"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?
I think it's a red herring to consider "If Musk sold his entire stake in Tesla". This is not the counterfactual we care about. As Nolan pointed out above (and others have elsewhere), nobody is proposing anything that would require Musk to sell all of his stake in one shot, and he would not do that because it would be crazy.
Income taxes are marginal. So you have tiers, and if you want to discourage billionaires you might tax capital gains like normal income, and then have a tier for "earnings above $1B". If you had a 90% marginal tax rate for capital gains above $1B, you'd definitely disincentivize realizing gains, and instead you would see a lot more "Bezos sells $1B of AMZN" headlines, and a lot less "Bezos sells $6B of AMZN". Presumably if you were going after billionaires like this you'd also take some action to tax stock-collateralized-debt as well, but I don't know the feasibility of this. (Details on the tax structure of these loans: https://wealthlegacygroup.com/when-can-borrowing-save-you-taxes/).
Even if you imagine a Warren-style wealth tax on wealth above $1B, you still get to keep everything below $1B. So even in (what I believe to be) the most-aggressively-redistributive approach to redistributing from billionaires, you still leave Musk with $1B of stock that's untouched, and you only tax the wealth above $1B at a certain % (I think Warren had 6%?). So every year Musk has to sell ($Total_TSLA - $1B) * 6% of his shares. The asymptote here is him holding $1B of shares. At no time does his tax bill require him to sell everything.
So to your point, the relevant counterfactual is "what psychological impact would there be from Musk selling the bare minimum he's required to for taxes?", and I think you can make a claim that the answer is "approximately zero"; he can just tweet "I had to sell some TSLA to pay taxes. Still out to get the short sellers. To the moon!" and everyone that was on board for psychological reasons will remain on board. (Of course there's the price signal that anyone selling TSLA would produce, but we're interested in the component that's unique to Musk selling TSLA.)
All wealth is paper wealth and very little of it can be liquidated at book value. If you sell your house, you may well get market price for it. But if everyone in your neighborhood sells at the same time, your houses will all be fairly close to worthless.
This is why taxes on unrealized capital gains are a silly idea: unrealized capital gains do not exist.
"The reason I am writing this on Substack and not some Microsoft comment board is because of an antitrust lawsuit."
The MS antitrust trial, like most antitrust trials, reached an absolutely pointless verdict. It had MS donating software to schools, further entrenching its monopoly. I recognize that RedHat credited the trial with buying it some breathing room. But... presumably that breathing room closed up when the trial did.
"Come on! It’s obviously a combination of talent and luck!"
Is luck different than risk? I mean, Bill Gates had family connections that the average person does not have. They allowed him to get his interview with IBM. Luck, like being born into a family with already high social status, is potentially a different entity than the ambient risk involved in starting a business. Both of these things are potentially relevant.
I feel like we're potentially conflating two very different arguments here.
I am surprised this is the first comment pointing out that Scott’s Microsoft antitrust comment was a huge miss. Point blank, there’s no evidence that MS could ever have ‘monopolized’ the internet any more than AOL could have; there is no evidence that being the dominant web browser actually conveys an exchangeable interest in the internet; the antitrust suit did not actually lead to our current equilibrium, MS getting outcompeted in search did.
In fact, Scott quoted Kaleberg's comment, but otherwise I agree with your assessment.
The Wikipedia article on the browser wars [0] mentions the antitrust trials exactly once (in the context of evidence being given). Even when IE usage peaked above 90%, it would be absurd to equate this with Microsoft having a stranglehold over the open internet: if they had tried to control the content of websites IE could display (blocking porn, for example), people would have switched browsers.
MS certainly used their market share to push nonstandard browser behavior, and I recon to some degree fear of antitrust legislation might have limited that. But from what I have heard, they mostly tuned down IE development after winning the war.
I suppose that there is a dystopian alternate history thinkable where Microsoft invented the smartphone and came to dominate the handheld market with Windows CE and a mobile version of Internet Explorer, but my suspension of disbelief is insufficient to imagine it. While I can imagine dread Cthulhu waking up from eons of slumber to turn our world into a nightmare, I can not imagine Microsoft innovating their way out of a wet paper bag.
> Luck, like being born into a family with already high social status
I don't think this has anything with luck: it is an antonym to luck. Not only is the most unplanned, accidental kid is causally determined by their parents' contribution, the high social status parents mostly plan their kids in advance. I certainly have made and continue to make life choices that will benefit the kid(s) I may have maybe in 5 to 10 years in future.
Sure, if you imagine that everyone is a disembodied soul beyond the veil who gets assigned to random body before the birth, you could say the it is "luck" that someone was born into rich family than a poor one, but such view has nothing to do with the reality or human reproduction.
One of the things that wasn’t really mentioned is whether Amazon actually adds the value to the economy that its valuation would justify. There was a lot of “Amazon adds 100B” to the economy in the last posts but is that true, or is it partially or mostly rent seeking?
In a world without Amazon and no equivalent Amazon competitor I assume we would be going to the websites of the company we wanted to buy from, having googled it, or visited a local shop.
With regards to websites this is only a slight friction these days (particularly with Apple Pay or google pay and devices remembering credit cards) and it’s how I buy groceries, laptops, candles, cleaner robots etc. Although I use Amazon as well of course, in its absence there wouldn’t be an economic collapse.
In fact, I would argue that Amazon has done extreme damage to our economy in a similar fashion to Wal-Mart. Just because a business is profitable doesn't mean it's making the world a better place.
Phillip Morris was profitable, but cigarettes cause cancer and they sold them specifically to kids to get them addicted.
Amazon is making my life much better. In minutes I can shop for things which would have taken me hours and multiple trips. Net result is unimaginably more variety, much better quality, substantially lower prices and less time and effort. Truly one of the greatest economic advancements during my life. On a scale of 1 to a 100 this one is at least in the high 90s.
The fact that Bezos got rich making this happens is proof that the world's institutions can still work. I would much rather have Amazon and IPhones and Wikipedia than silly flying Jetson cars.
The estate tax point makes many questionable silent assumptions. E.g., high gift taxes, to prevent avoiding the death tax by giving away large amounts pre-death. And giving money to government bureaucrats is likely to be more beneficial than having it be invested in profit-seeking ventures. And that the result of all this won’t cause some other dodge that is even worse for society generally. I guess most people are comfortable ignoring those, or taking them on faith.
If Bezos announced he was selling all his stock it would definitely drive the price down significantly. Even if he says it's only because he wants the cash, and not a reflection of his opinion of the future value of the company the market will take it as signal that he (who is in a position to know better than anyone else) doesn't think Amazon is going to grow spectacularly in the future. Even if he needed the cash, if he believed that he could do things like get a large loan at low interest rate that is collateralized by his AMZN stock. For instance, this is how Elon Musk was going to pay for a big chunk of his Twitter acquisition. The Musk-Twitter case also provides another piece of relevant evidence: when Musk started selling some of his TSLA stock to get cash for the part of the TWTR deal he was paying in cash, TSLA stock went down more than he expected and he had to stop selling. That might actually be part of the reason he's been trying to get out the deal (well that and the market crashing, TWTR being worth a lot less now and him being stuck paying the price he negotiated before the crash, and Musk himself being worth significantly less because TSLA price also went down).
On the other hand, 150B is a *lot* of money. He can't easily spend that much on personal consumption, even if he goes on an art work, mansion and yacht buying spree. Whatever he needs for that he can easily sell enough stock without having large impact on price.
In cases where you could actually spend tens of billions or more, you can usually do it without selling stock. If you want to give to charity, you can just give the stock - much more tax efficient.
If you want to buy a large company, you can buy it with your stock instead of cash.
If you want to set up a large foundation to pursue some long term goal of yours, you can endow it with stock.
"I think the political power of billionaires is vastly overestimated."
It can be, but I think something like the Federalist Society kind of disproves this.
Eisenhower wrote in 1954,
"Now it is true that I believe this country is following a dangerous trend when it permits too great a degree of centralization of governmental functions. I oppose this — in some instances the fight is a rather desperate one. But to attain any success it is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything — even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon “moderation” in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H.L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid"
It's pretty clear those Texas oil millionaires and their compatriots spent the next 60 years building a network of foundations/societies/groups to increase their numbers and to sound intelligent. It was a roaring success.
Just pointing to X dollars from billionaire Bob couldn't get Y elected is not the greatest test.
X dollars to foundation Y means that when random party member Z is elected, they have a prewritten law on hand that suits billionaire Bob perfectly. This is the way influence works and it is a great return on investment.
And it's not necessary to understand the exact mechanisms to know that this must be true.
All you need to do is look at the last fifty years or so. Has the US/West gotten better for billionaires or plebes? Obviously billionaires. Real wages have been flat, unions in decline, wealth inequality at the highest level in a hundred years...
But billionaires are a miniscule fraction of society - in a "true" democracy where everyone's opinion counted equally, and money couldn't buy influence/airtime/think-tanks/etc, this would not be the case, because it benefits the few at the cost of the many.
How about percent of wealth held by the top 1% has gone up from 24% to 32% while the share of wealth held by the 50th to 90th centiles has gone down from 36% to 27%. (each over 30 years) The bottom 50% has dropped as well but they were quite low to begin with.
That probably cashes out to "housing prices have gone up," though. Which is certainly true but doesn't really have anything to do with billionaires, and the policy prescription that comes from it is probably mostly "make it easier to build housing."
"wealth inequality at the highest level in a hundred years"
What does this have to do with how well off the plebes are? Are they harmed by the knowledge that other people have more than them?
"in a "true" democracy where everyone's opinion counted equally, and money couldn't buy influence/airtime/think-tanks/etc, this would not be the case"
Right. As long as the government exists, there will always be huge incentives for the wealthy to bribe them and seize more power, so we need to abolish (or at least greatly minimize) the government.
You're right, compared to productivity, they have declined significantly, my mistake.
"And this is bad why?"
Because unions - very slightly - level the extremely unequal and abusive playing field between employers and employees.
"What does this have to do with how well off the plebes are? Are they harmed by the knowledge that other people have more than them?"
You may be interested to learn that historically this is a great predictor of social unrest, violence, decline, etc.
It is a dangerous and unstable state of affairs, even setting aside the obvious moral problem.
"Right. As long as the government exists, there will always be huge incentives for the wealthy to bribe them and seize more power, so we need to abolish (or at least greatly minimize) the government."
Wow, that... could not possibly be more wrong. The government is the *only* check on the abuses of the wealthy. One need only look at a tiny amount of history to see that.
The Federalist Society runs on something like $20 milllion a year. That comes from ~dozen+ large donors (some of which are billionaires, but even there we're usually talking 100s K and occasional single digit millions gifts) and many smaller ones. While billionaires do supply funding, are they a necessary pre-requisite for something like the Federalist Society and other similar think tank organizations to exist? I don't know, but it doesn't necessarily seem like it. it's less than $0.50 per a registered Republican for example. Many individual campaigns spend way more than that.
I also don't think it's success is particularly money driven, it has a lot of influence, but I don't think that predominately flows from the (rather modest in the grand scheme of things) amount of money it controls.
It is a credible, purpose built elite network. It's not the money going to the organization directly. That's peanuts.
It's that its members will have access to endowed chairs at elite law schools (funded by large generous donations), positions in lucrative firms, an assured client base etc.
There are billions of $ on unofficial retainer for the members.
For a recent example, who paid off kavenaughs gambling debts? The actual answer doesn't really matter because it was clear that any Federalist society member who got near the high court could reasonably expect any money problems to be "dealt with".
As a card carrying member of the Federalist Society, I would very much like to join whatever Illuminati organization you're talking about. All my membership ever got me is nasty looks from my law school friends and disappointing results during OCI. You're mistaking the money and attention that surround literally every Supreme Court nominee, regardless of party or other affiliation, for the influence of what is essentially a conservative/libertarian alternative to an ideologically captured ABA (minus the massive state subsidies).
It's stochastic. There are events at universities and such. Some judges who probably specify "I only want federalist society clerkships". But that's not the point. The point is to make a pool of people who will reach the legal rulings favored by Republicans.
Look at what is happening with Judge Cannon in Florida. When she was appointed in December of 2020, how did the Trump White House know that she would bend over backwards to help Trump, to the point of going against the 11th circuit and writing in extra arguments that his own lawyers didn't make?
They saw that she was a member of the federalist society and that was enough.
But it's only a contradiction if you think that the purpose of the Federalist society is to champion conservative legal theory and make sure it's internally consistent.
If you think that the purpose is to identify a cadre of legal professionals who will do what's necessary to make sure Republicans win in court... then it makes perfect sense.
I imagine you are in the first group, as a card carrying member. There are a lot of people who fit that. I saw Scalia give a talk in Singapore about two weeks before he died and it was compelling and interesting and I agreed with much of it.
But the reason the Federalist society exists is the second purpose.
We are seeing it right now with Judge Cannon. The Federalist Society being next to her name meant that there were better than even odds she was going to figure out how to rule in favor of Trump regardless of the law or facts of the case.
Why bring up the Federalist society? Its core function could be done with almost no money. Once the fundamental recognition that the legal academy is radically left wing, and that as a result Republican presidents can't rely on them, the creation of such an entity really can't be stopped. If Leto and co didn't exist, the RNC would have naturally decided to form an internal counsel that does much of the same.
And its not like Democrats are running around with a bunch of failed nominees. There hasn't been a Dem-appointed judge that went rogue and sided with the Republicans on basically everything for several generations.
See the idea of Democratic judges vs Republican judges is recent.
The Supreme Court wasn't always seen as a nine member appointed legislature.
The Federalist Society was aimed at this idea of judges as policy makers.
If it was replaced by "Republican judge group" or some such, it would be much less effective. It needs the plausible deniability of not being partisan.
Democrats don't have an equivalent legal fraternity as Democrats generally still buy into the idea of judges as being neutral judicial actors calling balls and strikes. See Bernie people in 2016 yelling about how it was wrong to bring up the supreme court, or see all of the left wing legal people who wrote glowing praise of Gorsuch and Kavenaugh and Barrett during their nominations. All three of them said that Roe was settled law. All three of them were lying through their teeth and it was super obvious that this was true. But the norm in elite left leaning law circles was to buy into the neutrality of judges. Which elite lawyers could buy into, because these Trump nominees were members of the Federalist Society, not the "Republican favored legal outcome society."
Roberts, in his dissent on the Dobbs decision, was essentially saying, "Guys, we have been able to keep people from seeing the Federalist society as the Republican favored legal outcome society by not always using our power to maximal effect. Please don't rip off the mask. You can shear a sheep many times, you can kill it only once."
"Democrats don't have an equivalent legal fraternity as Democrats generally still buy into the idea of judges as being neutral judicial actors calling balls and strikes. "
This is just wrong, they have such a place, its called the legal academy.
Basically nothing in your post is even adjacent to the truth "all the left wing legal people who wrote glowing praise of Gorsuch and Kavenaugh..."
You mean when they were falsely accusing him of gangrape?
You could find those for Barret and Gorsuch as well. People who were at the top of the legal profession pretending that the position of these justices on certain issues was somehow unknowable and that they wouldn't act as legislators in office. Heck, Kavanaugh only got on the court because the Republican senate decided not to vote on Garland. A principle that was then forgotten when Ginsberg died.
The Epic Store example is really interesting because it shows that truckloads of money aren't enough. ES is universally reviled by gamers because everyone knows it's bundled with weird Tencent spyware, and even though they give out free games left and right nobody in their right mind will buy something on Epic instead of Steam. Whenever a game announces it'll be ES exclusive everyone groans. Gamers hate ES even when grudgingly accepting freebies from them.
On the other hand, Steam is comitted to "just working", having a very customer-friendly design philosophy, and overall being a great product that - so far - is not ran into the ground by MBAs seeking to maximize short-term profit. Combined with network effects, they are completely invincible to external disruption.
Are Steam profits fairly earned? It's debatable, but I'd say yes - they are defending their niche on their own merits, with the first mover's advantage acting as a force multiplier.
Try telling an audience of gamers that Steam is a monopoly and they should be glad that competitors are coming in with their own storefronts and launchers to introduce competition and fracture Valve’s hold over PC distribution and they’ll crucify you.
I personally am the exception to the rule. I hate Steam with a burning passion (mostly because I yearn for the days that I could launch a game without launching a store full of ads first). But I’ve had this argument over and over, I have gotten nothing but flak and vitriol every time, and I acknowledge that most gamers love Steam, it’s way more dominant in its niche than Amazon for reasons of consumer choice and the market is happy that way.
The argument that Amazon is a monopoly is pretty weak on the merits—yes they make a lot of money, but so do a ton of other online retailers. But what we should really be asking is “can we figure out if people love Amazon?” And yeah, I love Amazon, and I think there’s pretty widespread evidence that the vast majority of people (not the majority of online voices, which is different and maybe not anchored to any real world effect) love Amazon for good reason.
Not every game, sadly. Steamless + Goldberg Steam Emulator is the best solution I've found, but it does fail often.
Also, it's okay only if you don't mind breaking multiplayer, updates and/or steam workshop. Speaking of which, SW alone is a massive improvement in usability over downloading random zips off moddb and searching for obscure %APPDATA% subdirectories to dump mods into.
Predictable Steam gamer, can’t abide Steam being criticized even if it’s anlong with a compliment and comes in misinformed and in denial.
Can any Steam game be launched without launching Steam? No. Can I buy a game on Steam’s store without installing the Steam app? No. Does it in fact prohibit updates, mod compatibility, and multiplayer if you circumvent the Steam app? Yes.
Honestly, I’d rather the days that games game in a CD sleeve in a cardboard box, but you do you man. Just don’t expect the rest of us to be thrilled about you willingly shackling yourself to a single seller as if Steam is your devoted girlfriend. They’re just making money off you dude, it’s all ecosystem lock-in.
More storefronts would be good, except that they primarily compete via exclusives and that's awful. Maybe if someone makes a competitor to Steam that's good on its own merits I'll use it - I've bought games from GOG and the Humble storefront before, GOG in particular both because of its niche of having old games, and because I approve of their stance on DRM - but the introduction of players like EGS and Origin to the market meant I had to get a bunch of new bloatware if I wanted to play a given game, and now my library is spread out over multiple storefronts and it's a pain.
Steam is literally a natural monopoly. Just listen to all the whiny gamers admitting they'll pay virtually any price to have all their games on a single launcher. And ideally they won't have to manually add them either. They'd rather not play a game than buy it somewhere else and use Steam's relatively simple "add non-steam game" feature.
Hell Gamestop bought Stardock's Impulse and then eventually closed it. I guess Gamestop is like Sears for games but at least they tried. Sadly I lost $100s of dollars of games due to the closure. Didn't download them all in time, mostly due to disk space.
Yes, Steam is customer-oriented, Epic is developer-oriented, with the 12% price cut being their biggest marketing point, and the absolute refusal to allow user reviews the second biggest one. Which is actually beneficial only for the bigger games, the sales of which are brand name and ad-driven, while indies survive mainly on good word-of-mouth (and, these days, Epic's exclusivity bribes, thanks for that Sweeney, I guess).
See, as a customer I can see the merits in them taking a smaller cut, I like supporting the devs of games I like. Not having reviews is more consumer-hostile than developer-friendly, though - if it's a good game, reviews make me *more* likely to buy it, they only hurt bad games
Steam does provide some infrastructure in exchange for their larger cut, like discussion boards, modding support, and these days they allow pretty much anyone to publish their game there for a symbolic fee. Whether this justifies 30% is another question, but that number is a long-standing multi-industry standard that Valve didn't invent, and they have negotiable arrangements for valuable partners.
