual. Khrushchev also thought soviet retail stores did a good job until he saw American supermarkets. US shale industry seems way more dynamic and technologically innovative than any work Statoil has done on the NCS (where by the way operating costs are always way way higher and safety red tape way more cumbersome than equivalents on UKCS. Probably good for the workforce but they are far from optimizing the economic yield of their ventures). Success here seems to me more clearly due to natural plenty combined with small population that benefits from it (Gulf states comparison come to mind) that exceptional bureaucratic competence.
Not really - Amazon's existence actively harms me. It's known that their supplier pressure in some cases makes prices higher at other stores than they would be (https://www.promarket.org/2019/08/23/how-amazons-pricing-policies-squeeze-sellers-and-result-in-higher-prices-for-consumers/). And that Prime's perks are paid for by so increasing the prices at not just Amazon, but the manufacturer (https://ideoclick.com/2020/02/27/the-truth-about-who-pays-for-amazon-free-shipping/) and hence at other stores too.
So even though I don't like Amazon (not a fan of the user interface, and don't trust the quality), and don't use it (while Amazon has a huge market share, it isn't 100%), its existence and dominance still harm me.
Fair enough, if you don't use it it doesn't benefit you. However if you're among the 63% of Americans (NPR) who use it, you have. It's very convenient
Not only does it not directly benefit me, it makes prices I pay from other shops higher. Amazon Retail actively harms me, and I have no choice in the matter.
Any app you use? Any web service your employer uses? Any factory whose fault detection is done by some element of computer vision and that produces anything you use? Any produce from a field inspected by agricultural drones that you consume? Odds are, the answers to those and other questions are yes, and further odds are, many of those use AWS. Which happens to be an even more valuable part of Amazon than retail.
Substack where we are currently discussing uses AWS
I consider AWS a separate company worth a whole separate conversation from one about Amazon Retail. The discussion is specifically about the Retail monopoly!
One begets the other. Can you slice the whole and call it what it is?
Amazon retail is what gave AWS its original reason to exist though not like it was an independent venture by Bezos like Tesla/SpaceX for Elon.
This seems like a reach. I suspect Amazon's existence in online retail saved you money overall, despite you not using them.
The main point of Sussman's article is that Amazon can pressure brands into increasing their price in other stores. It does this by punishing sellers who price their items too high by changing the "Add to cart" button to a "See all buying options" button. Customers can still buy it, but it's an extra step. If the seller wants the "Add to cart" button, they need to sell it for the same price everywhere.
Sussman then argues that it's more expensive to sell on Amazon, so sellers are forced to charge more than they might in traditional retail stores.
1. Amazon takes a much lower cut (~15%) than brick and mortar stores traditionally have. However, then the seller still has to ship their items. Amazon pays sellers a credit for shipping, but it's not usually enough to cover the full amount. So Amazon can end up costing the seller more or less than physical stores, depending largely on how much it costs them to ship items.
2. Minimum Advertised Price policies were around long before Amazon. They'd be still be common, regardless of Amazon.
3. Sussman isn't able to quantify what cost increase Amazon caused for consumers.
4. Competition from inexpensive items on Amazon (and online retail in general) pushes down prices at physical stores as well.
5. Amazon's tactics here are friendly to their customers - it clues us in when an item is overpriced or may not be authentic. I don't really see it as sinister.
“ 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.”
In the absence of Amazon or equivalent, why wouldn’t retailers just have their own websites?
Retailers *do* have their own websites. This is one of those inconvenient facts that everybody keeps completely losing when we talk about Amazon as a natural monopoly.
Yes. But then does Amazon add economic value? (The shopping I mean not AWS).
Of course it does.
1) Amazon is competition, keeping pricing honest and making sure that niche retailers can directly compete against big retailers by taking advantage of Amazon’s fulfillment.
2) Amazon often delivers better or equivalent prices than a manufacturer can using their own storefront while providing better customer service and fulfillment. Most retailers couldn’t manage two-day before Amazon and they’re still struggling with it, Amazon is providing one-day or same-day now, and guaranteeing free refunds and returns.