As far as luck vs. talent, it's mathematically trivial to show that in an open competion, the difference in outcome between high-talent individuals is essentially entirely attributable to luck. Talent matters when you're talking bottom decile compared with top decile, but inside that top decile, it's mostly luck, and let's be honest, that's mostly where the conversation is happening in the first place.
so open competition between top decile basketball players in the world (millions of people?) will result in an outcome that is purely random i.e. could be just about anyone among that group? We are missing out on tens of thousands of Lebrons and Lukases and Giannises because the other ones just got unlucky?
Pretty much. Keeping in mind of course that one small component part of Lebron's luck is that we highly value people who are good at basketball as opposed to, say, water polo. Some poor schmuck out there was born to dominate water polo but there's no money in it so he had to go work at walmart instead.
Giannis is actually a great example. Dude's family had the good fortune to reach Greece, who knows how many Giannises there might be stuck in poverty back in Nigeria.
both your arguments are about people who aren't even playing the sport / didn't get to play the sport, as opposed to people who play the sport and aren't as talented. I absolutely agree that a ton / most of human potential is wasted by poor allocation or lack of opportunity, but that is a completely different point than saying that among those that did get to try, if we reran the simulation 1000 times anyone in top decile would have a near equal chance of winning, which is the point you originally made above. I do think if you move the percentiles high enough the point starts becoming true (i.e. both Warriors and Celtics had a substantial chance of winning last year and large portion of outcome was luck), but we are not talking top decile, we are not talking top percentile, but something way way way higher than that.
That is an extremely selected sample -equivalent to saying that whether Bezos is the world's richest man or 5th in the rankings is a matter of luck, with it implied that him getting over the 1 Billion threshold is pure talent.
If you’re writing up a list of the 100 greatest basketball players of all time, it’s probably not luck at all that Michael Jordan ends up somewhere near the top of that list. But whoever is #100 on that list, it’s almost entirely luck that they got spot #100 rather than 101 and missing out on the list entirely.
Good point! I shouldn't say "not luck at all". But there's still a gradient of how much luck there is, and there's much more as you get closer to these edge cutoffs.
This would be true if you took two equally talented people and put them on an even playing field. A lot of the "hard work" that Bezos and other billionaires put into their companies was the thousands of hours put into getting ahead of their competition and staying ahead. Bezos spent several decades building Amazon before it was considered worth discussing. Could someone else have done that? Probably, but that's far less sure than two equally talented people in some kind of sterile competition. Would someone have done it? That's a much better question, and we have way more real-world examples of people starting something and cashing out in 7 or 8-digit wealth, than we have of people sticking it out for the next 20 years to make it something truly awesome.
If you're going to make up numbers for the magnitude of skill differences and luck effects then sure, it's mathematically trivial to show whatever you want to show.
Meanwhile in Starcraft 2, the top 10 players are expected to reliably outperform the top 11-20 players.
Are you aware of the most replicable finding in psychology, that IQ is stable over time for an individual, strongly predicts a wide range of life outcomes, and does not have diminishing returns?
If you look at the people in the top decile of the top decile of the top decile of the top decile of intelligence, they are significantly more successful than the people in the second decile of the top decile of the top decile of the top decile of intelligence, for example.
IQ tests can't measure the tails the bell curve (they're literally capped due to norming issues), so there's no way you could even check for "diminishing returns" at the top end. But there are certainly lots of people with ludicrously high IQ scores who never amounted to much and lots of really famous and successful people with a "mere" 125 or whatever.
> Some people say that if he sold all his stock at once, it would go down a lot. But why? Because people thought he was selling because he knew there was an impending catastrophe? What if he said “In one year, I will sell all my stock, just because I want access to the money,” and then did that?
The "I want access to the money" is the key point. You don't sell *just* for bathing in your money, Uncle Scrooge style. You sell because you want to do something with the cash *now*. (Most) buyers know this, and that you as a seller will take a somewhat lower sell price in exchange for actually being able to sell. It's the cause of the whole price spread. If you want to sell *all* your stock, you must have a very good reason to want to sell it *all at once*, and this reduces a lot your ability to negotiate. It's not even like the discount on price that is usually applied when mergers happen - in that case there's always a "keep operating as usual" option. But Bezos wanting to sell all his stock - that sounds like for some reason he doesn't have another option.
I don't think you're taking #9 seriously enough. It's not the downside of your business potentially failing. It's the opportunity cost of giving up a lucrative "safe" job for a moonshot. Anyone with the brains to start Amazon can certainly earn enough to have a decadent standard of living and/or retire early by working an incredibly stable job in medicine, finance, tech, or consulting. By trying to found Amazon, you're not just risking being unsuccessful, you're giving up an easy path to wealth for a low chance at a very high wealth and a high chance of mediocre to bad results that are far far worse than what you would have gotten by not being an entrepreneur at all. I don't think entrepreneurs are underpaid (adjusted for risk), because if I did, I would become one instead of taking the easy path that I'm on.
I don't think that Scott gives this and the question of unintended consequences enough thought. The idea that Bezos2 simply takes his place if Bezos1 is disincentivized cannot be true, because the same disincentives affecting Bezos1 also apply to Bezos2. If you take away the ability to become a billionaire by building something world-shaking, then Bezos1 *and* Bezos2 lose that ability, so they both look for something with a more regular and guaranteed revenue. They have an easier life, retire in their 30s with more money than they know what to do with, and we lose out on those revolutionary ideas that so many of us depend on (including AWS, which more people use than Amazon).
This is exactly correct, but even more so than what you painted. We don't just care about the incentives of Jeff Bezos, who would have been successful at anything, probably. We need the incentives to align for everyone involved to get a successful startup - founders, early employees, VCs, and their customers.
Early employees accept stock in lieu of fair market compensation (cash). They literally won't join startups if there is no potential payout. Upping capital gains on windfalls hurts early employees. Forcing out founders hurts early employees. Taxing paper wealth (options) is already brutal. Compensation to offset those new risks/penalties will come from where?
VCs fund startups by throwing billions of dollars at corporations that basically burn cash. They only make good on black swan events (1000x payouts) that make up for their losses on everything else. VCs will cease to invest if you make it unprofitable (through any means) - that money will be reallocated to more productive means. The companies they would have founded will be founded in other, friendlier jurisdictions.
Finally, we have their customers. B2B startups would just die overnight. Who would do business with a startup when you expect the founders and early employees to bail no later than a Series B because they would always make way more money?
Startups don't simply pop into existence. They come about because all of the parties involved are currently incentivized to make it happen. The consequence of destroying startups is that innovation will only happen at large, megacorps, if at all, which I'm guessing is not what you want, either. If you heavily disincentivize billion dollar companies from coming into existence, you should not be surprised when new billion dollar companies are no longer created.
You're right, but it's EVEN WORSE than that, because you guys are only considering the unintended consequences on the business side. What about the government side? It hands even more concentration of power to an institution that already has a monopoly on forcing people to do things. Our best minds will now compete for creating political power, not wealth. And political power is zero sum, not positive sum
I think your response to 9 is only true in very rare cases. Yes, if your startup lasts long enough to hit a 10+ figure valuation like WeWork you aren't ending up in the poorhouse if it fails. But the vast majority of startups fail very early on (95% don't make it to year 3). These entrepreneurs are just average people putting their house and life-savings on the line, and when their business fails they are significantly worse-off than the counterfactual world in which they did not risk their capital and held down an average job. They're stuck in a huge pile of debt and have often forgone a salary to help grow the business - by contrast their employees are out a job, but otherwise unscathed.
That doesn’t seem analogous at all. People who take time off to raise a family make a sacrifice - and in return they hopefully get the rewards of raising a family (but may not!). People who start a business make a sacrifice - and in return they hopefully get the rewards of starting a successful business (but may not!).
In neither case am I arguing that these people be externally compensated by the government for their choice. The argument is with the claim that starting a business involves no sacrifice - which is blatantly untrue. If there was nothing but upside everyone would do it - they don’t because 97% of the time you just lose a bunch of money and time for no gain.
I'm not claiming there's no sacrifice. Just that the worst-case scenario is really not even slightly bad compared to the lot of the majority of people.
It looks bad if you lose your fortune if you compare to where you started, but if you compare where you end up to others, you're no worse off than they are. That's nothing we should cry about.
Considering Scott’s whole article is about the incentives of entrepreneurs- it’s relative not absolute effects that matter. Who cares of a failed entrepreneur ‘is not really even slightly bad compared’ to other people (although this is still very silly - the average person has savings, the average American owns a house etc). What matters is how big the deterrent to innovation is for potential entrepreneurs - and the answer is really big! A huge chance of failure which means setting yourself back by a decade or more when you lose it all!
Somehow you're missing the point each time. How is it you are not noticing that to start a company people often have to invest all the capital they (and sometimes family) have accumulated over decades of work? When they lose it, ye sthey're "right back where they started" -- but having lost the fruits of, say, 30 years of their life. They're 55 years old but now have the savings of a typical 25 year old. That is very, very different from where the average 55 year old non-entrepreneur is sitting.
Sure, they both have to have jobs. But one owns a house in which he has built up 60% equity, has a recent car that's paid off, a bit of a 401k -- and the other has to rent, has a college-student beater car, and zero retirement savings.
The best argument for why founders of companies that hit it big should be compensated in the billions is not the amount of risk they undertook, but the social return on their initial investment. Two day free shipping online orders for most consumer goods is a remarkable benefit to society that would not exist if some individual or small group (Bezos or otherwise) hadn't bet the farm on it.
I would actually argue that's at best no real benefit, and it has come along with huge downsides, just as the "convenience" of getting everything from Wal-Mart (and the resulting destruction of mainstreet) has been a net negative.
I maintain Amazon has been quite bad for society, not good at all.
I’m not terribly liberal, so I don’t care for “check your privilege” type comments at all, but in this case, yes, cheap convenient consumer goods are good for the masses. Amazon’s reduction in the time cost of obtaining them (even just by reducing trips to the store) is a substantial benefit to most people.
Most the unicorn founders would have been millionaires if they had just worked a job. So the tradeoff is a lot different than your average woman choosing between working as a schoolteacher vs. as a chemical engineer. In fact, for most school teachers that is the highest paying profession they could plausibly hold.
> Literally the worst-case scenario for an entrepreneur is that they have to get a job like the rest of us. So scary!
Come on now. Entrepreneurs frequently put their entire life on hold to start a business. They put in 80 hour weeks, use all of their assets as collateral, and ignore everything else (family, friends, vacation, exercise, etc) in the most productive years of their life. The downside is enormous not to mention the opportunity cost.
The downside is: they have to get a job, like the rest of us. Lots of people work 80 hour weeks, have no assets, ignore their family, just to have a roof over their head and enough to eat.
I'm sorry, but I just cannot be made to feel sorry for people whose worst-case scenario is: be a worker.
You’re equivocating. Yes, lots of people work 80 hour weeks, have no assets, ignore their family, just to have a roof over their head and enough to eat. We call those people things like “poor”, “disadvantaged”, “in a very bad situation”. They are in a very different situation than “just have to get a job”. The rest of “us” are *not* in that situation, the rest of us are doing *much better*, even if we’re very far from being billionaires. (And others are doing much worse, and I’m sure some failed entrepreneurs do, if not all of them.)
If your world model is “there are billionaires, and everyone else is like us”, you’re ignoring a *lot* of differences which *matter a lot*. This is pissing me off enough that I’m actually not making the argument I was going for when I started this comment, so I’ll stop here in the interest of not being an asshole to Scott.
also Adam Neumann is 100% an idiot as it comes to building a good company, but he is also 100% a genius at salesmanship. like 99.999999 percentile or something. Jaded VCs who get pitched all day long by entrepreneurs walk out of their first meeting with this guy desperate to give him their money. He's like a modern day Jesus in terms of personal charisma or whatever from what I heard.
"For example, if you get VCs to fund your startup, they pay most of the costs, you either pay yourself a small salary as CEO or don’t, and if your startup fails, they lose their investment, you keep your salary, and you probably go and found another startup or get a good management position somewhere else."
And if VC fund your startup, pay you a small salary as CEO and it succeed, how much of the billion dollars worth of stocks end up in your pocket vs in the VC pocket? I'll admit to be a bit further from the startup-funding world than you are, having neither started one nor living in the bay area, but from my understanding you're playing a bit of a shell game here, looking at the funder, his risks and his rewards, shifting the potential risks to someone else, and proclaim "well look, the funder don't risk much anyway" without looking where the rewards end up in this hypothetical situation. Maybe he would have gotten rich, but, ceteris paribus, reaching a given level of wealth require greater success as they reduce the risk they take via external funding.
That being said, there are two more things I want to point out.
The first, least interesting one is an anecdotal evidence against the "if someone filled this market, then someone else would have soon after anyway", and that's Colombus. By 1492, the Carrack, one of the ship model that was used for his (re-)discovery of the new world, was in use for decades, if not centuries (at least from what wikipedia tells me. Maybe what a carrack changed over time, but I have found no evidence it did). Therefore, the technology to cross the Atlantic was there, and the investment needed (3 months of supplies) was well within every atlantic-facing european polities of the time. So for potentially centuries, the empire-on-which-the-sun-would-never-set ticket lied on the ground, nobody daring to pick it up (or maybe even thinking of it) to see wether it could be cashed out.
Then there is a question that arise from this focus on billionaires: would things change if, instead of Jeff Bezos funding Amazon, it was a collective of a thousand Jeff Bezos funding Amazon and ending up each with a wealth of 1 millibezos? Is the redistribution of surplus a concern because of corporations that exploded in value, or because of centralized private owership of said corporations?
Maybe. But my point is that the capacity for the voyage probably existed for a long time before it was done. Therefore it's not (always) a matter of "If it's possible, then someone will do it sometime soon anyway". Thus a point in favor of providing incentives for experimentations and investments (or rather, to not spoliate the returns of these).
Sadly, your comment in 8 exposes a severe lack of economic understanding (basic supply and demand and market clearing price). Yesterday, less than 0.5% of AMZN shares were traded. Massively shifting the supply curve by having a buyer willing to liquidate a much large block of shares and you will massively shift the equilibrium price.
The innovation results from allowing people to own their publicly traded companies and make huge sums of money are amazing. I don't understand why we even need to consider killing the goose here. Billionaires provoke too much jealousy? Some of us find it unaesthetic for great wealth to exist? "It isn't fair"?
None of these arguments or any other I've seen persuade me in the slightest. I don't think we have a problem.
But they did vote for Bezos and Musk. In large numbers. With their own money. That's how Bezos and Musk became rich. A much more reliable indicator of public value than simply winning a popularity contest
What is perhaps less obvious but more important, is that those are not the only two options and they are not the two most likely options. The government may be, and probably is, working for neither "the people" nor "the rich".
But it's very happy for you, as one of the people, to assume that to the extent the government is not working for you then you should automatically blame the rich.
I don’t know, SpaceX doesn’t seem like it stifled innovation. And big companies seem to exert much less undue influence over politics, but I *really* don’t think the Chinese society is better for it. (Certainly the US society is doing much better, for all its faults, even though it’s had big companies “exerting influence” on it for much longer.) And don’t get me started on distorting the market.
If you think the main problem we’re having is too many too big companies, you‘re not paying attention either.
Yeah, you're right, lamenting the idea that some people have more than they could legitimately earn in ten thousand lifetimes while others starve to death and their workers are on food stamps is best described as "malicious envy".
This is a pretty silly comment. The study from the tweet (make of it what you will) finds that using that money to help others simply isn’t what animates the passions of redistributionists.
It is if the counterfactual is a world that is poorer on average and thus has more people starving. The fact that the people next to them are also poor is not a winner.
Look, we "solved" this problem a long time ago. It's called progressive taxation. Now in fact the kind of progressive taxation we have leaves some big loopholes, so if you are in the right position you can have no "income" to be taxed, and we could fix that. But we don't need a whole new conceptual framework for figuring out how to tax people with really high incomes.
You could tax larger companies at a higher percentage rate on their profits, but they could avoid that by breaking up their coroporations...but that could be a feature.
Yes. Impute the business income to owners and tax it as ordinary income and indexed realized capital gains as ordinary income (Inheritance counts as a realization event). [Tax would be "withheld" at the highest personal rate for non-US tax residents.]
This idea sounds pretty counterintuitive on priors and I don't think that the amount of evidence from the old SSC essay is enough to compensate for it, considering it didn't really explore some of the obvious possibilities.
I would expect money on politics to be somewhat a zero sum game between two opposing parties. It's less important how much you invest in absolute scale, just the fact that it's about the same as your opposition. Dramatically increasing the amount of money in politics wouldn't change much because both parties will do it.
On the other hand, I also suspect that the returns from investing into politics are mostly long term. It's not just how much dollars have been thrown on campaining this year, it's about steady supply of dollars being thrown throughout time.
The thing is, it's not at all about getting politician X elected.
It's about influence, access, model legislation, threats (do this or I'll pull my business from your district etc), control of media, control of think tanks, etc.
It's fairly irrelevant who's elected, as demonstrated by the extremely small distinction between Republicans and Democrats on economic issues.
I find it very odd that when we look at something like sports we think it's all talent (Usain Bolt = fastest man in the world, not lucky) but when we look at something like business we think it's often luck. Don't get me wrong, luck plays a role, but talent exists and there is a tail where super-talent exists.
By definition, luck is randomly distributed, so you shouldn't have a problem with this. Let's say you need 1 in a million luck, and to be talented to be super successful. Then, the super successful people will still just be all the most talented people from the random subset of people who have 1 in a million luck.
Usain Bolt is insanely lucky. Most people agree with this. Or Michael Phelps. If every person in the world worked as hard at swimming as Phelps did he'd still likely be in the top 100.
Of course Phelps doesn't have a lot of political or economic power, just moderate fame, especially since his sport, and Bolt's sport, are not big money makers. So no one cares.
The tails of the distribution are almost always going to be super-talent + luck + hard work. These are massive outliers - all factors need to working in your favor.
Under dualism, one might consider a soul that ends up in the right body with the right genetic makeup to be lucky. Under monism, I don't think that makes much sense.
"And the reason they all failed, is that none of them were run by billionaires"
so this part is demonstratively false, because for the critical early period of SpaceX Musk wasn't even a billionaire. this article https://hbr.org/2022/07/does-elon-musk-have-a-strategy says that "Musk has consistently had a lot at stake in his companies. His initial investment into SpaceX was $100 million of the $175.8 million earned from the sale of PayPal. He would continue to invest his entire personal wealth into SpaceX and Tesla until 2008, when he ran out of money and had to borrow from friends."
and both SpaceX and Tesla almost failed in the depth of the GFC. He got lucky and managed to raise external financing etc. but it was close.
Did having substantial means help him get these companies started? sure. But it didn't require billions and billions, and thousands of other people would have had the financial means to do it, they lacked the skills and the conviction (recklessness).
I've seen even more ridiculous claims about how the fact his (scumbaggy) father lent him and his brother some small sum (in tens of thousands) to start their first business and how that means all Elon accomplished all his life derived from (apartheid) white privilege, etc.
Story time: I was an intern at Beal Aerospace. Andy Beal had written a $250M check to found the company; when NASA announced subsidies for the legacy producers, he threw in the towel.
The ability & willingness of both Musk & Bezos to direct an effectively unlimited amount of funds without regard to how long it will take to show a return is essential; hobbling their ability to accumulate assets would have precluded that.
but if you read my comment above Musk was far from disposing of such unlimited funds, until his rockets stopped exploding and started landing correctly and then yeah the unlimited money showed up. The differences were rather a) i assume Andy wasn't ready to put up his last 40m to fund the company and b) say what you want about his personality and twitter antics but Musk can be extraordinarily convincing and hence good at raising money, not sure that was the case with Andy? Bottom line is it's not Musk's (fairly recent) tens of billions in net worth that allowed him to push SpaceX / Tesla into orbit, it's insane conviction/risk appetite, (maybe) strong engineering instincts, charisma/force of personality, etc.
However yeah if he ever does another startup that is nearly as successful as these two (maybe starlink should be considered a separate venture?) his balance sheet will likely have played a far greater role.
That was addressed in the original thread. Musk became a billionaire before SpaceX transformed the space launch vehicle, and it required Musk's billions to turn SpaceX from a clever niche player into what it is. If you say "people can be hundred-millionaires but not billionaires", there will be a thing called "SpaceX" that some rocket geeks know about, but it won't be landing Falcon 9 boosters on droneships and don't even think about Starships.
so to dispel any confusion: Musk's didn't have billions sitting around during that time period you are thinking about. Musk's billions WERE Tesla and SpaceX. He got a 176m payday (pre-tax mind you so actual post-tax number is lower) from his Paypal stake and poured nearly all of it into the two companies. After that he was tapped out and all the further capital used to sustain and develop these firms came from _external_ investors. Musk didn't have other major assets at the time, he wasn't selling Tesla to fund SpaceX or vice-versa, and his pay packages at both firms were virtually all in form of stock grant/option packages, he just didn't have any other sources of money to liquidate to put more into these companies even if he wanted to.
It would be entirely correct to say that venture capital and NASA contracts and Tesla IPO proceeds and carbon offset sales and Tesla customer order deposits and that critical government loan to Tesla around 2008/09 are all things that have been funding his companies after Musk's initial money ran out, but that has nothing to do with whether Musk was or wasn't a billionaire and it wasn't "Musk's billions", and someone equally persuasive but with a minuscule net worth could conceivably have done exactly the same (although clearly him 1) having demonstrated prior success and 2) being willing to put everything on the line are strong components of his appeal that wouldn't be matched by someone who is not a major stakeholder).
"Suppose Jeff Bezos just really loved founding businesses, and couldn’t imagine working for anyone else, and he would found and run Amazon for $10/day, just enough to live in a tent in one of his warehouses and eat cold beans."
I'd say even we discover some kind of super-Bezos who will start companies and find new market niches for $10/day, we should pay him more, for a few reasons:
1) I would want this hypothetical super-innovator to be able to casually buy the medical care, therapy, and personal relaxation that he might want. A person who is super-useful to society like this *should* be able to use money to get some of the everyday issues out of the way. Otherwise, if we pay him "just enough to get by", we end up with a sick, stressed out, performing-below-optimal super-innovator. And maybe we only get 20 years of awesomeness out of him, instead of 40 or 60, when he dies lonely of a heart attack at a too-young age.
2) It sets a bad example for the NEXT company founder. There's probably a guy out there who could be motivated to found cool companies on the margin, but when he sees it pays $10/day, he's opting out.
3) Maybe we want the super-Bezos to have the resources to attract a mate? And then to have or adopt kids, so he can pass on his values and worldview to heirs? Might just get someone who excels like him, maybe even in other fields, not just business.
4) It offends my sense of justice. If we pay super-Bezos $10/day, and somewhere out there, we have a person making six figures being basically a parasite on the system, it seems wrong. (Picture the worst obstructionist bureaucrat, or an ambulance-chaser lawyer, or a vapid celebrity, or whatever person you think most counter-productive in society who makes big bucks. Heck, go with outright criminals).
Having people who are "part of the problem" prosper and make many orders of magnitude more than the super-Bezos would offend me. In the same way that socialists are upset that CEOs make 250 times as much salary as a their workers, there are people would be just as upset if society under-rewards the super-Bezos innovators who make our lives better, relative to people who are much more a negative to civilization.
Turning current billionaires into a new exploited class would be the fastest way to get people saying "Huh, maybe Atlas Shrugged had a point..."
"I think the political power of billionaires is vastly overestimated."
This is incredibly naive, and really ignores the facts on the ground. I think you may have been distracted by looking for trying to _buy elections_, which is not how influence works, and, as you say, is at best slightly effective.
Intuition pump: if Jeff Bezos calls up a Senator and asks for a meeting, and so do I, who did you think is going to get a meeting?
Intuition pump: who do you think can write model legislation that benefits them, fund think tanks to write papers about how it's a good idea, pressure the newspapers they own to write favourably about it - me, or Jeff Bezos? And so whose policy preference is likely to get implemented? Me, who called my representative and left a phone message, or Jeff, who presented them with finished legislation that already has broad support in the public and the legislature and all they have to do is introduce it?
And finally - if we agree it's better to be a billionaire, and we live in a democracy where billionaires are vastly outnumbered, why don't the plebes vote to share out (some large fraction the of) the wealth of the billionaires? Is it because ordinary folks really believe that that wouldn't help ordinary people. I don't think so. It's because billionaires hold extremely outsize control of the levers of power, and work hard to make sure that's not on the table.
I know Bezos owns the Washington Post but is there much evidence that paper's content is more favorable toward his interests than that of its competitors?
My impression is that most of these deals only touch some narrow topics--the typical example that comes up is the Sierra club switching to favor immigration, and the New York Times not ever publishing anything negative about Carlos Slim's telecom monopoly. I think you'd likely only see this in coverage of, say, Bezos's divorce or Amazon specifically, but even there you might get it wrong (because maybe Bezos doesn't actually care about the coverage of his divorce, and so is buying credibility points for the Washington Post there).
Thought exercises are good, but you can't stop with just doing the obvious ones.
Intuition pump: If you won a billion dollars in the lottery, how quickly could you get a meeting with a senator? Would it be faster than Greta Thunburg? (Or any of Jon Stewart, Tucker Carlson, Thomas Piketty, Al Sharpton, George Clooney, or Ezra Klein?) Is it money that's important, or connections? You can, given time, buy connections, but most of the people with money either got the connections first, or built up the money and connections at the same time. Along the same lines: why do so many politicians and their family members end up rich?
There is a chicken and egg aspect to it in that at some point it becomes a self-perpetuating cycle, but people should be able to consider how money and power relate, and try thinking through the matter from both ends.
Intuition pump: if we agree where it's better that nobody have too much power, and we live in a democracy where the powerful are vastly outnumbered, why don't the plebes vote to give themselves more power? When you can answer that question, you should have some insight as to the limits of representative democracy.
What? You could get that meeting tomorrow. Way faster than Greta could do it. And you would have multiple options on how to arrange it depending on the Senator you wanted to meet and their personality.
I don't think this is true, with the limits of political alignment (Greta isn't going to be able to call up a Republican Senator). For starters, the internet is full of stories of political activists (*cough* James O'keefe) and BS artists that have no problems with falsely identifying themselves to get close to politically sensitive targets; just calling your Senator's office and saying 'I'm a billionare, arrange a meeting' isn't going to work. Your billionaire lottery winner may be able to eventually get to any Senator, but it will take a while for the checks (both paper and background) to clear.
Let's play a game as a thought exercise. It's a form of Six Degrees of Kevin Bacon. You've just made a revolutionary scientific discovery: the world is doomed unless we do something ASAP, but if we do something we'll also cure cancer. The evidence sounds like a crank when described, but you can give a live demonstration that will convince people that see it. You need to get it to the President as fast as possible. How do you do it?
The small company my brother works for got screwed over on a government contract. The president knew someone that was a major campaign contributor to the representative who was able to arrange a meeting. I show my brother, who shows his boss, who shows the guy that knows the representative. The representative's likely a degree out from the Senators in their party, the most powerful of which are likely a degree out from the President (even of a different party). Do you know someone that has your Representative's (actual) number?
Greta Thunburg has attended (and addressed) the Davos Economic Forum (as well as the British and French legislatures, the Pope, the UN...). Presumable she, or her handlers, have exchanged business cards with someone that can vouch for them. "Remember me? We spoke at Davos! I'm trying to get in touch with...." She probably gets to the US President in as much time as it takes me to meet with my Representative.
An arbitrary person with 1bil might have trouble reaching a Senator just because they would never have thought about it before. Perhaps I should have specific someone who at least has engaged in politics on Twitter or something in a semi-serious way.
I personally could be talking to a Senator the next day, through a variety of relatively marginal connections. Like I'd message Scott here or I'd email Scott Aaronson or Lawrence Lessig. I'd have a moderately well tailored pitch for why they should help me.
I've talked to all of those people in varying degrees but we don't have a "connection". Like we aren't bros and we don't hang out and I don't have their personal phone number or anything.
I'd show them the news story about me winning the lottery and go from there. I'm discounting paths that would not be easily available to a normie online politics discusser. Like I have the personal phones of a couple people of moderate political connectedness in SF and/or NYC. And I think tons of people on this blog have better connections than me.
I guess a randomly selected person at a HyVee in eastern Nebraska who won the lottery might not be able to get to a Senator as fast?
Sure, it might not *literally* be the next day, but Joe Schmo cannot get a meeting with a Senator, no matter what. The billionaire donates ten thousand dollars (or whatever, insert sum here), gets a personal phone call the next time the Senator is calling big fish donors, and says, hey, there's a lot more where that came from, I'd love to do lunch, bam, it gets on his diary.
It is literally that simple. I have seen it happen (not in America, but it's the same principle).
Power is the ability to perform work. Political power is the ability to accomplish things in the sphere of politics.
We're talking about the political power of money versus the political power of connections. There are a bunch of questions associated with this, and it's not obvious which order they need to be answered:
Is a billionaire powerful because they have money, or are they powerful because they have connections?
Is it easier to turn connections into money, or money into connections?
In what circumstances are connections better than money, and in what circumstances is money better than connections?
Who benefits more in a relationship, billionaires/celebrities or the political causes they advocate for?
Greta Thunburg is an extreme edge case, but the case is completely illustrative of the power of connections. Here's someone who's credentials are 'photogenic political mouthpiece for a popular cause', and who's family is (while well off) not the billionaires you're talking about. And she doesn't just 'meet with a Senator', but address the Davos WEF and British Parliament, and meet with the PM of Canada, the UN Secretary General, and the Pope. You don't think that that represents a lot of power?
"why don't the plebes vote to share out (some large fraction the of) the wealth of the billionaires?"
The 4th Amendment.
Our government, even on behalf of the people, can't pick and choose who must forfeit some portion of their wealth to satisfy the desires of the more numerous. General plans, including taxation as well as confiscation, have obvious downsides even if they would be legal. Not only people who personally hope to be rich notice that society is worse off when the government feels free to take what the people have.
That's both obnoxious and a poor reading of what I wrote, so thanks for that.
The government cannot single out individuals for takings, so any kind of taking can't be of the variety we often hear in regards to billionaires, but instead would have to be part of a general tax code. Such a general confiscatory tax would be severely detrimental to the economy, even if we did come to a conclusion that some billionaires are "too rich" or whatever.
Nobody has ever proposed singling out individuals, so I think taking your comment as disingenuous stands.
Also - a wealth tax and/or land value tax and/or more progressive income tax and/or more reasonable and progressive cap gains would obviously be extremely beneficial to society and the economy, as it would distribute wealth more equally and create more demand.
Then you're proposing a system that disincentivizes the creation of large and complicated systems, including companies that provide significant value. I consider that a very bad trade.
Pfui. Why wait as late as after the wealth has been accumulated, the harm already done? Your proposal lacks vision and courage. We need to start with the obnoxious insidious antecedents of disparate wealth accumulation.
For example, in school. Clearly getting good grades is part of the path to unequal wealth accumulation, so we need to redistribute those grades to even out the playing field. The work of A students should be confiscated, in part, and given to D and F students to turn in as their own, so that pretty much everyone gets a C. (I don't think we need to worry about the would-be A students being disincentivized, because of course everybody knows they mostly do it for the sheer love of learning and mastering complex subjects.)
And being tall or good looking is clearly advantageous, so the tall and good-looking people should have to wear disfiguring handicaps -- bad make-up, prosthetic scars, big clown noses -- while homely people should be given free cosmetic surgery and fabulous custom-tailored designer clothes.
What about people who are articulate and speak well? Another unfair advantage! They should be required to wear inverse hearing aids that make loud buzzing noises in their ear at random intervals, so they can't form sentences any better or faster than the average schmo.
Think about the inequality created by some people having excellent parents in stable home, versus others living in unstable single-parent households, headed by someone with a meth problem. We should level out this playing field, too. Everyone under 18 should be forced to switch homes every 24 months, and a system should be set up whereby nobody accumulates any excess unearned parenting "wealth" by spending more time in a stable household with engaged and intelligent parents (or, God forbid, parents with valuable social connections). It should be equally likely that any child spend 5 years in a crack den being occasionally molested as 5 years in a beachfront villa with private tutors.
Only this way can we be sure that unequal wealth never even arises in the first place, which is surely a much kinder and pro-social approach than struggling to right wrongs well after they've taken place.
It's not about how much money Jeff Bezos could get access to - consider the alternative reality where Jeff Bezos cashed out for $30,000,000, and paid his parents back with ten times their investment, and went on to retire.
To become a proper billionaire, you don't just need grit and luck. Those two things are important, but the most important factor is actually this: You want to be wealthy more than you want to be rich. Money is like power, and power is not the same as freedom. In order to attain either, you must use them in particular ways, which preclude you from using them in any of the ways you actually want to use them.
In order to be a billionaire, you can't cash out as a millionaire and buy a mansion and a yacht and live a supremely wealthy lifestyle. You have to wait. And wait. And wait.
We should celebrate billionaires - not for their wealth, but because of all the consumption that getting there required that they forego, for the personal austerity it required, and for the fact that they funneled the vast majority of their personal resources into society instead of themselves.
I don't think Bezos was in fact living in a tent eating cold beans while he waited to make his first hard-won billion, leaving those mere millions untouched. I too could live 'austerely' if I had the cushion of "well, if it comes to it, I can always cash in for a measly $30 million".
I feel a Chesterton quotation coming on 😁
The Good Rich Man
by G. K. Chesterton
Mr. Mandragon the Millionaire, he wouldn't have wine or wife,
He couldn't endure complexity; he lived the simple life.
He ordered his lunch by megaphone in manly, simple tones,
And used all his motors for canvassing voters, and twenty telephones;
Besides a dandy little machine,
Cunning and neat as ever was seen
With a hundred pulleys and cranks between,
Made of metal and kept quite clean,
To hoist him out of his healthful bed on every day of his life,
And wash him and brush him, and shave him and dress him to live the Simple Life.
Mr. Mandragon was most refined and quietly, neatly dressed,
Say all the American newspapers that know refinement best;
Neat and quiet the hair and hat, and the coat quiet and neat.
A trouser worn upon either leg, while boots adorn the feet;
And not, as any one might expect,
A Tiger Skin, all striped and flecked,
And a Peacock Hat with the tail erect,
A scarlet tunic with sunflowers decked,
That might have had a more marked effect,
And pleased the pride of a weaker man that yearned for wine or wife;
But fame and the flagon, for Mr. Mandragon obscured the Simple Life.
Mr. Mandragon the Millionaire, I am happy to say, is dead;
He enjoyed a quiet funeral in a crematorium shed,
And he lies there fluffy and soft and grey, and certainly quite refined,
When he might have rotted to flowers and fruit with Adam and all mankind,
Or been eaten by wolves athirst for blood,
Or burnt on a big tall pyre of wood,
In a towering flame, as a heathen should,
Or even sat with us here at food,
Merrily taking twopenny ale and cheese with a pocket-knife;
But these were luxuries not for him who went for the Simple Life.
What do you want millionaires to spend their money on: Yachts, or the economy?
The former is consumption. The latter is how you get billionaires - and also, not coincidentally, how we end up with a nicer civilization a few decades down the line.
There's "austerity" as in "expensive interior design for minimalism" and "austerity" as in "too damn poor to purchase furniture".
Praising Bezos, and billionaires in general, for "personal austerity" is exactly what Chesterton was getting at, the kind of journalistic fawning over the millionaire who lives so quietly:
"If a journalist has to describe a great politician or financier (the things are substantially the same) entering a room or walking down a thoroughfare, he always says, “Mr. Midas was quietly dressed in a black frock coat, a white waistcoat, and light grey trousers, with a plain green tie and simple flower in his button–hole.” As if any one would expect him to have a crimson frock coat or spangled trousers. As if any one would expect him to have a burning Catherine wheel in his button–hole."
It would be a lot more human in Bezos if he did splurge on yachts, as he has now done with his own Real Toy Rocketships. Are yachts and yacht-making and boatyards and engineers and all the rest of it not part of the economy, too? Again from Chesterton:
"There is more simplicity in the man who eats caviar on impulse than in the man who eats grape-nuts on principle."
Living "austerely" merely to become obscenely rich, rather than merely hugely rich, is not austerity. It's miserliness.
Sure. Scrooge went cold himself; it's a key part of his character.
But "part of the economy"? Encouraging the rich to buy yachts is like encouraging kids to break windows. No, billionaires, keep doing your weird autistic number-maximization shit. It's great. We love factories, we love the things that come out of them. Reallocating workers from building factories to building yachts isn't a good thing.
> There's "austerity" as in "expensive interior design for minimalism" and "austerity" as in "too damn poor to purchase furniture".
Come on, Deiseach, you know better than that. “Too damn poor to purchase furniture” means “too damn poor”, not “austere”.
“Austerity” means “you have the means for luxury and you insist on using them for something worthier”. I’m 75% sure Musk lives in a cheaper house than I do. (I don’t *own* it, and prices here are silly, but still.) And he doesn’t do that *on principle*.
I think the "austerity" in question is not wealth or things, but the lifespan you *could* spend either working or enjoying yourself -- being social, being with family, doing hobbies or talking walks or reading fun books. The man who wants to be a billionaire pours all of the hours of his day, and the days of his life, into that pursuit. He "spends" very little of his lifespan doing the not-at-work off-hours things that the rest of us find add much of the meaning to life.
Considering the hours of our life are the only real wealth we have, and we cannot beg, borrow or steal even a single extra, it's a pretty significant sacrifice to do this. I wouldn't do it, which is probably the major reason I'll never be a billionaire. It could be these are weird people who derive such satisfaction from working towards building enterprise that vacationing in Italy or even knocking back a few at the local pub with friends just doesn't compare, so we needn't pity them. But it's hard not to be at least impressed with the laying out that high a fraction of your personal capital in just one direction.
I'm struggling to identify what problem we are trying to solve. Bezos (and small number of other people) have billions of paper wealth from founding extremely successful companies. They and their progeny (and some number of philanthropic organizations) will want for nothing.
In the counterfactual world where Bezos doesn't have $140B of stock I don't think the question about what harm it would cause is whether or not Amazon exists, its a world where the Xth most successful online retailers doesn't exist and the overall impact on growth and innovation. How many marginal founders are discouraged? How many marginal investments never happen?
Assuming the downside is that the world is X% poorer or growth is X% slower by overshooting balancing the incentives to take risk and preventing 'unearned' billionaires what is the upside?
Giving workers a share of stocks and dividends should be standard practice. But I think Matt Pencer miss the point : Bezos could afford to gamble on Amazon because he was not living paycheck to paycheck (and anyway had parents able to invest 300 000 dollars to back him up if needed...). Most of his warehouse workers could simply not afford these investments, even if they were just as bold and intelligent as Bezos is.
Buying your employer's stock isn't a great idea because it amplifies the risks to you of them doing badly. Not only are you out of a job if they go bust but that stock is now worthless.
The fact that workers universally prefer cash to equity is strong evidence against syndicalism / worker co-ops being a good idea.