Amazon doesn't "keep pricing honest" at least to the extent that it literally prevents (by contract) retailers from selling their goods at lower cost anywhere else, thereby preventing any savings on overhead to be passed on to the consumer by their disintermediation. And sure, you can always opt not to be on Amazon as a sellers of goods, but it's not clear that that isn't economic insanity precisely because of Amazon's enormous reach and network effects.
It seems perfectly clear. Can companies survive and thrive without selling on Amazon? We know the answer to this question is yes because we observe they do. This “enormous reach and network effects” doesn’t seem to have the effect you predict.
Since your second point fails the first point doesn’t hold water.
Clearly, because people choose to use Amazon despite a wide range of competitors, including Walmart.com, which has a similarly wide range of products for sale.
Free 2 day shipping is a big one. There's nothing super hard to replicate about Amazon except for the logistics, which are far above the competition.
how old are you? I remember the days when i had to individually go to different websites to shop for different stuff online, price compare manually without being able to trust the retailer to not (overly) gouge me, go read online reviews to see whether that retailer ships reliably and actually has stuff in stock when they say they do or just hold your money while they order themselves, reenter my information every time i buy from a new website, get to checkout page to discover they plan to overcharge me for shipping, not being able to return stuff or only return with a big restocking fee + return shipping costs (or at very least having to pay attention to terms & conditions carefully each time when buying), losing track of where and when i bought stuff when i want to buy something again later, and getting inundated by spam mail because every website i bought lampbulbs or whatever 15 years ago still wants to send me deal emails (and asks for log in information i've long forgotten when I try to unsubscribe).
I did that stuff for years, and it was extremely unpleasant, and let's not go back to that.
I think the difference between shopping at Amazon vs. shopping at <x> is that <x> was often a brick-and-mortar shop experimenting with online. Their incentive was to say "me too" but attempt to nudge you to their physical shop.
Yes there were a number of online-only sites in the dotcom era. Many of those were intended to capture venture capital money rather than build something real.
to be clear am referring to the 2004-10 period so well past dotcom era, when i didn't trust internet enough to online shop (i didn't live in US then)
And it's still somewhat the case. I ordered shoes from a large-but-niche retailer online, and though they were very good with some difficult customer service issues (probably stolen from my porch), it was still a bit of a shock to pay so much in shipping, to see the currency converted at the final checkout step, to have the delivery be in weeks instead of days, to pay unexpected duty fees, to go back and forth on email about the missing delivery... I will order there again because the product is excellent but heavens it made Amazon look futuristic by comparison.
>price compare manually
PriceRunner's been around since 1999, longer than I've been shopping online. Presumably other countries have something similar.
well i mean you don't even need price comparison websites - google shopping does it for you right in the search results (btw quickly checked out pricerunner - 2.6m products across 6.1k shops seems low no? can you always find the exact SKU you are looking for? amazon claims 350m items listed dunno how that number would be for UK only) but that process is still what I consider manual price comparison. I need to click through each individual website, check the price scrapper got the correct number, check they actually have that item in stock, check it's the right item/size, check shipping charges/tax, check shipping time etc. and do that for at least the 3-4 first listings on the search, sometimes many many more. It can be fairly painless or quite painful depending on what one is looking for and whether one knows exactly what one wants before starting the search, but it's much worse than just shopping on amazon. I still do it occasionally so i know.
Out of curiosity I just checked and I made an average of around 180 orders per year from 2017 to 2021 on Amazon (one every other day! many of these were for multiple items! all of these are for the personal use of our family btw.) I would've gone absolutely crazy and definitely would've bought a lot less online (to be debated elsewhere whether that would've been a good or bad thing...) if I had to spread and track these purchases across a hundred separate web storefronts.
Amazon has been getting notably worse as a service over the last few years. (Removed various options from the searches to push recommended results, lack of quality control, app crashing on my phone despite it basically being text and images which is a solved problem, etc.). Being in a monopoly position means you can be worse than potential competitors but it doesn't matter and you just extract rents.
Amazon has been getting notably better IMHO. From 2-day guaranteed delivery on some products, to 2-day on most, to next-day and same-day delivery on very many, the delivery standard keeps getting pushed up. The availability of products, previously staggering, is now colossal.