Also, I think you're missing the point: anyone could have invested into Amazon in its early stage and captured the 1000x return, it's just that Bezos chose to keep the vast majority of his net worth as stock, and the bet paid off. Random people could have invested in it, poor people could have pooled their money into a larger fund and invested in it, anyone could take out a loan and put borrowed money into it, etc. So Bezos's return is not primarily derived from his personal labor of running the company, but from his continued choice to keep holding a large number of shares over the years.
This notion that fortunes gained through hard work or cleverness are somehow more legitimate than fortunes gained through luck strikes me as wrong. It's pretty clear that our intellect and capacity for hard work are themselves largely products of luck. Does this mean we shouldn't be entitled to their full benefits? I think not.
Why not simply recognize luck as just another inalienable aspect of our selves that we have full ownership of? After all, we are all forced to bear the consequences of very bad luck individually - just ask Steve Jobs or Kobe Bryant. Their personal fortunes couldn't save them and no amount of redistribution is going to protect you from the consequences of a currently incurable disease or rapid deceleration. If we have to bear the full burden of so much of our worst luck, it's only fair that we should be entitled to the full benefits of our best luck. Whether someone is very lucky enough to become a multibillionaire by creating a popular new product or by being born into the right family, they should be entitled to their exceptional fortune.
As long as people are forced to personally bear the negative consequences of the bad tail of the luck distribution, I don't think it's very fair to lop off the very good things that can happen to them at the other tail of the luck distribution in the name of redistribution. Redistribution to flatten luck in the middle of the distribution, where redistribution might actually be able to counter moderately bad luck, might be more defensible.
With that intuition, the oddity is the popularity of lotteries/gambling, which inject luck into outcomes and make them significantly unequal among participants.
I generally view lotteries as evidence that the popular indignation over unearned wealth and relative inequality is not actually as popular as it pretends.
I don't think it's the purported tax efficiency aspects that are putting the "unearned" wealth of billionaires in the crosshairs here. The rhetoric is generally "let's heavily tax billionaires because they shouldn't exist/they don't really deserve their fortunes" rather than "let's universally tax "unearned" income at marginally higher rates because it is tax efficient".
Most taxation distorts the payoff matrix, because the gains are taxed away and socialized but the losses remain personal. So the expected payoff is skewed negative, which naturally means any rational bettor needs a higher probability of success to take the risk.
It would be different if we socialized both profit and loss, and there are some aspects of the tax code that attempt to do this, but they are greatly limited by the envy of the non-entrepreneur, who doesn't see why *he* should have to pay extra taxes because Joe Entrepreneur over here escaped paying any taxes at all because of his huge business loss. I mean, Joe took the chance and started the business, I had nothing to do with it, why should I compensate him for his dumbass decision? Et cetera.
An interesting thought experiment is to ask people who would favor taxing most of Bezos's current wealth away the following question: suppose Bezos had failed, as most start-ups fail, consuming let us say $300,000 of his and his parents' savings. Should the US taxpayer have made them whole, or partly so? Thanks for trying, guys, here's the 90% "tax" on your losses back.
And if you don't think we "own" any part of the losses, on what basis do we "own" any part of the gains? It seems likely it should be both, or neither.
"I’m still not sure about this line of thought. How is this situation? Do we think Mark Zuckerberg wouldn’t have founded Facebook, or Bill Gates Microsoft, if he could only get $1 billion? Can people really tell the difference between $10 billion and $100 billion? Has Jeff Bezos even spent $10 billion?"
I used to argue this point the way you are now, and I no longer agree with it. The counterfactual is not a world where we have complete control and can look at Jeff Bezos and magically reduce his wealth in hindsight, perfectly determine the correct level of wealth at various stages, etc. Functionally, we have to use legal mechanisms, laws, and generally applicable processes in doing this. Unintended consequences is a huge problem here, especially because the political pressure to make this happen is coming from the same sector that wants to implement real Socialism - they could potentially win in direction and in magnitude and not just direction, and then you and I both agree that we're losing something of real value.
One of the things that made Amazon so successful was that Jeff refused to pay dividends on profit and continually reinvested into the company. This was a very poor business decision for a lot of people (there's even an episode of Futurama that makes fun of this plan, referring to Amazon as a risky investment), but it was the real key to his long term success. Tell me what point in that process we should suddenly start taking away his "excess" wealth? The value of Amazon stock was going up pretty quickly, but Jeff himself and the other investors were making very little from it. This ties in with the other point about his wealth coming just from Amazon stock. Had he been concerned that hitting a certain wealth level would have gotten the federal government to take a look at his operations and confiscate the "excess" amount, then he really would have been better off sticking with the investment job he had before.
You asked about whether he could sell his stock. This is a complicated question, because you have to find a buyer. If you've followed the Elon Musk/Twitter situation, you can see some of the complications of lining up capital - for $200 billion there's essentially no way a single buyer could even try it. You hinted at a decentralized approach - many small investors. There really isn't a $200 billion pool of money waiting around for purchasing stocks like this. Unless the stock was significantly cheaper, people would have no reason to invest more money than the otherwise planned to do so in stocks, or to sell off other stocks in order to buy Amazon. If they did, we'd also have $200 billion of other stocks being sold off and all the market problems that would cause! Jeff could probably put up every stock he has for sale (assuming market rate) and may not actually sell it all for years to come. I haven't checked, but I'm sure there's lots of Amazon stock available for sale right now, yet it's not all being purchased at one time.
Jeff is stuck with Amazon stock as his wealth, for many years to come. He may not mind that, but he doesn't have a choice. Similarly, Mark Zuckerberg is stuck with Meta stock, and I'm sure he would prefer to have that money somewhere else due to how volatile Meta stock is.
I'm surprised you have such confidence in the estate tax. I've always heard it's a high-distortion low-revenue tax. People figure out ways around it. MR has covered this repeatedly, and usually folks here have more awareness of that:
"(sports are a useful sanity check here; some teams are clearly better than others - but also, two good teams that play each other ten times might get five wins each)"
Wouldn't the correct analogy be which 30 people become one of the starting quarterbacks in the NFL? The answer to that seems to be almost 100% talent/hard work, with talent being the much bigger factor.
Luck is obviously a factor here too. Having parents who could take you to games (and feed you adequately). Not having a better QB on the team when you started out, so that you always played in a different position. Not being injured throughout your HS and college career for long enough to derail your path. etc. etc. etc.
I don't think Scott has been looking at the transfer market recently, or how there are perennial accusations of "buying trophies" by clubs hoovering up the best talent by paying eye-watering sums of money to sign those players.
Or how important those transfers are, e.g. "we need a top striker, pay whatever it takes to get one" by even fans themselves.
Or look at FiveThirtyEight match predictions; sometimes they hold up well, other times I look at the odds they're giving and think "No, it'll be closer than that for those teams":
Bezos can't sell all his stock because the "stock price" of Amazon is just a convenient fiction. It's nothing more and nothing less than "the last transaction of Amazon stock was at price X", i.e., how much you'd have to pay for a single share of Amazon right now. Multiplying this by the number of shares always yields an overestimate of how much the company is actually worth. This is easy to visualize with an order book, i.e., a sorted order of potential buyers in descending order of price they're offering.
Now, for stable and boring companies, the order book is pretty flat, as pretty much everyone agrees on how much the company is worth, and in particular, there is more demand for the stock than there are units of stock. The price can still change quite dramatically (for example, shipping companies' profits respond very strongly to economic boom/bust cycles), but everyone's value for the company goes up and down in lockstep. So whatever the current stock price, that's real wealth.
Now, in contrast, consider a less certain business like the latest DeFi startup, AI lab, etc. The price of this is often driven by hype that's not shared broadly by the market. Let's say there's 1000 units of stock, and 5 people clamoring to buy it at $1000, and everyone else is only willing to buy it at $1. There's a very steep drop in the order book. The company isn't worth $1'000'000, but this fact is not immediately exposed to the world if the owner sells less than 5 shares. The owner has quite a lot of wealth on paper (and will even have to pay taxes on the inflated value!), but he's not holding much real wealth.
You see this pattern in silicon valley over and over. A company is valued extremely highly based on "potential" and "growth", even as it runs at a loss for years on end. Investors have strong incentives to keep the price propped up as long as possible, as they might be able to cash out before it all implodes. For startups not yet on the stock market, you'll often hear news of them "raising a series C round at a $1B valuation", which doesn't have to mean anything more than some sucker was willing to pay $1M for .1% of the company.
You're completely ignoring the supply side, i.e. the orders of the potential sellers. The value of a company (or any tradable item, for that matter) isn't determined by the buyers alone, but also by the sellers. Just like Bezos trying to sell all his stock would immediately tank the stock price, Bill Gates trying to buy all Amazon stock would immediately catapult the price through the roof.
Yes of course. the stock price gives an upper bound of how much you'd get if you sold the company, and a lower bound of how much you'd have to pay to buy the company. If we take a static snapshot of the order book, for each of the two situations one half of it is irrelevant.
My larger point is that nothing like a "true price" can possibly exist for a unique entity like Amazon, regardless of the legal and social fictions we've spun around the issue.
I get in general that both supply and demand determine prices, sure. But this isn’t about price, it’s about something like “total extractable value”.
I don’t get your example. If Bill Gates tried to buy all Amazon stock, yes, that would catapult the price, but that is *also* about the demand side. (Bill Gates demands to buy stock.) It seems to reinforce Vitor’s point, in fact: as long as someone is willing to pay to buy something *for long enough*, that sets the “value”.
On the supply side, I’m very willing to sell the USB key on my desk for 78 billion dollars, but that doesn’t say anything about its value, not even if someone is willing to pay me ten bucks for one of the 7.8 billion shares of it I could split it in.
Re: #2, "This isn't a moral problem" / wealth redistribution
--
The root of every problem is a moral problem. Should we redistribute 5% of billionaire wealth only to the typically, socially responsible? The West has transitioned from having approximately the same values that become increasingly bent, twisted in their application and finally tossed to recognizing any two people with similar opinions as being a minority that should be protected.
--
"The Founders [of the U.S.A.] wished to achieve a national majority concerning the fundamental rights and then prevent that majority from using its power to overturn those fundamental rights. In twentieth-century social science, however, the common good disappears and along with it the negative view of minorities. The very idea of majority—now understood to be selfish interest—is done away with in order to protect the minorities.
…
This breaks the delicate balance between majority and minority in Constitutional thought."
--Allan Bloom, Closing of the American Mind, 1987
[edit/add]-------
"Incentives are the most powerful force in the world and can get people to justify or defend almost anything. When you understand how powerful incentives can be, you stop being surprised when the world lurches from one absurdity to the next."
--Morgan Housel, Incentives: The Most Powerful Force In The World, Sep 20, 2022
I had been convinced that the power of money in politics is vastly overstated, but Bloomberg actually made me update to think it is *more* significant than I had realized. He had no natural ideological base in the party, hadn’t been running all year the way everyone else had, and the field was already saturated, and armed with nothing but money, he *still* managed to get nearly 20% of the vote on Super Tuesday! He didn’t do as well as Sanders or Biden, but he beat everyone else (though it’s a bit hard to judge because many of them dropped out a few days earlier and many Warren supporters voted strategically for Sanders).
“Neoliberal pragmatist” was occupied by Deval Patrick, Michael Bennet, John Hickenlooper, Jay Inslee, and maybe a few others. Even “Mayor of New York” was also an occupied lane in the primary, with Bill de Blasio officially in the running!
I think polling from November to February of that primary cycle made clear that none of those others was going to get 15% just by being the last one standing. Bloomberg actually created the space for this lane somehow when he entered, and his buckets of cash seem like they must have done a lot of the work. (I believe Deval Patrick had a similarly late entry and made a bit of splash among elites, but never budged in the polls.) It seems likely that Bloomberg also had a lot of staff who either knew how to *effectively* spend that cash, or knew how to figure out how, and thus his success probably represents the outer limits of what money can buy (ie, the delegates from American Samoa).
All of whom were lower profile candidates than Bloomberg. Part of that might be because of his wealth - but I think equally being Mayor of NYC is just a way more visible position than being an unknown Senator or worse.
It's strange to me that in your response to Metaphysiocrat you didn't address the other half of his point. If you don't believe that power inequality is problematic for billionaires, then why do you believe their wealth is problematic at all? As he says, raising the poverty floor is a far more important goal, unless you believe that extreme wealth leads to problematic extreme power.
Combining this with John Schilling's excellent answer, I think the type of power created by extreme wealth is actually mostly a good thing. Elon being a prime example, but there are many throughout history. If extreme wealth, as you say, does not confer extreme political power, then the primary channel through which it can be expressed is extreme consumption, or extreme innovation. Since consumption is at least somewhat self-limiting (and to the extent that it isn't, it makes the wealth disappear anyway!), it's not clear to me exactly what the problem you're attempting to solve here is.
This is the abstraction of the point raised by Schilling that you excerpted: Yes extreme wealth creates extreme power inequality...and that's a good thing. We need people with the power to act autonomously in the world in order to make progress. Is our selection process for that power perfectly fair? No. But it's pretty good. Elon2 might be 99.9% as good as Elon1, or maybe Elon2 is even 101% as good, but Elon1 got a little luckier. However, it's clear that they're both very good allocators of capital, and if we're just flipping a coin between them, we probably won't go too far astray. It's hard to imagine a better system in expectation. Keeping in mind that the purpose of an economy is not primarily moral justice, but a better functioning world for all.
Considering the counterfactual world where we were to take, say, the top 100 Elon's and allocate capital to them in perfect accordance with their quality as businessmen/innovators, how many SpaceX's would we get? I think Schilling's answer is that rather than getting 100 SpaceX's we would get 0. This seems to me to be the "hard problem of the anti-billionaire argument". In the absence of extreme pools of private capital, where do we source the extreme innovations from? Sovereign wealth funds like Norway's aren't going to do it, and even VC isn't risk hungry enough for a rocket startup.
As an aside: for the issue of billionaire's selling their stock and depressing the price, this is definitely a real thing, but it is mostly beside the point. It's true that if Bezos liquidated Amazon stock tomorrow, he would get far less than current_share_price * bezos_share_count. This is a simple function of how liquidity works in markets and is true of any very large buy or sell, not just that by an owner of the company (although owner selling may carry extra information and have even greater impact, if its known). Market makers respond to the buy/sell imbalance by shifting the midprice around which they provide liquidity. This is how the market adapts to shifts in demand. Bezos liquidating his entire portfolio would obviously be a dramatic shift in that imbalance. However, the reason this issue is mostly beside the point is that, while he wouldn't get say, $200B, he would still likely get at least $100-150B or something in that range, and the difference there is probably mostly immaterial to the substance of the issues under discussion.
The inability of wealth to express itself as power , if it exists at all, is not a natural law, but the result of culture and institutions that have evolved to stop it. IE, If we get to relaxed about billionaires, we may well.see plutocrats. Ie, suspicion of billionaires might be a feature.
One thing billionaire CEOs can do besides selling shares is borrow from the company. No capital gains tax. I believe Levine covered how this works before, unless I'm thinking of someone else.
On influence - I'm glad to see truism challenged but this understates the power of media, which shifts salience any direction billionaires want. That won't allow them to elect anyone they'd care to, but powerful distraction tactics at least.
One other reason that there isn't much money in politics is that politicians are cheap. So many of them become lackeys for anywhere between 100-300k. Why spend more when you don't have to?
I was going to be snarky but then I remembered I’m not a native English speaker and I realized I didn’t actually understand what you mean. So, what do you mean by “working in business”? AFAIK Scott does have two actual businesses that he’s working in.
Running a private medical practice seems to me comparable to any other kind of running a small business - is your argument that he doesn't have enough skin in that game because he earns so much from Substack?
PS I don't mean to be snarky myself, neither towards you or Scott. My intention was to remark on the extremely abstract way he was considering these questions - and to suggest that if he spent time in large or even smaller organizations, facing entropy at every turn and in a number of dimensions, seeing the constant crush of ideas meeting reality.... That his underlying intuitions and therefore his reflections, regardless of philosophical or moral stance, might change in interesting ways.
An economically rational entrepreneur isn't incentivized by becoming the next Amazon. If you look at the distribution of possible gains from starting a company, Amazon is a long tail gain (low probability of large return). The rational entrepreneur should be motivated by the the mean gain from starting a company. If we lop off the long tail with taxation or public policy, the probability weighted gain(expected return) hardly moves at all.
Now you might reply that the entrepreneur is motivated by that long tail even though it not entirely rational. And you might be right. But once you admit the entrepreneur is not rational, the foundation of the neoliberal incentives argument falls apart. (For example with irrational entrepreneurs the best public policy might just be to use advertising to deceive the entrepreneur about the size of the long tail; encouraging a lot of investment at very low cost)
A 99% tax on $inf still has an infinite mean. ie Public policy can't actually move the mean by taxation of the long tail in the example you provided and this will be true to varying degrees for lots of long tail distributions.
My understanding of VC space is that approximately *all* of the EV is coming from the ~ 1 in a 1000 companies that achieve valuations over $1billion, so putting high taxes on those will dramatically shift the mean -probably to a negative number, given that something like 90% of start-ups lose most or all the money invested in them.
VC funds have a different perspective because they're trying to average over many different startups. But for *an individual would-be entrepreneur*, you're basically gambling your life on a lottery ticket, and you aren't going to get many tickets (often only one!).
I don't think that is how venture capital firms work at all. They typically are aiming for an "exit". Which is to say they prefer to realize a profit by selling their shares in a few years, rather than holding a firm for the decades it takes to grow a modern Apple or Amazon.
As one of the "crazy" non-Facebook users (I had an account for a few months in 2006? and decided it was a waste of time) I can report that not having an account was a noticeable social issue for several years, but just hasn't mattered at all the last 8 or so.
Some of that might be life changes, but some of it is Facebook being not nearly so central to everyone's social life as it was for awhile. I agree it seems to have lost a huge amount of steam at least in the US.
What seems to be missing here is a discussion of investor behaviour. Yes, Bezos in the early 2000s is motivated by a desire to 100x the Amazon share price for his personal gain. But in order to do this, he needs money to invest in increased capacity, and Amazon is not reliably profitable enough to generate the funds he needs. The old joke that "Amazon is a charity operated by its investors for the benefit of the consumer" points to the fact that for most of Amazon's existence it was dependent on investors to fund its expansion.
If, by some law or regulation, Bezos were prevented from 100x'ing the value of his shares, that might have affected his motivation. But he also has some intrinsic motivation to run the biggest and best possible online store and infrastructure provider in the world, and so he plausibly might have continued even with a much smaller payday on offer. The same is emphatically not true of the investors who bankrolled the operation, who only did so because of the very real prospect of future share price increases.
It is hard for me to imagine a scheme which prevents individual founders from benefitting from massive increases in the value of the firms they found, while continuing to allow investors to benefit from the same. And the systemic effects of reducing returns for investors would seem to be at least as large, if not much more so, than the effects of reducing returns for founders.
It bothers me that people complain about the resources that billionaires have at their disposal but not about the resources that politicians control, which are greater by orders of magnitude. There are cities and counties, run by small groups of people, with budgets larger than Bezos. The teachers' union in my state (Maryland) can buy way more votes than any rich person.
The concentration of resources and power is greatest in government, and yet people want to take money away from billionaires and give it to. . .government.
If you feel like "This is democracy. It's ok for politicians to have power over resources, because they are accountable to me," well, go ahead and believe that. I need to be convinced. To me, the only case for democracy is that it provides a peaceful means for solving the succession problem.
"And effective altruism tried to use $10 million of Sam Bankman-Fried’s money to get a biosecurity expert elected to Congress in Oregon. They were pretty smart about it: chose a district with no incumbent, found a really amazing candidate with an incredible personal backstory, pulled out all the stops. They spent the third most of any race in the country - about as much as it was possible to spend, I don’t know what else you could even spend the money on - and they lost by a landslide in the primary."