As far as your problems with searches and app stability go… I have to think part of that’s on you for extrapolating your experience to others. The app doesn’t crash for me basically ever, and they’re offering more custom tailored searches for different storefronts and it’s very easy to exclude recommended results. Virtually everybody I know uses Amazon as a first preference and has nice things to say about it.
But when they don’t use it or can’t find what they want, they buy from another retailer with a slight shrug. Which is quite a bizarre image if you believe Amazon’s a monopoly.
+1
I find Amazon search to be catastrophically bad for any actual shopping, but obviously there's a range of experiences out there.
I shop routinely at Amazon, never had the app crash, and frequently compare them to alternatives. For most non-food non-bulk things, they remain the best option by far.
Maybe. Something I find myself doing increasingly these days is searching up stuff on Amazon to get a sense of the variety of widgets that do X, their relative cost, what people think of them, what features are valued or not, which companies do a good job and which don't -- and then seeing if I can buy direct from someone more local, or who might offer a better price. I succeed in getting a better deal elsewhere maybe 25% of the time. But that means I'm exploiting Amazon -- I'm using all this information they centrally gather and publish for free, and then they're getting $0 of my eventual purchase.
This is much more plausible than when Amazon first got started, because back then everybody else's online commerce was complete crap. But nowadays it's easy for even the smallest firm to have a first-class e-commerce operation, so that is much less of a problem.
Which is to say I feel like Amazon is creeping towards the position that the brick-and-mortar stores got put in by Amazon itself, back in the day (which is where the person goes to the store to check out the selection, compare prices, examine the merchandise, talk it over with salesmen -- and then did the actual order with Amazon because it was lower cost or faster). They're providing so much valuable information in one place for free, and the ability of consumers to take that information and go elsewhere to actually buy has become so much easier, thanks to Google and turnkey e-commerce software, I think Amazon's ability to use any putative monopoly power to hike prices well above equilibrium is limited and probably growing weaker with time.
What's great for a consumer are not monopolies, but low prices, good service and so on. Private companies provide these things because if they didn't, other companies would eventually outcompete them. A profit-oriented monopolist has no incentive to provide these things because by definition they have no competition. The only remaining factor to maximise is profit, with all the consequences that entails.
So what does it say about Amazon that they’re still delivering faster fulfillment and lower prices than the competition?
That they have enough monopoly power to force everyone selling on their site to not offer lower prices elsewhere???
Can you elaborate? How can they "force" them not to do this? Let's say I started a startup that would simply sell products for lower prices than Amazon and still make a profit, because Amazon is over-pricing them. What would they do to me?
Amazon will penalize their own sellers if their prices are not generally below non-Amazon average selling prices. Amazon has huge volume but takes a larger cut than many other sites. Accordingly, sellers are left with the choice of not selling elsewhere or jacking up prices elsewhere.
Or not selling on Amazon.
That still contradicts the grandparent comment, though: they should supposedly have no incentive to *ever* offer good prices or quick shipping.
The problem with this whole chain is that Amazon is not a monopoly at all. There are thousands of online stores, selling just about anything you would want - more than is sold on Amazon. You can shop Walmart's site for a wide range of products, or shop various legacy store's sites for their product lines (Home Depot or JCPenney or whatever), or go to one of thousands of niche online sites you've never heard of and buy whatever you want (I looked up chainsaw sellers for another post). Amazon is now not, and never has been, a monopoly. They offer some really good reasons to *want* to buy from them, which are by no means necessary - as you can tell by the plethora of competing options.
This may be a marginal example, but I find that any used book I want to buy is almost always cheaper on eBay than on Amazon. Sometimes the same seller lists the same book cheaper on eBay than Amazon. As a seller, I also prefer eBay because of lower fees.
Maybe there's something I'm not getting here, but I'm still rather baffled at the use of the word "Monopoly", natural or otherwise, for a company with a 38% market share.
There are two different meanings of "monopoly", it seems. This is the best quote I could quickly find:
"A pure monopoly is a single supplier in a market. For the purposes of regulation, monopoly power exists when a single firm controls 25% or more of a particular market."
https://www.economicsonline.co.uk/business_economics/monopoly.html/
(I've seen multiple differently worded definitions of monopoly - but essentially they seem to fall into two meanings, one about being a single supplier, and another about having power to control a market)
In this case, as I link to above, Amazon Retail has a large enough market share it can threaten suppliers, and so control prices in other shops as well as its own. This falls into the "monopoly power" category.
This seems naive with respect to how business operates. It's a fairly rare actual real-world business that *doesn't* have a supplier, a customer, or both to which it has to be pretty sensistive, because the relationship going bad would be a major hit. A local pool supplier and a big HOA customer. A golf course and the local landscape company. The landscape company and the local nursery. A mall and its anchor tenant. A gas station and a local company with a big fleet of delivery vehicles. And so on.
In the real world, prices and contract details are *often* not sometimes set by consideration of your business relationships. They aren't usually hugely out of whack compared to what would happen in a hypothetical ideal Invisible Hand free market in which each business had infinity competitors and infinity potential customers, but they're also not identical.
So to the extent Amazon "threatens" suppliers and is able to nudge prices around -- this by itself is as common as crabgrass in business. It's only if Amazon had the ability to double or triple prices, relative to their natural level, or drive strong competitors entirely out of business, that its power would reach historically unusual levels.
> 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.
The solution is 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 is also required to sell their monopoly rights to anyone who offers to pay this self-assessed price, which is how they are compelled to make accurate assessments.
I'd recommend this paper for further reading on Harberger taxes
https://academic.oup.com/jla/article/9/1/51/3572441.
Before I read a paper, how does this apply to the presumed 'Natural Monopoly on Retail'?
Is the tax paid on Amazon's market share? If you outbid, do you now own Amazon?
The tax is on ownership of the company, so yes if you outbid you would now own Amazon.
So you're proposing a wealth tax? But only on Amazon and not on all uses of capital
No it's not a wealth tax, it's a monopoly tax. It theoretically could be applied to all forms of private property. Basically, if you want exclusive rights to anything you have to pay the tax, and someone else can bid a higher price to buy the monopoly from you.
Are we talking about a monopoly on 'retail' or a monopoly on any and every discrete unit of property? Either way this seems entirely unpractical
>>>It theoretically could be applied to all forms of private property.
So, I have a house. I like my house, I paid for it, I fixed it up, it's mine.
I manage to pay the tax on the house, at a rate I can afford, and any yahoo can come along and force me to sell it to them, at the taxed value?
And they can do that to my car? My business? My artwork?
Fuck that noise. They can go to hell.
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.)
Rigano was a socialist who explicitly created this scheme to gradually transfer all private property to the state. So unless you are going to explain why your particular conception of the idea is different, you need to provide a full justification/argument for socialism per se for anyone to take this scheme seriously.
My comment explicitly mentions many others with similar schemes. Are you going to name call all of them as socialists instead of actually engaging in good faith? Claiming Robert Nozick is a socialist is not a strong position.
Nothing about progressive taxation over time requires complete transfer of all private property to the state.
It's not "name-calling". He literally identified as a socialist, and the purpose of this scheme was explicitly to nationalize all wealth, not marginally increase tax revenue.
> So unless you are going to explain why your particular conception of the idea is different, you need to provide a full justification/argument for socialism per se for anyone to take this scheme seriously.
That's a non-sequitur. Gradually nationalizing inheritances long after one's death doesn't result in socialism.
That doesn't necessarily make it a good idea, because the devil is in the details:
1) If generation 0 founds a successful company and bequeaths ownership to their heirs in generation 1, and the company gains in value, how would that gain be taxed when bequeathed to generation 2?
2) If generation 1 inherits a certain amount of money, and they invest in the stock market, and those stocks gain in value, how would those gains be taxed when bequeathed to generation 2?
3) If generation 1 inherits a certain amount of money, and they use that money to found a successful company, how whould the inheritance to generation 2 be taxed?
Having gone through several estate transitions, I see stepped up basis as a valuable way to reset the process and reduce complexity and future errors. If one owned telecom and energy stocks before the split ups, the process of reissuing and tracking new stock issues was a nightmare. To pass on that mess for generations would be a landmine for potential abuse IMHO.