No, they *weren't* smart about it, and here's why I think that. When I read about this, I did a little digging because, to me, it didn't seem to fit with my mental image of Oregon. Here are the results of my rigorous research (and if they want to throw good money after bad and send a few of Bankman-Fried's bucks my way for the sake of after-the-race analysis, I won't say no).
(1) The 6th district is new, being carved out of existing Districts 1, 3 and 5. These are all reliably blue, having returned Democrats in the last election, So it's not unreasonable to think they'll return a Democrat this time round, too.
(2) But is it reasonable to think they'll select Carrick Flynn instead of one of his rivals?
(3) So who are the likely voters, and what are their likely interests, and who are the rivals? When I saw one of them was well tied-in with the union, I said to myself "Yep, that's the one".
(4) Okay, what is the economy of the district (and it's nearly always the economy, stupid) so as to see the interests of the voters (not the EA people who think biosecurity is aces and everyone should think it is aces, too) and what they are likely to be concerned about and how they'll vote.
"The new 6th Congressional District will run from southwest Portland with a slice of Washington County, south through Yamhill, and include the Salem area. The new 6th, then (somewhat like the 5th), will include three distinct pieces: The Portland metro piece (on the southwest side, including Tigard, Tualatin and Sherwood); Yamhill and Polk counties, which include rural areas and small and mid-sized cities, and the Salem area, a mid-sized urban area with an identity distinct from the other two.
Most of the land area will be in Yamhill and Polk counties, but more than two-thirds of the votes will come from urbanized Washington and Marion.
This is a geographically coherent area (Highway 99 runs like a string through the middle of most of it, except Salem) but most people here probably won’t think it fits together.
The northern reach near Portland, where almost half of the people live, think of themselves as Portland metro people and may be a little discomfited jostled in with those non-urbanites. This suburban area touching on southwest Portland, including much of southeastern Washington County, will include more than a third of the district’s voters, but well shy of half, not enough to control election decisions outright. A candidate still would need to pick up additional support in other areas to win.
The cities of Salem and Keizer together have about 218,000 people, just under a third of the new congressional district, which is less than the Portland metro section but enough to provide an essential difference in the vote totals.
And the Yamhill County and most of Polk County see themselves as separate from either Portland or Salem. Yamhill and Polk together have almost 200,000 people, but about 25,000 of those Polk people are in West Salem. Small town Polk and Yamhill make up about a quarter of the new district.
These are three distinct constituencies, and all have enough people that a candidate will ignore any of them at their peril."
So there's a mix of college towns/urban sophisticates (ahem) and rural/small towns out in the boonies. Assuming the college towns will vote for Flynn (because he's been off to college and the Big City too, and the issues he is pushing are more likely to match with what they are interested in), will that be enough?
No. He has to appeal to the people of the "hills and hollows", and although he comes from that background, he's long enough gone for it not to count. Even if people are sympathetic or like him, he's not really a native anymore, while his rivals have stayed behind, lived there, and established track records in politics there.
So the EA campaign was dumb because:
(1) too much "Portland metro" mindset. They assumed that because Flynn was running on an issue that they think is Big Important, the voters will also think it is Big Important. Bad assumption.
(2) they should have, but plainly did not, anticipate the fuel for attack ads that the outside investment would provide. Flynn's party rivals jumped *hard* on "why are these outsiders interfering in Oregon local politics?" and this permitted them to portray him as the tool for people who had no ties to the area to use him and it for their own interests:
"Jon Isaacs, who was Sen. Jeff Merkley’s campaign manager on his first run for the Senate and is currently organizing an independent expenditure for Portland City Council races, says there’s “no comparison” between the campaigns he ran and the one he sees for Flynn. (Isaacs has given to Salinas.)
“Carrick Flynn could be anyone,” Isaacs says. “He has no campaign of his own. He has no record of community involvement. There is one person who appears to have little to no interest in Oregon, and he’s picked [Flynn] and he’s going to spend what it takes to get this person elected.”
(3) this was symptomatic of their misunderstanding of how politics works - the eventual winner who beat Flynn, Andrea Salinas, was involved in the creation of the new district. "Mr. Smith Goes To Washington" is a great movie, but it's a movie, not real life.
"State Rep. Andrea Salinas (D-Lake Oswego), who had served in the state Capitol for six years after first working as a lobbyist, led the effort to draw the new maps for Oregon’s six congressional districts. (She chaired the special committee in the Oregon House.) By Oct. 5, eight days after the Legislature approved those boundaries, Salinas was seeking the seat for the 6th District—some of which overlaps her legislative district. Her own home was not inside the new district’s borders.
...Salinas won the endorsements of key Democratic interest groups (the Oregon League of Conservation Voters, Planned Parenthood, Service Employees International Union) and has raised $520,000."
(4) this was also symptomatic of their misunderstanding of how campaigns work (and a lot of this is on Flynn himself, since he was the one running for office, after all) - local issues, local issues, local issues. What do the loggers, forestry workers, viticulture workers, the people in the rural and small town areas *want*? Flynn versus Salinas was "Vote for me and I'll head off to Congress to work on some airy-fairy project none of you have ever heard of" versus "Vote for me and I'll work for more money in your pay packet (and also your union is backing me)". Gosh, I wonder who the guy who works in the local feed store is going to vote for?
I'm a representative of the typical idiot in the street, and I'm here to say that to win elections, you have to bring issues down to the level of the idiot in the street. "How does this affect me? How does it harm/benefit me?"
Flynn may have had a point about biosecurity, but he didn't bring it down to the level of "how does this affect me?" He should have run on "Remember the Covid restrictions, when you couldn't hold your wedding or go visit your dying grandma in the hospital? I'm going to work so this doesn't happen again, and here's how".
The mistakes EA made were thinking the issues they are concerned with are issues ordinary people are concerned with, that throwing huge amounts of money at it will win the campaign, and that their candidate would appeal to the normies because, uh, he comes from a normie background himself even if he did pull himself up by his bootstraps. It's the same mistakes as Hillary Clinton's Big Data driven campaign made. It wasn't smart, it was dumb.
I think that really showed Flynn's inexperience, and of course, that must have affected voters' confidence. If the guy can't handle home-town political shenanigans, how on earth is he going to handle Congress, where he will be one new fish in a big pond?
He even managed to get an environmentalist group mad at him, which took some doing, as that's the kind of (excuse me for this) hippy-dippy stuff that his natural constituency (and the EA backers) would be well into, so he probably managed to cheese off that section of putative supporters as well - and even if he didn't exactly say what was alleged, rivals made political hay out of it.
Irish politics has probably made me very cynical, but "fresh-faced idealistic candidate gets elected" only works in the movies. In real life, either Fresh has a ton of local connections in the party etc. (like Salinas with the union backing) working behind the scenes to get him elected, or he gets eaten alive even by those in his own party (as Flynn did).
You have to admire the lovely job the rival camp did, though; Flynn tries to show he's connected with the local working guys as voters, and the opposition gets to tie him in to the "6th January insurrection". One of the five groups just so happens to be a union (PCUN) that totally coincidentally backed Andrea Salinas as their endorsed candidate, and she just so happens to come from a strong union-connected family. *This* is how politics works, nice EA people! Knowing how to wrassle with the pig (even if pig-wrassling is undignified and gets you spattered with muck), not throwing heaps of money at the campaign (of course you are going to need heaps of money to run the campaign, but money alone ain't gonna win it for you)>
“As organizations who have been fighting for decades to uphold the strong environmental values held by the people of Oregon, we are stunned and deeply saddened to hear Carrick Flynn, a Democratic candidate running for Congress, make comments mocking critical environmental protections, sympathizing with a far-right group that has ties to the Jan. 6 insurrection, and referring to our state’s iconic land use system as ‘insane,’” says the statement released by Oregon League of Conservation Voters, Oregon Wild Conservation Leaders Fund, Pineros y Campesinos Unidos del Noroeste (PCUN), Renew Oregon Action Fund. and RiverPAC of Oregon.
The bottom line is that money is important in politics, but you can't substitute it for time, effort, and domain expertise, especially if you concentrate it on a particular candidate. Dumb as it may be, our system is geographical, so a one-issue candidate won't work. Flynn was a terrible choice, no political experience, no apparent interest in politics before this election, and SBF tried to catapult him straight into Congress. And what for? To get one of "us" in Congress? It would have been basically symbolic; one vote doesn't get you any meaningful legislation.
That money would have been far better spent on campaign donations and lobbying efforts for lots of other more experienced candidates with their own backing and roots in their districts, to get them to put more attention on pandemic prevention.
That's why I say this was dumb, not smart. The idea is lovely, but it's all pure sitting at your desk theory. Biosecurity is a Big Important Thing, but outside of your bubble of "people who go to EA conferences hosted at universities", what does that mean to Joe and Jane Citizen?
Carrick Flynn seemed like a good choice: he grew up poor there, he was a local, not somebody parachuted in from outside.
Except for all intents and purposes, he *was* parachuted in from outside. He had moved away and didn't have local community connections. And he was running against people tied in to the local government scene, with union connections, and experience serving in office. He ran on a message that screamed "I want to be a statesman", and ordinary people get to know that politicians who want to be statesmen can't be bothered with helping their constituents because that is local, parish pump politics, and they want To Serve The Nation or something.
Flynn wasn't able to tie his message into local interests. It was all "vote for me and I'll feck off to Washington and work on shit there". And would that get me, the Oregon District 6 forestry worker or daycare assistant more money in my pay packet? Eh, no, but it would be Very Very Important Work on Flynn's C.V.
You can't do top-down like this, you have to build up from the grassroots, and the big mistake here was "WE are all excited about this thing" and not "can we make the voters of District 6 excited about this thing?"
EDIT: I mean this seriously, the major problem here is that EA individuals are too smart to be able to think like ordinary people and the concerns of ordinary people. If you are thrilled at the notion of technocratic solutions and a society run by technocrats, then you are going to bump up *hard* against reality when the plain people who go into the voting booths pick someone different from the candidate you want.
I’m interested in that argument about the John Stewarts of the world being more politically powerful than the billionaires.
It makes some sense. If a class of people were truly politically powerful, wouldn’t that manifest in part as the ability to divert people’s critical energy elsewhere? That is one of the key skills of a good politician.
Hence the partisan rancor over “the Hollywood elite” vs “the 1%.”
A useful heuristic might be “if they’re accusing some other group of being too politically powerful, they are probably about equally powerful.”
Groups that are truly disempowered seem to go into survival mode, trying to figure out how to get by and accept or join the powers that be.
Scott I think the issue here is that the EA attempt to get a Congressman was actually a shit job. They did terrible. I would go so far as to say that they did a Bernie 2020 presidential campaign level terrible job. And that is a pretty damning comparison because, and I say this as a dedicated Bernie 2016 supporter who even went to Iowa in 2020 for him, that campaign was horrifically bad.
The EA guys had no idea what they were doing. Firstly the race didn't have an incumbent but it did have a much more "in line with the constituents" existing candidate. Secondly when you want to create attention for a specific issue you do very different things than what you'd do to actually win.
The EA candidate was viscerally offputting and so was the campaign strategy.
What you'd want to do if you were serious about winning an election is to keep your pet issue as a moderate part of a campaign based on 9-14 other popular issues.
This is why people like Thiel pick a candidate who is on track with the other major issues in the Republican party but who has agreed to follow their direction on the pet issue that most voters aren't even thinking about.
Also a large part of the power than leftists believe wealthy capitalists wield is not about acute instant spending to achieve a goal but long term spending and media manipulation and lobbying existing congresspeople and slowly insinuating themselves into the political eco system.
Like Donald Trump. Trump donated heavily to both sides including famously the Clintons. He was in the social circles of NY and federal politicians. He was all over the media.
In fact when Sanders taught at Harvard as a guest lecturuer in the 80s he gave a famous lecture about the wealthy.
"The national and NYC media spent more time on _____ than on 3 billion people living in poverty. And that was before the divorce!"
Blank is obviously Trump if it wasn't obvious in context and based on the divorce part.
Also typically you would run more than 1 candidate. Run 10 candidates in primaries and hopefully one gets in. And if you end up with extras who get in, that is a win/win. Look at the strategy that the AOC associated movement uses. They ran lots of people besides her.
It's widely reported when Bezos sells a chunk of stock. For example he sold ~$10B in 2020 (I think in 3 or so tranches), a year when the stock price appreciated by something like 76%. Sure, that put some downward pressure on the stock price, but so what? It still went up by 76% YoY. As others have noted, if he tried to liquidate his entire position, this would probably tank the price. But that action would be insane and no "paper billionaire" would do that (absent some urgent need for huge amounts of cash), so we don't need to model it. What actually happens is that they sell a "small" chunk at a time, which allows them to cash out without moving the price too much.
Another dynamic that is a bit obscure is that if you are Musk, you can take out a bank loan, collateralized by your TSLA stock. In 2019 he had something like $0.5B of such loans (https://financialpost.com/personal-finance/high-net-worth/elon-musk-short-on-cash-keeps-borrowing-more-and-more-money-even-as-tesla-stock-surges). Sure, you pay interest, but 1) your stock is going up faster than the interest accrues, and 2) you'd probably prefer to pay 6% interest on a loan even if your stock only appreciates at 6%, because then you still control the voting rights associated with the stock. But 2) is extremely theoretical; if you are a paper billionaire, then almost by definition you hold lots of stock in a hyper-growth company - remember that these companies are growing at 20-30% YoY or higher, sustained for a decade or more. (https://www.macrotrends.net/stocks/charts/TSLA/tesla/stock-price-history). Normal intuitions about the rate of growth of wealth do not apply here.
If you want to take a look at the mechanics of what happens when a multi-billionaire needs, say $44B to buy something, you can look at Musk's acquisition of Twitter. That was some syndicated debt (persuading bankers to invest), some cash from Musk's account, and some bank loans to Musk backed by TSLA shares. E.g. see https://www.theverge.com/2022/4/22/23036479/elon-musk-twitter-bid-private-equity.
> You're approaching the question from entirely the wrong angle. This isn't a moral problem; it's an engineering problem: What kind of rewards need to be offered to founders and investors in order for them to bother innovating and founding new companies? The answer has been worked out many times before--every time a company is started. It isn't fundamentally different, nor more or less just, than the way that the wages of janitors vs. engineers vs. blog authors is worked out. It's just more complicated.
I think this puts too much certainty on what founders have "worked out" when they start a company. And it misses a point about the long-tail of the distribution of outcomes.
As a founder you're doing some calculation of EV on your shares. But it's a really hard calculation to do; is my chance of becoming a unicorn 0.1%? Or 0.01%? Hard to model, and makes a huge difference in the EV.
Most of your EV is in the "we sell the company for $10M-$1B" range. While it's possible you'll found an AMZN and get a $1T company, I don't think any founder is putting much weight on that outcome when they start the company and commit to the hard work.
Frankly, these days if you're concerned about EV you go to FAANG, because the EV is way higher there (and with immediate liquidity and much lower variance, too). This might make us worried about reducing the EV of founding a company by taxing multi-billionaires. But since almost all of the EV is in the "I get < $100m" range, I'm not convinced that taxing billionaires actually affects founder motivation much.
I think the data from VCs is actually that a lot of the EV comes from the >1Bil range - Making a successful company is *really hard*, but if you can make a $100mil company, you've probably got better than 10% odds to grow it past $1Bil
I think that's true for VCs, but I don't think the numbers work out the same for founders.
If you're a VC investing in a Series B company, you might put in $20M at $100M post-money valuation. To keep things simple let's say you don't have a preference stack and it's a 1x multiple. So if the company sells for $100M a few years down the line, the VC will get their $20M back and write that off as a loss (you got back your principal but didn't return any yield to the fund), but for the employees that's a $50M or more pot to divide up. The founders could be taking home $10-20M (pre-tax). The preference stack multiple structure means that the founders are disincentivized to do an acquisition at _less_ than the last round, since the VC gets back 1x their initial investment before the employees get a penny. So you'd expect to see companies tend to go all-in on "growth or death" rather than sell for less than their last round.
I think that startup exit valuations are bimodal; when I last looked at the numbers, lots of acquisitions happen in the $10M-$100M OOM, then when you get into the $250M+ range, acquirers start to dry up, and you start looking for an IPO as an exit. (This might be a bit out of date now that we have $T companies that can easily afford $20B acquisitions; I last looked into this in detail around 2015-2017. Still I think this dynamic means there are only a few buyers at a company size of say $500M, where there are many buyers at $50M.)
So I think that whole branch of the probability tree where a VC marks the investment down as a failure that "only" returns the principal, is still immensely profitable for the founders that got their equity for ~free.
Anyway I think this bears a detailed quantitative analysis, and I don't have hard numbers, so I fully acknowledge I have low certainty on this claim. I did a bit of digging and couldn't come up with anything conclusive. (Interested in anything that you or others have to quantify this further.)
"Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium, will people still say 'Yes, but once in elden days upon Earth-That-Was there was a site called MySpace which was on top for about two years and then Facebook beat it, so it’s not a natural monopoly! We could still get a replacement at any time!'”
I think we'd still have people saying Facebook could be replaced, but they'd stop mentioning Friendster and MySpace at all. Instead by then Facebook-3022 would be so deeply embedded in our infrastructure and society that imagining its fall would be more like the end of a great empire or religion. The comparisons might be the fall of Rome, or the rise of Christianity, things that happened despite seeming so unlikely beforehand. Or the end of the greatest Chinese dynasties, which even at their height knew they weren't eternal ("The empire divided, longs to unite, united, longs to divide.").
Nobody else came up with the controversial (made fun of by the media at the time) idea of an internet bookstore. Nobody else figured out that if they could build the software, systems and logistical stack to handle 5M ISBNs that they could handle a 100M SKUs. Nobody else figured out that bad news about an internet bookstore hurting brick&mortar would be good for business.
Bezos wasn’t replaceable. We’d still be shopping in the 90s.
> The majority of Bezos's wealth is essentially from gambling on Amazon stock.
I don't think this is the right lens.
You can claim that the counterfactual was for Bezos to sell all his shares and cash out at a "mere" $200m in 1997, and so by keeping the stock he's effectively buying and holding at that price. But in that counterfactual world Bezos isn't CEO in 1998, and therefore (I strongly believe) Amazon isn't a $1T company in 2020.
As a CEO, you simply can't sell all your shares and keep your job; it's your job to be long on the company. Your board would kick you to the curb if you sold most of your shares; the expectation is that you hold those shares to align yourself with the shareholders' incentives, which is maximizing the long-term value of the company (at least, long-term share price is the goal for a growth company; the dynamics are perhaps arguably more short-term for dividend-bearing value companies).
> In all, Bezos’s Amazon stake has dwindled from 42% in 1997 to 10% after his sales this year
In summary, Bezos's wealth came from signing up for a deal where he was heavily incentivized to maximize the value of the company and therefore his shares, and then he spent most of his professional life dedicated to that mission. You can't separate the founder's dedication to the job from that crazy financial bet on being long their company even after it's worth $1B; it's the same thing, and I believe it's why the best founders are so impactful.
> I think Bezos should be rewarded for being so bold.
One important thing to note is that to the extent you think that Bezos (and his ilk) just gambled and got lucky, you also should not care about taxes disincentivizing founder innovation. I agree Bezos should be rewarded, but I'm more interested in rewarding him for being one of the best CEOs of our generation, and for having the vision to stick to his mission for so long, rather than just for making a bold financial bet. I struggle to see much impact on innovation by heavily taxing someone that wins $10B in a bet.
> If a truck driver with some extra cash had decided to spend it on Amazon shares in 1995, he would be a multi-billionaire now.