I much prefer an estate tax on the current value or a tax on gains at death vs. carrying unrealized gains forward. A current value tax seems the simplest and may be harder to game vs. taxing gains. The tax code could even offer a choice like the standard deduction vs. itemized deductions. The other advantage is that stepping up the basis allows the beneficiary to rebalance without incurring additional tax, which can be a significant benefit and may induce more prudent decisions.
"That's a non-sequitur."
Hey, it might also be guilt-by-association (if the implication is that, because Rigano was a socialist, any policy ideas he had must be fundamentally socialist in nature) or a slippery slope argument (if the implication is that any move towards even moderately left-wing economic policies will inevitably lead towards full socialism and the total transfer of all wealth to the state). But you're right that it's definitely a fallacy of some kind.
Let's start with a standard defense of the right to bequeath: If estate is taxed at 100%, the future decedent finds a way to within their lifetime spend it or give it to causes more valuable to them than the public fisc. To the extent this is wasteful and we would like their wealth to remain invested on a longer time horizon, maybe 100% estate tax isn't the right idea. You don't have to agree with this defense -- but regardless of whether you agree with it, the Rignano scheme doesn't improve on it. Under the Rignano scheme, there is still a generation that faces confiscatory estate tax rates and would rather blow it on whatever during their lifetime than let it go to the tax man. And if regression to the mean is a thing, the preferences of the third or whatever generation are probably less optimal than the preferences of the founder for how one disposes of wealth under fire sale conditions.
I'll note that the whole "step-up basis" thing would have seemed much less of a big deal prior to ~1970 - inflation massively changes the implications of a capital gains tax on nominal value, and shifting to fiat currency massively changes the amount of inflation an economy expects.
Up until recently with automatical electronic recordkeeping, not having it would be a logistical nightmare as well.
"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
Investment banks and other financial intermediaries also help company owners do this, via a combination of option-hedging and sales, where they can take possession of $1b in shares, buy options to hedge losses over the next 3 months, and slowly liquidate both the position and the hedge.
They also can lend money on the basis of the shares and take possession later, often as a way to get around rules about selling shares early, or needing to declare the sales at the time / before they have access to the money.
Or, imagine that a government needed to rebalanced it's reserves portfolio, for some reason.
A senior (very senior) minister announces exactly what the process is going to be, which assets are to be sold, and when this is going to happen.
Oh, hang on a minute...
No politics necessary – this is a known problem with index-fund rebalancing. See https://www.thearmchairtrader.com/etf-rebalancing-academic-paper-sida-li/ for a discussion of a recent academic study modeling the effect.
By design, index funds track the composition of an externally-defined index such as the S&P 500, and changes to the composition of that index are announced in advance. Rebalancing causes enough buy/sell pressure to move prices, so in some cases traders can make a profit by front-running the move, buying a to-be-added stock ahead of time and selling it during the price bump caused by the rebalance. (Or selling/removed/rebuying, for the opposite case)
Index composition/re-balancing aren't necessarily announced in advance - the rules are set, and (broadly) well known and understood by those market participants interested enough to be paying attention. So, yeah, any FTSE/MSCI product, or the HKSE Tracker fund (a right big bastard), the rules would be well known, so, yes, there would be "front-running" once a quarter or so. But, until the actual close on the day, you would never be *quite* sure just how *close* you would be.
Other market participants might only act once the changes had been officially announced - after the close, so they would have to act on the next open. (This potentially gets more than slightly iterative in the run-up.)
The thing here is "well-defined" or "externally-defined". Brown's problem was that neither were quite true of the reserve situation, and yet he still shot his mouth off (at Mansion House?). It revealed, at best, a certain amount of naivete on the part of the Chancellor with regard to how markets actually worked - by continually processing new information(*) - or may be it's much worse than that, it's a problem within the Treasury.
(*) Something of a recollection, that I now can't be sure of - someone used the speech and the resulting market moves to investigate, and reasonably prove, a memory or persistence effect within market prices. One of those things that should have been bleeding obvious anyway.
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.
" Some will trade this year, this month, or faster. There's more stock circulating. More supply means lower price."
That's kind-of true unless companies issue dividends, in which case the supply held in reserve by the owner doesn't really change in value. And a somewhat equivalent argument can be made for when they don't issue dividends and/or do buybacks in place of dividends, based on the ability to find private equity funds to buy companies and privatize profits instead of issuing dividends. Though this likely fails at the scale of Amazon.
It also fails with American tech stocks, which trade at insane multiples of revenue because everyone keeps expecting "growth" instead - and that expectation would rationally decrease if Bezos sold out.
> How would this impact inflation? Not at all
Don’t agree. It would be disastrous, because it’s a direct threat by the government that they can cause terrifying amounts of inflation just by being careless, and you have to factor the probability of a careless mistake (such as breaking the glass) into the value of future investments. By taking this action, you’ve taken concrete steps to step very close to a cliff. That you didn’t hurl yourself off is good, but you’re still balancing on the edge where before you were safely behind the railing.
That said you’ve got the rest right. Bezos’s unwillingness to sell or liquidate has a direct effect on AMZN prices.
https://www.lesswrong.com/posts/s9hTXtAPn2ZEAWutr/please-don-t-fight-the-hypothetical
This seems unlikely not to affect inflation - the bills are in existence and can be spent at any time (or robbed and then spent).
Also a lot of people are saying "well Bezos could sell out and not affect the price using <scheme>". I haven't seen anyone mention that Bezos' selling would affect people's perception of Amazon as being a good investment - can you trust that whoever buys the stock will be competent?
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.
Hear hear.
What percentage of startup funding comes from this source?
I know its a thing, but for real results, that's a question for Paul Graham.
https://www.PaulGraham.com
All of it? I mean, seriously, where do you think venture capital comes from, if not from rich people?
I think it comes from rich people.
To be pedantic, I expect that a large portion of venture capital funding comes from people with merely dozens of millions of dollars, but billionaires are the ones who can afford to personally fund a start-up rather than be part of a pool of money managed by someone else.
Maybe. I would guess one's willingness to chip in $250k-$1M in cash to a VC venture probably begins around $10-25 million net worth, which is consistent with what you're saying. Whether there are more VC firms that consist of ~100 such people than those that have ~10 much wealthier people that can invest $10M at a time, I don't know, that's above my investing grade level.
Good chunk comes from DARPA tbf. And they make very prescient investments.
> 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.
This. Functional systems do not simply run, not for long anyway.
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.
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.
Underrated comment, and this is true for more than just stock. Buying a distressed company with a lot of assets and then reshuffling them into a different business with a better asset-branding fit (made the term up) and then using it as a collateral (including the business model of the second business itself) could be very profitable.
hmm it works at small scale but not at large one. For one thing banks require very low loan-to-value for these loans so he could only get liquidity for a minority of his stake. But that's still a huge sum of money. But then one needs to think about how he is going to service the interest (Amazon doesn't pay dividends...) especially in a rising rate environment like today. And he'd be adding leverage to his balance sheet which is a dangerous thing to do and good way to get rich as well as to get poor real quick.
> But then one needs to think about how he is going to service the interest (Amazon doesn't pay dividends...)
Not necessarily. A growing company that doesn't pay dividends would still experience price appreciation. In expectation, risky (volatile) Amazon stock should grow at a faster rate than the interest on a secured loan, so the loan interest could be recapitalized (paid by taking out a further loan) and still result in a declining loan-to-value ratio.
In the opposite setup that is financially identical (i.e. it's still a margin loan), if you borrowed money in 1995 at prevailing secured-loan rates to invest in Amazon stock, you'd be very wealthy today.
this all works super well backward looking. As someone who has personally a HELOC on my house outstanding to fund some personal investments I can tell you it feels very different if you don't have a crystal ball. My HELOC interest has already doubled in last year (as HELOC is not fixed rate unlike standard mortgages), and with the stock market in free fall and private equity exits all but frozen the cashflow i was counting on to fund that interest looks unlikely to materialize for next 12-24 months at least. Am actually looking to get another job to generate that cash.