Scott, I think you might be off by an order of magnitude here; if there's a 1000x increase in stock price since the IPO, you need to invest $1M to become a billionaire. I think a risk-tolerant truck driver would need 10x the yield to become a billionaire; I think a plausible blue-collar "all in" bet is on the order of $100k, and coming up with $1M seems a stretch. You need to get your hands on Amazon stock before the company is public in order to get these kind of gains as a non-rich person, which in practice means being an early employee.
I think there is a different reason why the comment about Bezos's wealth coming from gambling on Amazon stock is completely off. It just shifts the question from "why is Bezos rich" to "why is Amazon rich". The claim is that part of Amazon's success is due of a natural monopoly, regardless of who owns Amazon.
#5: Basically the issue with the railways is that they set the shipping rates for everything in the country, unlike now where we have a government-owned highway system and thousands of trucking companies ranging from huge fleets to "guy with a semi." If you were growing wheat in North Dakota, cotton in Alabama, or some other commodity crop destined for a far-away wholesale market, you were stuck paying whatever shipping rate the rail company told you to pay, and they had no incentive not to squeeze you as far as they could as long as you just barely stayed in business. In many cases the railroads owned the mills and the bakeries and the textile mills too, so you were basically growing a crop with nobody else to sell it to and stuck just taking a price. By 1900 or so the farmers were starting to band together into coops so that they could all negotiate together with the rail companies as a unit, but obviously you had to coordinate huge numbers of isolated rural landowners to get a movement like this to work (this is where the Grange came from - once a big political power in the US).
The strongest force in the universe is leftists’ tendency to spot that some part of business can potentially benefit from something other than pure grit and talent and say “Aha! So all the rightists who say it’s 100% pure merit ability are wrong and therefore it’s 100% pure privilege and luck, zero way ability can ever possibly matter”
But the second strongest force in the universe is rightists’ willingness to spot that some part of business can potentially benefit from something beyond pure random dumb luck and say “Aha! So all the leftists who say it’s 100% luck are wrong and it must be 100% merit!”
Come on! It’s obviously a combination of talent and luck!
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I've commented on this phenomenon before, but...
Humans don't naturally have the ability to suppose that an effect has more than one cause, or that a statement like "The rich got rich on their own merits" can be anything other than entirely true or entirely false. Many can say "Some X are Y" or "Not all X are Y", but most drop even these non-quantitative "quantifiers" when they combine two claims to make a deduction. "All of the rich got rich partly by luck" + "all wealth gotten by luck is unearned" => "None of the rich earned any of their wealth."
This may be because these are linguistic statements, and language is barely innate, having been only recently tacked onto human thought processes. When it comes to inference made by combining linguistic expressions, only people with mathematical training are even aware of possibilities in-between True and False.
This seems to people with mathematical training to be an outrageous claim. But keep your eye out for people dropping quantifiers, and rounding off "some" to "all", "not all" to "none", "probably" to "P = 1", and "maybe not" to "P=0", and you'll see this is the default human behavior, in reasoning if not in .
Plato and Aristotle excluded all statements that weren't both universally quantified, and either absolutely True or absolutely False, from philosophy, delegating them to the wastebin of "mere opinion". But we don't do this just because of Plato and Aristotle. Most people in most cultures have done this throughout history, and the most-prominent exceptions are ones like Buddhism and post-modernism that just throw up their hands and say that you can't say anything: "it is inept to say is, or is not, or both is and is not, or neither is nor is not".
As a first few thousand Microsoft guy, options had made me a few million by my mid thirties/ten year point.
Like most people I know I diversified into newer startups, I binged on cars, homes, schools, so a decade later I was wondering how I’d cover college fees.
You have to respect those people who stay loyal to their twenty-something vision. But I treasure the career I have now where all I care about is my 50 -something vision, and don’t care less about whether it nets me a Ferrari.
> To the extent you're providing better value than all the other competitors who come along over the years, you should reap proportionate rewards.
I think this is an area where first-principles discourse becomes a bit hand-wavy, and you need to actually look at 1) empirical economics theory, 2) antitrust enforcement cases.
> One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”
Followed forty-five minutes later (presumably after his GC called him and reminded him that all these emails would be in court some day):
> I didn’t mean to imply that we’d be buying them to prevent them from competing with us in any way
Facebook is IMO clearly anti-competitive; they deeply understand how network effects function and have bought up competitors with the explicit goal of preventing them from becoming threats.
An interesting question with Facebook is, what if there were no other "social mechanics" and therefore they didn't need to do anti-competitive things like buy potential competitors, and they just acquired the natural monopoly through network effects. Then I think you need to fall back to a classical antitrust analysis to determine if they are mis-using this natural monopoly.
I think in practice, lots of the extremely big companies do have monopoly power in some area (or at least anticompetitive practices), and the big questions are whether monopoly is inherently bad (see Milton Friedman) and whether we should discourage monopolies that benefit consumers (see Ben Thompson on Aggregation Theory).
One of the nice things about focusing the discussion practically on antitrust is that by construction it doesn't affect any but the very largest companies, and indeed keeping markets competitive is good news for future founders (though it does depress the market for acquisitions somewhat by removing e.g. Facebook as a potential buyer of Instagram). Making markets more competitive means it's easier to start something new and grow it. So Zuck might "only" have $1B in the bank if Facebook was prevented from buying up future threats, but that's still a nice reward for adding a bunch of value to peoples' lives. And it means that instead of Zuck going from $1B to $100B, there is room for a bunch of other people to come in and grow their ideas to $1B too. And if Zuck can out-compete everyone in a well-regulated and fully-competitive market, then maybe he did earn that $100B fair and square.
It's a lot harder to become a multi-billionaire if you can't monopolize something; Thiel's "competition is for losers" is worth noting.
> For example, at the limit, if Amazon is strictly 0.001% better than its competitor (eg they’re exactly identical otherwise, but Amazon’s goods each cost one cent less), then it might end up with 100% of the market share... I realize this example is unrealistic but hopefully it shows what I mean by “value added” vs. “value needed to attain/maintain a natural monopoly”.
I think the key thing here is that you can come along later and try to analyze whether Amazon is extracting rent; if it is, they are misusing their monopoly power. If it is not, perhaps they are simply using a natural monopoly to benefit the consumer (economy of scale being passed on as lower prices, say). But it's hard to detect ex ante.
Before proposing something completely novel like a Georgist Idea Value Tax, I'd be interested to consider a deep-dive comparison between the EU and US systems of antitrust, as they have quite different philosophies. How many billionaires get minted in the EU vs. US? How many of those are from arguably-monopolistic companies? Does the EU's strong antitrust regime mostly resolve the problem of anti-competitive rent-seeking that we're hypothesizing here with US companies? Is the "we got here first" rent that Scott originally described _just_ monopoly rent, or is there some other component?
And where is the European Amazon (or Tesla, or Google, or Facebook).
If you want policies that make it more difficult for founders to become billionaires, then every other Western country has them. If you think such policies don’t disincentivize innovation, where are the European tech giants?
> If you think such policies don’t disincentivize innovation, where are the European tech giants?
I agree with you that one thing to be weighed in this discussion is the value of innovation. (Another is the value of competition.) However I am not convinced that “number of tech giants” is the right metric.
You could have lots of small/medium sized companies each innovating heavily in their core areas, without having any gigantic companies.
To be clear I don’t think this is what we have right now, I agree the US tech companies are doing more innovation.
But they are also crowding out competition in their own way (it would be quite hard to start an innovative ad company or social network in the EU right now, for example).
Fair enough, but the difference in dynamism is obvious. The USA is currently about 50% wealthier than Western Europe in terms of GDP per capita, and the gap is growing (Data Source: Our World in Data). You (generic you, not you specifically) might think that Western Europe is rich enough, and the difference in wealth and growth is a price worth paying for a kinder, gentler society or whatever, but lets not pretend that the cost doesn't exist.
I think that is perhaps an oversimplification though; if you look at recent history, there are a number of points where DE, UK have surpassed the US on GDPPC. (And I think picking a couple "best EU countries" to aim for is more appropriate than some average across all Western European countries since there is a massive difference between, say, DE and IT).
The recent clear divergence started in 2008 and is primarily due to the mis-placed austerity measures undertaken in Europe, combined with the painful unwinding of bad debts from the Eurozone core (DE) to the less-stable periphery (IT, GR, etc).
If you remove the post-2008 results I think there is a much less compelling story that the US is substantially "more dynamic" than DE, for example: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2008&locations=US-DE&start=1960&end=2008. Though I don't deny it's still substantially ahead for many stretches, I think picking a single point in time (now) as you have, over-emphasizes the difference in economic performance, and when you average over a longer period you'll get much less-pronounced differences.
And if you think the post-2008 results are an example of that dynamism, then I think we're talking about different things; I don't think the post-2008 results tell us anything about anti-trust, or innovation, or billionaires -- they more underscore the monetary vulnerability of the Eurozone countries.
This is an endlessly fascinating post. E.g., #3 is simultaneously obvious and deep. The idea that anyone could have invested and become fabulously rich is quite compelling. It's not a perfect argument for not regulating billionaires: surely, the warehouse worker with $30K has probably about $0 left for investing, not to mention the know-how, etc. But that seems to be a minor issue.
Numerical work (that makes intuitive sense) shows that to become enormously wealthy, you need a tremendous amount of luck, and *enough* ability to take advantage of it:
How much is enough? Probably not all that much. Is Bezos really one-in-a-million? Probably no more than top 1%. A few people in my college circle were reasonably competent tech people and were in the right place at the right time to be on the ground floor of something that blew up. I know much more talented people that do just fine but didn't hit that jackpot. So, take that for whatever anecdotes are worth.
As noted in the post, Bezos left a lucrative job at finance firm DE Shaw (which was recognized at the time - even if not at all today - as one of the 'places to be' for the very smartest technical people; so this is not just hindsight speaking). I know many people who went there about then and generally IMO they were often well and truly 1% brilliant (PhD's from the very top schools [the sort of people who had to think: do I take the DE Shaw offer, or the MIT tenure track position?], though I recognize this alone isn't enough to prove my 1%+ assertion. But it's the only objective statement I can make). So I'm guessing Bezos had that 1% or 0.1% intelligence AND something else rare besides. After all, not many of his DE Shaw colleagues would join him even after being urged to. And I think it's fairly well known that even at the start he had a definite long-term "vision" - of which selling books on-line was merely a logical first step. (Anyone who thinks that that selling books is what he did, but he 'lucked into' general on-line sales as the opportunity hit him in the face is just wrong.)
I don't know if that combination of intelligence, drive, vison, and willingness to sacrifice the near certainty of a good and quite rich life (by staying at DE Shaw, or using his intelligence in other traditional ways) is 1 in a million, but surely it's rarer than 1%. Though I'd guess that if it were actually quantifiable, it would be way way rarer than 1 in a million.
personally I think one-in-a-million is probably underselling it. But if it isn't, it's close. 1%? Have you _met_ people? 1% of people is like the cutoff for "people who regularly read books".
I have no interest in debating Bezos in particular, I know nothing about him. I'll just point out on whatever scale of ability we're talking about, we're up in the exponential tail, the real differences between 1% and 0.1% and 0.001% get pretty small. Let's see, top 1% in IQ is 135, top 0.1% is about 146.
To quote the paper "People with a medium-high talent result to be, on average, more
successful than people with low or medium-low talent, but very often the most successful individual is a moderately gifted agent and only rarely the most talented one."
I might ask, have you _met_ rich people? Granted titans of tech in particular probably skew higher than a random billionaire.
I have met a few rich people; I used to work at Amazon and interacted with some of the VPs and SVPs there (although not Bezos himself. But I did perceive his influence on these people, I think). I personally believe these people are fantastically more competent than most people I have met in my life, including leaders at other jobs I've had since. It's not even close. Like: multipliers of 1000x in capability compared to an average leader at an average company.
But that's my personal opinion. It's not inconsistent with the idea that in most cases 'success' comes from some healthy mix of luck and talent.
I think that you're committing a fallacy in using the IQ numbers, by the way. IQ has already normalized people's real performance to be normal, so undoing it by definition recovers the 'actual distribution' in performance, whatever that is... without telling you a single thing about it. As above, my hunch is that the absolute changes in IQ (or other normalized measures of aptitude) translate to exponential increases in real-world efficacy.
I will try not to be too negative, but something about Scott's perspective just rubs me wrong.
I guess I just don’t see the harm in people getting rich by enriching the lives of billions of people. And yes, that is how I view what Bezos and team have done with building the greatest on$line shopping mall in the known history of the universe. This was a huge achievement and I am grateful they did it and wish them well for their much deserved fortune.
Bezos is a billionaire because he entered a structured market competition with some interesting ideas, and he navigated his way from a risky startup to a system that has made a difference in our lives. At each step of the way, on a daily basis, he risked his time, investment, effort and creativity to try to make the world better for us. Good for us, good for him, good for his employees (I know some of these).
We need more Bezos, and I am not concerned about trying to nickel and dime him to discover what the minimum amount would have been to get him to make something just as great. It’s like worrying about giving Einstein too much credit for his theories (sucking up excessive amounts of scarce scientific credit).
The problem with the world isn’t people like Bezos (or Einstein, or even Scott for that matter) getting ahead by improving the world in positive sum, win win terms. The problem is with all the people who are making themselves rich while making the world worse for others (zero summers?)
>I’m not claiming I am sure Facebook is a natural monopoly. But surely we should be updating our chance of this a little for each year that goes by without it being replaced.
Facebook *has been' replaced. As far as I can tell, it hasn't been hip or cool for over 5 years now. First came snapchat, then instagram, and now tik tok (yes, I know facebook bought the first two, but there's no reason it had to go that way). There is also twitter. But as far as I can tell, facebook is more or less on the way to being dead.
-Facebook buying intagram IS relevant, because having enough money to buy out competition is precisely part of how monopolies are maintained. Zuckerberg literally said:
"One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”
- Facebook is far from dead - it was the 10th most profitable company in America last year and still had a revenue around 22 times greater than TikTok
Which is not to say facebook is a monopoly, but it doesn't really have to be 'cool' to maintain market dominance
My bad, I misremembered the "Facebook bought snapchat" story. But steelmanning myself, the general point stands - facebook is not a natural monopoly, and facebook has been replaced among what used to be an important demographic for it. It faces significant competition from outsiders like TikTok and Telegram, but also from non-outsiders like Apple, Twitter, Substack and Tinder. At the moment, facebook is still better at selling ads than the competition. If facebook survives, it will be because it manages to acquire the correct companies and integrate them in a way that makes sense - if it doesn't make the correct choices, it will die like myspace.
This all boils down to the unjust power of monopoly in the end. The way to prevent monopolies from devouring all surplus value is (as Georgists say) to tax away the economic rent to which the monopoly owner contributes nothing. Doing so is more straightforward (although still complicated) with natural resources where it is feasible to estimate the value of the economic rent (like land and spectrum), but it quickly gets more challenging when you try to apply it to other categories like online retailers and digital video game distributors.
The solution to this problem of estimating the value of economic rent is, once again, to let the market figure it out for you. This can be accomplished by imposing a Harberger tax, which requires the owner of a monopolized resource to self-assess its value and then pay taxes based on that self-assessed amount. The owner must also sell their monopoly rights to anyone who offers to pay this self-assessed price, which is how they are compelled to make accurate assessments. This system effectively does away with monopolies by transforming ownership into something more like a lease of a public good.
To me, this seems like an elegant solution that cuts right to the heart of the matter while resolving some of the implementation difficulties of other approaches, as well as making the concept of a rent obliteration tax cross-applicable to virtually any type of monopoly.
I'd recommend this paper for further reading on Harberger taxes
John Schilling's comment was excellent, and I think deserves some more attention.
Concentration of wealth in one insightful person certainly does seem to result in far more innovative leaps than when it is done by collections of peoples (i.e. corporations or govt).
Well, yeah. Any really big-leap innovative idea is going to seem like nonsense or insanity to most people -- that's what makes it a big leap. So if a committee responsive to majority opinion votes on it, which is what happens in a big company, or even more so the government, it will usually be dismissed as being too risky or "obviously" wrong according to common sense. The only way big leaps get done is when some obsessed individual believes in them. Big companies or government can only sponsor a series of small incremental innovations, the kind of stuff that is clearly a good idea to the average person as soon as he hears of it, small movements away from the status quo.
"Come on! It’s obviously a combination of talent and luck! We can debate the relative proportions of each, but it has to be this"
Fair enough, but... both are your rightful property. I haven't heard anyone seriously debate redistributing talents. Even if we had the technology to do so, I don't think people would agree that it could ever be good to diminish your artistry, for example, in order to give someone else extra artistry. Your talents are uncontroversially considered your rightful property. I'd argue that the same is true of your luck. And it derives from the same intuition that applies to talent - you didn't do anything to 'earn' your talents, and yet they are yours. I argue that if you are considered the rightful owner of your own body, which you didn't do anything to earn, then by extension you are the rightful owner of all your luck, good or bad.
I fail to see any principled way of distinguishing between luck that is your property and luck which is not. There are lots of 'aesthetic' judgements about this, with all sorts of people declaring that so-and-so didn't 'earn' such-and-such therefore their goods are rightfully communal property, but I find all such talk disgusting and gross, to state an aesthetic judgement of my own. I hear such talk exactly as if I were listening to people plan to chop off someone else's leg to eat.
Scott: you don't come out and say it, but implicit in your critique is the idea that it would be better to change to rules to make it much harder (impossible?) for founders to become multibillionaires, and that doing this won't cost much in dynamism. But of course, almost every other Western country does precisely this. So where are the European Apple, Google, Facebook, Amazon, Tesla?
The US is currently about 50% wealthier than Western Europe in terms of GDP per capita (data source: Our World in Data), and the gap is growing. You might think that becoming more like Western Europe is a Good Thing because it is a kinder gentler society, or because the sight of Bezos billions offends you, or whatever. You might be right. But lets not pretend that the cost in wealth and growth doesn't exist.
Sure, but I think that's still too strong of a claim. Culture/genetics probably play a much larger role. Even just looking at white Europeans/Americans, there were probably substantial selection effects around the kind of people who immigrated to the states vs those who stayed in Europe.
You can use Canada as your counterfactual if you prefer. The selection effects are presumably similar, but the US is about 50% richer than Canada in terms of GDP per capita, and the difference is growing.
Western Europe is a bunch of pretty different countries. E.g. Sweden has considerably more USD billionaires per capita than the US does, and a somewhat lower GDP/capita.
The population of Sweden is less than that of e.g. Metro-LA. Comparing it to the entire US makes no sense. Western Europe is at least a similar sized place.
A 10M sample size should be big enough. Getting 45 from a B(10M, 1/M) distribution (assuming that becoming a billionaire would be almost twice as hard as in the US) is an 11-sigma event.
Here's a question on this topic I have yet to have answered--how does the *mere fact that someone has more than X wealth* harm others?
Note I'm *not* talking about how they acquired that wealth. Or even what they do with the wealth. Both of those are separate topics with separate solutions. I'm talking about the mere state of being a billionaire (or whatever). How does that harm anyone?
Meet Bob the friendly dragon. Bob literally lies on a bed of gold...not because he went out and stole it from someone but because his presence magically converts any stone within Y feet into gold over time. What does he do? Well, he mostly sleeps for centuries at a time. When he's awake, he's a great neighbor (suitably shapeshifted into human form). Sure, a bit weird, but who isn't. How does Bob's existence harm anyone?
Or take Andrea the Hermit. She hates people to an extreme degree; she is disgusted by having to deal with people. So she lives in the deep mountains self-sufficiently. One day she comes across an old mine with a pirate's treasure worth 100 billion dollars. Has that find changed anything for anyone? Has the world become worse because wealth inequality is slightly higher?