Or to take a more Bezos relevant comparison - Mark Zuckerberg saw his net worth go from 125bn to 55bn in the past 9 months. What do you think would be happening to him right now if he had borrowed aggressively against his FB stock last year (to invest in some other crap that is also way down)? People somehow equate loans with free money when it's just additional risk/reward that can work out either way.
If you're talking about funding other mega-cap ventures, you are correct.
But if you are talking about funding personal expenditures, anything Mr Bezos might do for his personal enjoyment still amounts to a small fraction of his fortune, and yes that includes the half-billion dollar yacht. His personal hedonism is a rounding error.
It's well known that you can easily get rich at the track. All you need to do is bet on the winning horses.
The amount of stock you need to sell to service the interest is MUCH lower than the amount you need to sell to get the amount of cash you borrowed. Musk and Bezos are selling shares for cash too, it's not either/or.
This isn't hypothetical; you can look at Musk's position if you want to see the workings: https://financialpost.com/personal-finance/high-net-worth/elon-musk-short-on-cash-keeps-borrowing-more-and-more-money-even-as-tesla-stock-surges
The key thing to note is that these hyper-growth companies are appreciating at 20-30% YoY or higher, and so the normal rules of retail investing just don't apply. If TSLA tanks, Musk will get a margin call on his loan, sell some tiny fraction of his stock to close the loan out, and still hold a big chunk of TSLA (though to be sure, he might lose on the trade vs. just selling the shares up front). If TSLA keeps going up, then he's given up some of the gains, but didn't have to sell his shares.
You're right that it's a high-risk play. But the floor is extremely high, Musk is not going to ruin himself with this bet.
Necroing an old comment, but was reminded of this when reading https://www.wsj.com/articles/peloton-co-founder-john-foley-faced-repeated-margin-calls-from-goldman-sachs-as-stock-slumped-11665488908?mod=mhp today. Peloton founder got stuck with bunch of margin calls after his stock fell by 95pct, and had to leave company he founded so he could more freely sell down his remaining stock to service the loans. Debt always sounds like free money until shit hits the fan.
Thanks for following up with that data point. This is probably a good baseline for "worst case" for this strategy; staking 20% of your shares for loans, then getting hit with a 95% stock price reduction.
I would note that Musk's loans looked to be more like 1% of his total wealth at the time of that article I linked, so I think my statement above still holds. (Sure, if he held on all the way to a 95% reduction in his portfolio, naively that leaves him selling 20% of his remaining 5% to repay the full 1% loan. And it's just a margin call so you don't have to repay the whole thing.)
I would also note that in this case, the founder had already handed over the reins to another CEO, so this doesn't really fit with the broad category of concern that we were discussing elsewhere, where the founder loses control of the company because they had to come up with more cash.
And his exit as Chairman is part of a broader cleaning of house (https://www.wsj.com/articles/peloton-chairman-john-foley-to-exit-in-management-shake-up-11663014900) following the failure of their growth strategy, so it seems possible to me that he's not leaving merely because of his loans, instead he was pushed out as Chairman because his faction's strategy failed.
oh yeah totally agree foley was fired and the chairman stuff was just a fig leaf anyways. It was just an example of how margin loans can be really dangerous for certain types of high vol stock (Tesla historically would have said is in same zip code as Peloton in terms of downside potential although maybe they are past that now) when combined with certain types of overly optimistic founder personalities (is there another founder type I know, but i've listened to foley speak publicly and at investor dinners a few times, the type of perseverance that allowed him to keep trying when hundreds of VCs told him no is off the charts even for entrepreneurs and ultimately blinded him, and Musk is pretty similar probably). Your points when applied to the likes of Bezos I'd say are 100% relevant. Amazon stock has a real floor (even a regulatory breakup would arguably boost the SOTP valuation in short term, and they can boost profitability whenever they want if they needed to) and his borrowing against his shares is something of a free lunch (although even there I could see a scenario where he ends being worse off ultimately vs. just selling stock and eating the taxes, e.g. if raising rates makes rolling over the loans unpalatable and he is forced to liquidate stock at bottom of the cycle - the two things being pretty correlated. e.g. AMZN is down 40% from peak already - that difference is 2x Jeff's marginal cap gains rate (no state taxes in WA IIRC) so if he sold anything before stock recovers he'd be worse off by having borrowed)
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).