Why does this matter? If power's the problem...fix the power disparity. And start with government, because it has the most of it (no billionaire can legally send goons into my house with guns to shoot my dog because they think I have some substance they like) and is the most free in using it. If the problem is how they acquired the wealth, *fix that*. As in, the specific steps that are the problem. Etc. Going after people based on wealth status doesn't fix any of that; it's a badly-aimed policy at best. And most of the ways people are suggesting involve *giving more power to an already bad actor with tons more wealth and power than the richest of individuals, one that has done precious little good with it.* Yes, I'm talking about the federal government. Have they done good? Sure. But mostly by avoiding negative actions and at most stopping bad actions by others, not by proactive "using the wealth and power for good" actions.
1. I never said you can't use representative government. Just that you should target your efforts at the things that actually cause issues, and I can't see how *the state of being wealthy* causes issues. So if you want to fix the power disparity...aim at that.
2. Power =/= wealth. You can be wealthy without being powerful; you can be powerful without being wealthy. In fact, I'd say that your average government bureaucrat has more actual power than most of the top 10% by wealth individuals. They can directly and *completely unaccountably* cause changes to more people's lives.
3. Addressing power disparities by giving more power to the already most powerful entity (government) seems...backward. And that's what "us(ing) representative government" to "fix the power disparities" means. Furthermore, if the issue is that wealthy people are "buying government"...giving more power to government makes them *more* inviting of a target, not less. If you want to remove power from wealthy people (to the degree that they have it), giving more power to government is the worst possible way to do this, because it's actively counterproductive.
I still don't see how that's connected to my point. That's not *having wealth*, which is what I was talking about. It's *how they use that wealth*. And that's not really even related to *wealth at all*. I have no problem with reaching out to elected officials about matters of concern. But there's a difference, in my mind, between
----Case A, targeting people solely based on having wealth----
Citizen Bob: Hey Elected Andy, Richy Rich has tons of money and that bothers me. You should do something about it.
----Case B, targeting harmful *actions*----
Citizen Bob: Hey Elected Andy, Richy Rich is buying up all the widgets and stuffing them in a shed so no one else can have any. That harms me because I need widgets for my frobnification factory. You should do something about it.
Case A doesn't actually address the concern your raise. But that's the one I'm seeing in all of this--attacking billionaires *simply for having that much money*. And proclamations that no one should be allowed to have that much money, regardless of what they do with it or how they got it.
Case B is normal and natural. And focusing on the actual harms being produced also opens up things like targeting *other*, non-wealthy sources of harm. Such as government itself. Because here's the thing. If, say, the Gates Foundation is screwing up your local schools, they can only do so because the government (which runs those schools and has an effective monopoly in most places) lets them do so. And is, in fact, the one actually implementing those ideas. The Gates foundation merely is providing ideas, they're not in there setting the rules for teachers. The unions and administrations are doing that. So another thing might be stripping out some of that power out of government and, say, getting elected officials to implement effective school choice, which defangs the Gates Foundation more effectively than just playing whack-a-mole on the public school system.
Case A just gives more power to the people who already have more power than anyone else *and* already use it worse and more harmfully than anyone else, and increases the rewards to those who can capture that government power. And that's what I'm saying I've not seen any justification for. Not Case B at all.
Not that much of a tangent. In fact, that was kinda the point I was going for. We attack the *state* or the *legal, moral, useful* thing, instead of (heaven forfend) punishing the actual harmful action or actor. If I were more cynical, I'd say it's intentional, as many of the more gun-nut variety do about gun control. Some aspects probably are. Others are just the usual blindness and politician's syllogism, plus a bunch of activists who don't really want to see the problem solved because then they'd be out of a job.
I think it's worth pointing out that around three-quarters of Amazon's profit comes from AWS, not its retail business. This is at least relevant to discussions about its retail business making monopoly profits etc. Amazon would be much less profitable without it, and presumably AMZN would be less valuable accordingly, though probably not proportional to its drop in profitability.
Amazon was making around 100-200 million in profit when it founded AWS, so i assume its not strictly the case that it was able to initially create AWS due to having mountains of cash from its retail business, though I'm not sure to the extent that its continued growth depended on years of funding from elsewhere in the business.
Related to comment 2: I think we can design a system where company shares "expire" after N years without losing much of the incentive to start new stuff, because the discount rates (cost of capital) we use are so high.
*> Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium [...]*
It's extremely unlikely that Facebook will reign unchallenged for the next two decades, let alone the millennium. A new company may take away Facebook's pole position in social media, or more likely, social media may decline in importance to some other sector that Facebook fails to make an inroad in.
Economic history amply confirms this. Most dominant companies today were not around a century ago. In late 90s/early 2000s Microsoft was supreme in the technology sphere, all other companies cowered before it. While it's still a big player it has lost that dominance long ago. We can see the same thing repeated earlier with IBM. Hence there's no reason to worry that this historical trend will be broken by Facebook.
There's also the Facebook-the-product vs Facebook/Meta-the-company question. It definitely feels like Facebook-the-product's best days are behind it. Meta-the-company is still doing great, though, to some extent on the back of Insta/Whatsapp/Whatever.
But that feels like much less of a "natural monopoly" and much more of a "traditional monopoly," with the company using market power to launch new different products/buy competitors/attack competitors than existing in a highly, highly defensible niche. And you could certainly see someone saying, "We need to apply more scrutiny towards Meta's acquisitions and other market tactics," without advancing any novel theories of surplus value.
Can we talk about "natural monopoly" in general. If I understand the hypothesis, I'm beginning to reject it.
I see the examples offered as the Post Office, or a public utility -- water, power, sewer, trash collection. It seems intuitively obvious that a monopoly grant or license to one provide maximizes utility of the invested resources. One truck makes deliveries on the street, not a half dozen competitors. One set of pipes provide potable water and another takes away black water, and we don't have confusion over dozens of trenches and pipe-types going different directions. Etc.
Yet now we DO have USPS, and FedEx and Amazon and UPS trucks rolling down the same streets on the same day. The newer competitors use better methods and ONLY deliver when there is a parcel that requires deliver, while the USPS truck rolls past every point on the route, willy nilly, maybe stopping for a red flag indicating (without prior notice) there is OUTGOING mail. Natural competition has just about killed the natural "monopoly" that federal (constitutional!) law granted USPS.
Internet Service Providers certainly want monopoly territories. The whole "net neutrality" thing was a promise by the ISP that, given a monopoly, service would be held constant. But the same streets have fiber and twisted pair and satellite ... What natural forces really justify a monopoly to any ISP?
The Bell System enjoyed a monopoly for most of a century. One wire per street, and any Bell device worked on any Bell wire. And cell phones and camera phones and text messages all were developed by Bell Labs and STAYED in the labs. When Carter/Reagan sustained efforts broke up Bell to baby bells and other players, the services we loosely lump together called "phone technologies" exploded. And yes we have confusion about CDMA and GSM and other junk. But what was the natural virtue of Bell's technical, interoperability, with monopoly?
The NYC subway system was built by three competing firms, and only merged into a city-run monopoly "public utility" style service for political reasons. (Save the nickle fare!) Right...
Anyhow, I'm not sure the historical evidence supports the economic theoretical construct of "natural" monopolies in general.
> if your startup fails, they lose their investment, you keep your salary, and you probably go and found another startup or get a good management position somewhere else
My anecdote:
I work at a private equity firm, which means we are focused on cash flows, rather than growth that a VC firm might pursue.
One of our stakeholders pushed me to interview an ex-startup founder because he had ‘lots of good ideas’. On his resume he had founded four different start ups, each receiving more funding than the last and each ending in bankruptcy. His last startup was very high profile in the region and managed to lose 100m USD.
After that he worked as a ‘Chief Growth Officer’ at an already existing startup and was fired within nine months.
I interviewed him and felt he was full of bravado, but didn’t have much business sense and wouldn’t fit well with the tight cost controls of a PE firm.
So I objected to his hiring, making the point that he has never made money for any company that he worked for and his primary skill seems to be in raising capital which we were not hiring for.
I was overruled, but we still didn’t hire him because he asked for an outrageous salary.
At the time I thought it was crazy how someone can ‘fail up’ so well, and also that I could probably take some cues for boosting my own career.
Your analysis of Amazon's stock value is definitely wrong. Amazon's stock has split four times in history. In June 2022 it was a 20-for-1 split, so that 100$ is actually 2000$. Then there were three in the early days (pre 2000): a 2-1, 3-1, and another 2-1. So that 2000$ is actually 16000$. So that 10c initial stock is now worth 16k, a 160,000x increase.
I don't know much about stocks / finance, I just know about this because I used to work there and knew people who had been around near the initial split.
Another thing I heard is that in the early 2000s, I guess the dot-com crash era, there was a time where the stock was performing really badly and a lot of people folded on their investments. I think something like a buy-back program to keep employees from getting disgruntled and quitting? But people who _didn't_ fold ended up making bank because, as we all know, the company did really well later. I heard about it from someone whose opinion was: "if I hadn't caved I'd be retired by now".
> They were pretty smart about it: chose a district with no incumbent, found a really amazing candidate with an incredible personal backstory, pulled out all the stops
I think it's a really generous read of the outcome if you think "failing miserably" counts as "being smart about it". I read it as: they _thought_ they were being smart about it, but they were clueless, hence they failed. "Ineffective" altruism would be the word for it.
Everyone is arguing about Bezos or Musk or Gates (fair enough, as they were/are in the top spot for "richest in the world"), but what is the economic/ethical argument for their ex-wives MacKenzie Scott or Melinda Gates being billionaires in the Forbes 400?
And what about media billionaires? Tiger Woods is a bit on the border with a net worth of 800 Million to a cool billion. But Oprah has comfortably over 2 billion. We are discussing here the innovative surplus of Amazon or having the capital to build rockets, but what is the argument that playing Golf is worth so much? Or having a talk show? Is having the prime time spot on television also similar to an "oil resource" which should be taxted by a Georgist LVT?
I also looked up the richest film actors and Jerry Seinfeld is a billionaire through his decade old sitcom (but it is the slightly poorer Larry David who still puts out good comedy, while the retired Seinfeld drinks coffee). Also Tyler Perry is listed a billionaire through a string of African-American comedy movies (I am a bit puzzled by Perry, I am not an American and never heard of him).
You joke, but a marriage is an economic partnership, and a successful man almost always owes a great deal of that success to his wife (or occasionally vice versa).
To be more specific, a married person who is successful in their career (above average) is doing so with the active support of their spouse, who could wreck the career via will or incompetence. A single person can succeed on their own, and while they don't have to persuade/get lucky with a spouse choice, they have significantly fewer resources to bring to bear in the career.
A married person without spouse buy-in is extremely unlikely to succeed spectacularly, if at all, at a career.
Answering that would require them to admit generational wealth exists, and they clearly aren't willing to make an "it's unfair but it's better than the other options" argument.
But what are the policy consequences of that? Estate taxes are a general way to tax luck.
You are arguing for antitrust. Did he luck into first-mover advantage? It's hard to be sure about Amazon. I'm skeptical about most monopoly claims and all government antitrust actions (give me a single virtuous example!). What happened to the 8000 better managers? How many of them entered the same market later? No, surely none of them even started a business. You could ask Bezos where he was lucky. He says that his biggest luck was raising money right before the dot com crash. I'm skeptical of trying to reduce volatility, but there are lots of things you could do to make it easier to start companies and raise money. In particular, build housing in the Bay Area to drive down the cost of programmers. (Of course Amazon is in Seattle, but the salaries it pays seem to be driven by the national market. Also, build housing in Seattle.)
It is an unexpected delight to be on the subway and find your comment responded to by Scott Alexander.
To answer some of the objections raised - no it would not totally collapse the price of Amazon if Jeff sold all of his stock, but crucially, some percentage of the value of Amazon represents the premium investors are willing to pay for a company managed and owned by Jeff Bezos. We could calculate the dollar value of Jeff management from a hypothetical price after his liquidation, and I suspect it would be more than one billion dollars! Even if his attention is worth only 1% of Amazon’s value that’s >10bn right there.
But I think there’s a larger point here that wealth in the contemporary sense is control over a network of production or distribution. I was just reading Brett Deveraux’s series on Crusader Kings 3 and was struck by way the game models personal control of the apparatus of government as analogous.
> I knew I was missing something when I wrote this post, and I think this is it. This is a good match for the Georgist idea that landlords should keep the portion of their profit that comes from hard work (eg construction, maintenance, attracting customers, etc) but not from land rent.
What in the world? That's not the idea of Georgism, it's the idea of communism. (The "Labor Theory of Value".) [1]
Georgism doesn't care whether you are doing or ever have done any work. It doesn't care whether the work was easy or hard. It cares deeply about whether part of your property was naturally occurring (usually defined inconsistently) and about the fine details of ownership structure (more concentrated is better).
[1] Well, in one direction. According to the labor theory of value, you should be paid if you do some work, regardless of whether anyone wanted the work done.
I think you are misunderstanding what people mean by the power of "money in politics" (at least you are misunderstanding what I mean by the concept). You are only looking at the surface flow of money but not at the political character of capital itself. The power of billionaires/business leaders/capitalists does not stem from the amount of money they pour into political campaigns. In fact, they don't have to pour any amount of money into political initiatives and still wield enormous political power. Here is what I mean:
Capitalism describes a specific relation between capital and labor. The vast majority of people have to sell their labor, i.e. find employment, in order to stay alive, or at least to manage their livelihoods. So becoming and staying employed is the most fundamental material interest of individuals, thus on aggregate, employment is pretty much the most fundamental political interest within capitalism. This sounds very vague but it's straightforward if one looks at the implications at the most basic local level of politics:
Most local political districts have a handful of outsized employers. The business decisions of even a single of these employers can have significant effects on employment in the district. Usually the main economic interests of those employers are mostly aligned and at some level they are loosely organized within some political employers association. If they coordinate their business decisions, they can easily manipulate the district's employment rate by two-digit figures, thus lifting up or sinking down the economic fortune of the entire district.
Thus it is first law of local politics never to piss of the district's major employers. Small shifts in capital allocation can have enormous effects on employment on a local level and can therefore bury any local politician. This is so obvious to any local politician that the omnipresent threat of "relocating operations elsewhere" does not even have to be voiced openly by the big employers. In capitalism, this Sword of Damocles, of induced unemployment as retaliation by large business interests, hangs over the head of local politicians everywhere and affects each and every local economic policy. The long-term success of any local politician thus depends on their ability to please local employers and positively affect their capital allocation (to the detriment of other, less-forthcoming districts...).
Needless to say, this dynamic does not stop at the local level - the local level is merely the level at which these dynamics are most clearly visible. At higher levels the "employment power" of single employers decreases, but this is easily compensated by higher-level coordination, political association and natural class interest. Even at the national level, the global capital allocation of corporations and industries has an enormous impact on the quality and quantity of employment. Therefore, organized capital interests naturally wield enormous political power, simply by determining the allocation of capital and employment. So via employment alone, capital/business/billionaires/the rich (whatever you want to call it) reward and punish economic policies all the way from the local to the global level.
The "money in politics" is not (only) the >money< business >spends< on political campaigns, but rather the >capital< business >allocates< to incentivise policies. Therefore, capital itself is always "political money", because its allocation always has significant political effects. So the reason you see so little "money in politics" is because you are looking at the political effects of >money changing hands<, rather than at the political effects of >capital changing places<.
Maybe a perfect illustration of this is, once again, Amazon. A couple of years ago Amazon announced it would set up a new headquarter somewhere in the US. I don't think the announcement and accompanying media campaign cost a lot of money, nor did Amazon have to spend a single cent on political campaigns (afaik). Yet, local politicians all over the country jumped up, willing to sell their souls and to throw any imaginable local regulation over board, simply to attract a tiny fraction of Amazon's vast capital. On paper, Amazon had to spend zero >money on politics<, but in effect, Amazon dictated (local) politics pretty much for free - i.e. paying via capital allocation, rather than via money transfers.
"Most local political districts have a handful of outsized employers."
That seems extremely dubious. In all my life I have seen that situation clearly only once, when I lived in a small college town and the university was the dominant employer, and even then local politics were not friendly to the university because the university couldn't move. So far as I can see, this assertion would only apply in very small towns where there is a single employer of any size, and very unusual situations involving one of only a handful of gargantuan US employers (Boeing, GM, XOM, Amazon). There's no way that adds up to "most" political districts.
Anyway, every political district but one in which I've lived has had numerous employers, a spectrum from very small to modest, and no one of them could dictate even the slightest terms to local politicians. That said, most local politicians *were* reasonably sensitive to the situations and needs of local business. Not because they were being blackmailed out of their natural inclinations, but because their natural inclinations were to support local business -- because they were elected by local voters who liked their jobs and employers, and prioritized economic well-being over most other concerns.
My experience is that it's only large-scale politics, where the issues become more symbolic and totemic, in which companies get turned into cartoons. People are more likely to start thinking of Amazon, Boeing, GM, et cetera as a simple devil or angel character in a morality play when they don't work for it, and their interactions are more limited and occasional. That makes it much easier for a complex messy organization of complex messy human beings to morph into some simple Wile E. Coyote or Bugs Bunny character in the Manichean good-v-evil struggle one sees in the world that requires a political solution.
Even if what you're saying is true, this has almost nothing to do with billionaires and everything to do with private companies. If you confiscated all wealth above $1 billion dollars from individuals, there's no obvious reason why the dynamics you described would cease to exist (assuming they exist right now).
I want to dispute that Amazon is a "natural monopoly". I assume the claim meant the online retail, because it is obviously false for streaming and cloud computing.
Per [0], Amazon has about 38% market share in the US online retail market, the next biggest player is Walmart at 6%. While it is certainly hard to compete with amazon head on in their core market (e.g. consumer products, books, computer peripherals), a lot of much smaller retailers can stay in the online market by filling a variety of niches.
While you might be able to order an arduino or raspi from amazon, chances are you would be overpaying and that they the sensors you want are not available, so you are better off ordering from a specialized hobbyist electronics online shop. The same is true for model airplanes, diving masks (because Amazon will obviously not let you enter the desired refractivity per eye), any car components more exotic than motor oil and so on.
If you know what model of something you want, it is expensive and comes in a single box without tons of options (like a power drill or a mobile phone), amazon is an option.
From the perspective of the customer, I do not see any vendor lock-in like Microsoft Windows or Office had back in the day. A customer computer literate enough to create an Amazon account is also able to create an account at basically any other online retailer within minutes.
On (8) the answer is the Bezos has access to a significant portion of his wealth without selling any stock; in fact there is a whole sub-industry within investment banking which caters to rich founders of listed companies. Bezos (or equivalent) pledges stock as collateral and then borrows to fund his or her lifestyle. The interest on the debt is covered either by salary or dividends, which is seen as low risk by the lender since the founder typically controls the company and hence has significant ability to influence pay/ dividend payout. In addition to avoiding the potential inadvertent signaling effects of selling shares, it is also very tax effective as no capital gain is realized. I guess (based on my job, where I have been involved in assessing these structures) that more than 80% of listed company founders have something like this in place.
Even if you assume Bezos could liquidate his stock without losing much value beyond CGT (I strongly disagree), its almost certainly the case that if the government attempted to confiscate Bezos wealth through some sort of wealth tax, then this would cease to be the case. If they straight up confiscated (large amounts of) Bezos' and other billionaries stock holdings, then obviously the share market would crash.
But even if they forced Bezos et al to liquidate their holdings to pay a wealth tax bill, I think something similar would happen, and there would be a sell off in companies that have large individual shareholders in anticipation of large sales, and no other rich individuals would scoop up a bunch of "cheap" shares because they would be worried about being made to sell them themselves.