If someone asked me to define a "tax loophole," I might very well say, "a tax feature that most people don't like." How would you define it?
"Loophole" implies a certain narrowness, something that requires a degree of intent and planning to exploit. South Dakota trusts are a loophole. Carried interest might be a loophole. All one needs to do to benefit from basis step-up is die with appreciated assets.
And though tastes may vary, the dying part is a deterrent to most.
I think most people don't like most tax features. Is the whole tax law a loophole?
First attempt at another definition: An exploitable feature of tax law that the law writers did not intend.
I think most loopholes are intended - they're frequently carve-outs for some small lobby group, in classic "concentrated gains, dilute costs" fashion
A "loophole" is I think by usual definition a bug, not a feature. The people who created the law, regulation, or whatever wanted to achieve X, but because of some clever or obscure thing they didn't anticipate, it is being used to achieve !X. If the people who wrote the law wanted it to achieve X, and it achieves X in approximately the way they wanted, then lots of *other* people disliking X doesn't make that a loophole.
It's possible that you could get a "loophole" by deliberate design through principal-agent problems, if e.g. a legislator delegates the actual writing of the bill to a staffer who is in the pay of some special interest and knows his boss's review of the draft will be too cursory to catch a clever bit of trickery. But I don't think that's the case with stepped-up cost basis.
I agree with this.
What about principal agent problems where the MP knows damn well what he's doing, but 90% of the voters he represents don't want that clause in there?
If it was explicitly a campaign issue where the MP ran on a promise of taxing the billionaires into oblivion, or something like that, it would probably count as a malicious loophole. Otherwise, the voters are selecting a representative who will have to use his best judgement on how to represent their top-level interests and aren't always going to agree with or even understand the details. People who make sausage for a living, necessarily do things that would gross out most of the people who eat the stuff.
"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.
Possibly, but that seems like a bad idea then. You need early investors, and Amazon was really bad for investors for several decades - they didn't pay dividends so they could reinvest instead, meaning investors essentially got stiffed except for the promise of stock price increases. Take that away as well, and then nobody wants to invest, and the company never gets off the ground.
>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.
but when does early stage end? Tik Tok is upstaging FB/Instagram pretty massively at moment through innovative use of AI and video-first focus. Looking back 10 years from now if Meta has blown up you can make same argument about them vs. ByteDance. That's just how corporations work, none stay around for 1000 years (and when i see corporate chieftains start growing big heads and drafting "1000 year business plans" it's a good signal to sell)
The social media monopoly seems to be a generational thing. The case for a monopoly windfall tax on Facebook is about the same as for a similar tax on the Beatles.
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.
And Jeff Bezos, who owns maybe the most prestigious newspaper in America.
Second most prestigious. The Ochs family owns the most prestigious.
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.
why just the domain name? why not the trademark itself? why shouldn't we wake up one day and buy a bmw and discover it's now make by geely? that sounds like fun.
Unlike other kinds of IP, trademarks are mostly a consumer protection thing. The presence of a trademark let's a consumer infer about the quality based on the reputation of the marker.
For complex and illegible products (like a BMW) that information is really important and essentially impossible to measure directly.
but what's difference vs. Amazon? how are consumers supposed to know they are no longer buying from bezos?
btw funny and somewhat relevant story: back in late 90s there was a very successful computer shop in my town. they just sold plain PCs but back then it was a great business. Founders bought (and crashed) several sports cars etc. and were generally known for flouting their wealth (know cause a buddy worked there). Well one day they decided to expand the business cause store location had become too small, so they rented a bigger place nearby and moved their operations there. Well guess what some smartass got wind of their plans, took over the lease and opened a new computer store at the exact same location. It had a different name etc. but people just went in anyway either guessing the store changed names but was still same outfit, or just didn't care after all they already came all that way. From one day to next they stole a very large portion of the business of the previous firm. I still remember the website of the old business having that giant flashing sign when you go there warning people in fluorescent letters that yes they had moved and please please don't go to their old location. It was hilarious.
“ 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?