Amazon does not have a value of $1.2 trillion because they own a big pile of resources objectively worth $1.2 trillion. They're worth that much becuase that's what people are willing to pay for the company. If the government taxes this value, they're taking value away from shareholders. They're gaining control of some objective economic resources of Amazon. Which is fine, but you have to understand that a wealth tax is a tax on shareholders, and the more value the government attempts to extract from them, the less they're going to be interested in being shareholders and the less valuable the company is going to be. It has to be this way. Taken to its extreme, this would mean the government takes control of Amazon and would not be able to get any value from trying to sell it - it would have to try and extract value from Amazon's actual assets (minus the humancapital that would almost certainly leave the company). Not that I expect the government to try and do this, the point is the principle it highlights and why wealth taxes aren't going to be able to generate nearly as much as many of their proponents have convinced themselves.
The fact that there (supposedly) may be entrepreneurs who do it for the love of it rather than the incentive of becoming very wealthy seems completely irrelevant. We make one policy for *everyone*, and the aggregate effect of that one policy is all that matters. If a strong wealth tax leads to less entrepreneurship overall, the fact that some entrepreneurs may continue on working doesn't matter.
Matt Pencer points in the right direction, but despite recognizing this at the surface level, Scott completely misses the implication. It is a cute observation that ‘a truck driver with some extra cash’ *could* have invested in Amazon much the same as Bezos, but it dodges the point entirely to say “for Bezos to profit off Amazon is fairer”.
The whole point of Bezos being wealthier for investing well is that Capital Allocation Is An Important Job, and you want to give that job to people who are demonstrably more efficient at it. That's it, that's the whole argument.
Capital allocation, or, more explicitly, the decisions an economy makes on what products, services, and structure to prioritize, given the limited resources available to distribute to them, is critical infrastructure on which literally everything else rests. If a truck driver noticed Amazon was the best investment they could make far before anybody else realized that, and invested therein, they wouldn't be rich because ‘noticing Amazon would make a lot of money is the most outstanding act of moral strength and human integrity, for which the economy must shower you with as much wealth as it can muster’. It's because making good decisions tends to be predictive of making other good decisions, so probably this person should be in charge of more capital allocation.
Equally, the problem with taking money from Bezos, on the understanding that Amazon's market position is in large part because of its status as a natural monopoly, such that Bezos keeps his 0.001% share of his value add, and the rest is distributed to the hypothetical runners-up, is not that it's ‘less fair’ or somesuch, it's that now your capital allocation is being handled by people less competent and decisive than Bezos, who will make worse decision than Bezos, and in the process will burn prospective value. Even if you can share this capital allocation 50-50 between Bezos and a runner up whose decisions are only 2% worse, you've still burnt 1% of your capital for no good reason.
‘But!’ I hear the crowds scream, ‘you pretend not to hear the concern! Being rich actually does correlate with having more money to spend!’—and it's true: debate to whatever degree if their wealth is paper wealth, but Bezos and Musk and Gates are all still very, very rich!
But!, I rebound in turn, there is a very good mechanism for dealing with this problem exactly in proportion to the degree with which it is a problem, and it is called Consumption Spending Tends Not To Be Very Profitable. If Bezos spends X% of his wealth on private luxury goods, well, would you look at that, his returns are now X% worse, and all of a sudden (exponential functions being what they are) is no longer responsible for nearly as much capital as before! If someone was X/2% less efficient than Bezos at capital allocation, but had no such wasteful personal spending, now they are better to be in charge, and that's what happens. If someone was 2X% less efficient, well maybe Bezos' personal spending shouldn't be that big a deal-breaker.
It is of course still reasonable to be concerned about the degree of disproportionality in consumption spending possible here, and maybe you want to tax this difference down even at the cost of some less-effective but better-distributed capital allocation, but the solution here is not to mess with allocation of production! Just tax luxury goods! That's it! This directly allows governments to shape expressed consumer demand without fucking with the mechanisms to correctly allocate resources towards satisfying that demand.
(Side note: I'm surprised this wasn't all already said, given at least some of y'all must read Yudkowsky, and he makes it pretty clear how to reason about allocation from mechanistic principles.)
> The whole point of Bezos being wealthier for investing well is that Capital Allocation Is An Important Job, and you want to give that job to people who are demonstrably more efficient at it. That's it, that's the whole argument.
This argument assumes that "more profitable = more beneficial to society".
We're talking about Amazon, Tesla, SpaceX... I think it's pretty much beyond dispute that these products have massively increased societal wealth.
You can tell Amazon directly provides massive amounts of value by the fact huge quantities of people, yourself presumably included, voluntarily trade money for its services, and that its services have involved a step-change improvement in the accessibility of goods. AWS is critical to enormously many businesses, and therein acts as a huge indirect source of value. Tesla has made a step change improvement in the progress of electrification, which directly produces massive positive externalities, plus it has changed for the better the course of a massive industry within which people regularly sink large fractions of their wealth, so improvements here disproportionately advantage consumers. Even putting aside the massive improvement in space accessibility that SpaceX has brought, even putting aside that SpaceX has singlehandedly reinvigorated an industry for which society had been consistently willing to pay many billions of taxpayer money yearly on, even putting aside that SpaceX was directly responsible for ULA moving off Russian dependence... SpaceX literally has a massive negative price to almost all consumers, and the degree of this negative price is primarily limited only by government corruption. (Did you know the government used to pay ULA $1B/year just to exist? They did, and you can thank SpaceX directly that's now off the taxpayer bill.)
So yes, if you want to make some point about rich companies not providing commensurate value, I think you need better examples.
(Note that I am for monopoly rent taxes against Amazon, just not against Bezos, and certainly such taxes should be to a very carefully limited degree because the last thing you want to do is destroy the industry.)
No, we're talking about billionaires. Bezos and Musk are not the sole billionaires in the world.
"You can tell Amazon directly provides massive amounts of value by the fact huge quantities of people, yourself presumably included, voluntarily trade money for its services"
Again, more profitable =/= more beneficial to society.
Several of the comments focus on the unique capacities of a billionaire. True, but can we define that?
All of us engage in exchanges of value every day. You can easily argue that a billionaire like Bezos created far more value than others. But his wealth is far more a function of his ability to take more from his exchanges than it was about the value he created. Most of us don't want to spend our lives relentlessly trying to take more than we put in. Only certain circles even tolerate this. Most of us don't want to swim in those waters
Has Facebook been replaced? It seems that the fashion today is to say that nobody uses Facebook any more and Meta is dying and it's all about Tiktok or something now.
I'll grant viable (sorry STS) re-use of launch vehicles as a hurdle that only a singularly-focused company with a vast amount of capital can cross but how different would a world without (or with a much smaller) Tesla be? Legacy automotive manufacturers are quickly catching up on the electric sports/luxury car market and while they were spurred into action to compete against ol' Musky, I can't see that pushing them to innovate more than a few years faster than the alternative. "What if we made an electric car but for cool people?" is not the kind of thought that only a visionary can have.
My Muskless AltHist would probably look like Daimler AG taking their electric car knowhow from Smart and putting it inside a Mercedes, with other luxury brands followng closely behind.
An interesting topic to opine upon would be which billionaires are most and least replaceable.
For example, I'm personally highly impressed with Jeff Bezos, not because his original idea was so genius, but because he's stayed focused on executing his master plan for about 30 years now, making a lot of good decisions along the way. And he made a second fortune in the interim off of The Cloud, which he used to finance his original idea. So I'd put Bezos on the Less Replaceable end.
This debate sort of assumes that we can tweak the amount billionaires keep as a free parameter to see what happens, essentially assuming a world where property rights mean something very different. I view this as essentially theft, so I'm uninterested in policy debates that assume we're willing to do this at large scale.
Bill Gates's big break came when IBM chose DOS as its PC operating system and then let him own the rights, thinking the real profit would be in hardware. If Gates had not been the beneficiary of this, some other OS owner would have been and the end result would have been the same, just with a different monopolist. The monopoly was created by IBM's misreading the trends and, in a sense, it landed in Gates's lap.
"Do we have a way to test the "if x inventor wouldn't have existed, some other inventor would have done the same thing a little bit later" argument for validity?"
The BBC series Connections w/ James Burke made a pretty compelling argument in 1978 that all progress was less 'great man changes everything in otherwise impossible ways' and more 'accumulation of possibility over time' - e.g. When the conditions are right an idea will emerge regardless of if Inventor X or Y was alive to do it.
I think most of the arguments about billionaires here is about their ability to pull the ropes sideways to accelerate something when otherwise the current state of the world and the political and economic and social systems within it would delay the idea... if you had a Gates or a Bezos or a Muck with equivalent to modern day power arguing with the Church that the universe was no centered around the Earth (as opposed to poor Galileo) would the idea and the related impacts have propagated faster or slower?
Something I forgot on this was Elon's argument on taxing/appropriating his wealth. He said all his money is tied up in productive investment and he spends little on consumption, bringing up the comparison of East and West Germany where the west was 5x richer than the east
He used the phrase "capital allocation", with the claim being that people who successfully accumulate capital are fairly de facto the most effective in productively allocating it. If the government taxes capital accumulation heavily not only does it raise the question of incentives and capital flight but of whether the government will apply those resources at a relative loss
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?
I think it's a red herring to consider "If Musk sold his entire stake in Tesla". This is not the counterfactual we care about. As Nolan pointed out above (and others have elsewhere), nobody is proposing anything that would require Musk to sell all of his stake in one shot, and he would not do that because it would be crazy.
Income taxes are marginal. So you have tiers, and if you want to discourage billionaires you might tax capital gains like normal income, and then have a tier for "earnings above $1B". If you had a 90% marginal tax rate for capital gains above $1B, you'd definitely disincentivize realizing gains, and instead you would see a lot more "Bezos sells $1B of AMZN" headlines, and a lot less "Bezos sells $6B of AMZN". Presumably if you were going after billionaires like this you'd also take some action to tax stock-collateralized-debt as well, but I don't know the feasibility of this. (Details on the tax structure of these loans: https://wealthlegacygroup.com/when-can-borrowing-save-you-taxes/).
Even if you imagine a Warren-style wealth tax on wealth above $1B, you still get to keep everything below $1B. So even in (what I believe to be) the most-aggressively-redistributive approach to redistributing from billionaires, you still leave Musk with $1B of stock that's untouched, and you only tax the wealth above $1B at a certain % (I think Warren had 6%?). So every year Musk has to sell ($Total_TSLA - $1B) * 6% of his shares. The asymptote here is him holding $1B of shares. At no time does his tax bill require him to sell everything.
So to your point, the relevant counterfactual is "what psychological impact would there be from Musk selling the bare minimum he's required to for taxes?", and I think you can make a claim that the answer is "approximately zero"; he can just tweet "I had to sell some TSLA to pay taxes. Still out to get the short sellers. To the moon!" and everyone that was on board for psychological reasons will remain on board. (Of course there's the price signal that anyone selling TSLA would produce, but we're interested in the component that's unique to Musk selling TSLA.)
All wealth is paper wealth and very little of it can be liquidated at book value. If you sell your house, you may well get market price for it. But if everyone in your neighborhood sells at the same time, your houses will all be fairly close to worthless.
This is why taxes on unrealized capital gains are a silly idea: unrealized capital gains do not exist.
For houses, there really isn't any such thing as "market value" unless you add the caveat "plus or minus 20% based on imponderable factors".
I have recent experience with this in my own life.
Is it still paper wealth once you liquidated it? If so, what's the point?
"The reason I am writing this on Substack and not some Microsoft comment board is because of an antitrust lawsuit."
The MS antitrust trial, like most antitrust trials, reached an absolutely pointless verdict. It had MS donating software to schools, further entrenching its monopoly. I recognize that RedHat credited the trial with buying it some breathing room. But... presumably that breathing room closed up when the trial did.
"Come on! It’s obviously a combination of talent and luck!"
Is luck different than risk? I mean, Bill Gates had family connections that the average person does not have. They allowed him to get his interview with IBM. Luck, like being born into a family with already high social status, is potentially a different entity than the ambient risk involved in starting a business. Both of these things are potentially relevant.
I feel like we're potentially conflating two very different arguments here.
I am surprised this is the first comment pointing out that Scott’s Microsoft antitrust comment was a huge miss. Point blank, there’s no evidence that MS could ever have ‘monopolized’ the internet any more than AOL could have; there is no evidence that being the dominant web browser actually conveys an exchangeable interest in the internet; the antitrust suit did not actually lead to our current equilibrium, MS getting outcompeted in search did.
In fact, Scott quoted Kaleberg's comment, but otherwise I agree with your assessment.
The Wikipedia article on the browser wars [0] mentions the antitrust trials exactly once (in the context of evidence being given). Even when IE usage peaked above 90%, it would be absurd to equate this with Microsoft having a stranglehold over the open internet: if they had tried to control the content of websites IE could display (blocking porn, for example), people would have switched browsers.
MS certainly used their market share to push nonstandard browser behavior, and I recon to some degree fear of antitrust legislation might have limited that. But from what I have heard, they mostly tuned down IE development after winning the war.
I suppose that there is a dystopian alternate history thinkable where Microsoft invented the smartphone and came to dominate the handheld market with Windows CE and a mobile version of Internet Explorer, but my suspension of disbelief is insufficient to imagine it. While I can imagine dread Cthulhu waking up from eons of slumber to turn our world into a nightmare, I can not imagine Microsoft innovating their way out of a wet paper bag.
[0] https://en.wikipedia.org/wiki/Browser_wars
> Luck, like being born into a family with already high social status
I don't think this has anything with luck: it is an antonym to luck. Not only is the most unplanned, accidental kid is causally determined by their parents' contribution, the high social status parents mostly plan their kids in advance. I certainly have made and continue to make life choices that will benefit the kid(s) I may have maybe in 5 to 10 years in future.
Sure, if you imagine that everyone is a disembodied soul beyond the veil who gets assigned to random body before the birth, you could say the it is "luck" that someone was born into rich family than a poor one, but such view has nothing to do with the reality or human reproduction.
One of the things that wasn’t really mentioned is whether Amazon actually adds the value to the economy that its valuation would justify. There was a lot of “Amazon adds 100B” to the economy in the last posts but is that true, or is it partially or mostly rent seeking?
In a world without Amazon and no equivalent Amazon competitor I assume we would be going to the websites of the company we wanted to buy from, having googled it, or visited a local shop.
With regards to websites this is only a slight friction these days (particularly with Apple Pay or google pay and devices remembering credit cards) and it’s how I buy groceries, laptops, candles, cleaner robots etc. Although I use Amazon as well of course, in its absence there wouldn’t be an economic collapse.
In fact, I would argue that Amazon has done extreme damage to our economy in a similar fashion to Wal-Mart. Just because a business is profitable doesn't mean it's making the world a better place.
Phillip Morris was profitable, but cigarettes cause cancer and they sold them specifically to kids to get them addicted.
"extreme damage to our economy in a similar fashion to Wal-Mart."
- -
and *to* Wal-Mart - which is consolation prize funny to the lowly consumer observer.
Amazon is making my life much better. In minutes I can shop for things which would have taken me hours and multiple trips. Net result is unimaginably more variety, much better quality, substantially lower prices and less time and effort. Truly one of the greatest economic advancements during my life. On a scale of 1 to a 100 this one is at least in the high 90s.
The fact that Bezos got rich making this happens is proof that the world's institutions can still work. I would much rather have Amazon and IPhones and Wikipedia than silly flying Jetson cars.
The estate tax point makes many questionable silent assumptions. E.g., high gift taxes, to prevent avoiding the death tax by giving away large amounts pre-death. And giving money to government bureaucrats is likely to be more beneficial than having it be invested in profit-seeking ventures. And that the result of all this won’t cause some other dodge that is even worse for society generally. I guess most people are comfortable ignoring those, or taking them on faith.
It's not “retail giant” that is the source of Amazon's billions, it is network effects. So who gets the money? Or will there just be none?
I say abolish copyright and patent law first.
Re #6 and the illiquidity of billionaire wealth.
If Bezos announced he was selling all his stock it would definitely drive the price down significantly. Even if he says it's only because he wants the cash, and not a reflection of his opinion of the future value of the company the market will take it as signal that he (who is in a position to know better than anyone else) doesn't think Amazon is going to grow spectacularly in the future. Even if he needed the cash, if he believed that he could do things like get a large loan at low interest rate that is collateralized by his AMZN stock. For instance, this is how Elon Musk was going to pay for a big chunk of his Twitter acquisition. The Musk-Twitter case also provides another piece of relevant evidence: when Musk started selling some of his TSLA stock to get cash for the part of the TWTR deal he was paying in cash, TSLA stock went down more than he expected and he had to stop selling. That might actually be part of the reason he's been trying to get out the deal (well that and the market crashing, TWTR being worth a lot less now and him being stuck paying the price he negotiated before the crash, and Musk himself being worth significantly less because TSLA price also went down).
On the other hand, 150B is a *lot* of money. He can't easily spend that much on personal consumption, even if he goes on an art work, mansion and yacht buying spree. Whatever he needs for that he can easily sell enough stock without having large impact on price.
In cases where you could actually spend tens of billions or more, you can usually do it without selling stock. If you want to give to charity, you can just give the stock - much more tax efficient.
If you want to buy a large company, you can buy it with your stock instead of cash.
If you want to set up a large foundation to pursue some long term goal of yours, you can endow it with stock.
"I think the political power of billionaires is vastly overestimated."
It can be, but I think something like the Federalist Society kind of disproves this.
Eisenhower wrote in 1954,
"Now it is true that I believe this country is following a dangerous trend when it permits too great a degree of centralization of governmental functions. I oppose this — in some instances the fight is a rather desperate one. But to attain any success it is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything — even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon “moderation” in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H.L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid"
It's pretty clear those Texas oil millionaires and their compatriots spent the next 60 years building a network of foundations/societies/groups to increase their numbers and to sound intelligent. It was a roaring success.
Just pointing to X dollars from billionaire Bob couldn't get Y elected is not the greatest test.
X dollars to foundation Y means that when random party member Z is elected, they have a prewritten law on hand that suits billionaire Bob perfectly. This is the way influence works and it is a great return on investment.
And it's not necessary to understand the exact mechanisms to know that this must be true.
All you need to do is look at the last fifty years or so. Has the US/West gotten better for billionaires or plebes? Obviously billionaires. Real wages have been flat, unions in decline, wealth inequality at the highest level in a hundred years...
But billionaires are a miniscule fraction of society - in a "true" democracy where everyone's opinion counted equally, and money couldn't buy influence/airtime/think-tanks/etc, this would not be the case, because it benefits the few at the cost of the many.
I don't believe real wages have been flat for 50 years in the US.
It's up 42% over 47 years. Not truly flat. But close to it. (0.75% per year)
https://fred.stlouisfed.org/series/MEPAINUSA672N
Now compare that to how income from capital and productivity gains have gone up... Flat is a fair description when viewed holistically.
How about percent of wealth held by the top 1% has gone up from 24% to 32% while the share of wealth held by the 50th to 90th centiles has gone down from 36% to 27%. (each over 30 years) The bottom 50% has dropped as well but they were quite low to begin with.
https://fred.stlouisfed.org/series/WFRBSN40188
https://fred.stlouisfed.org/series/WFRBST01134
That probably cashes out to "housing prices have gone up," though. Which is certainly true but doesn't really have anything to do with billionaires, and the policy prescription that comes from it is probably mostly "make it easier to build housing."
"Real wages have been flat"
No...?
"unions in decline"
And this is bad why?
"wealth inequality at the highest level in a hundred years"
What does this have to do with how well off the plebes are? Are they harmed by the knowledge that other people have more than them?
"in a "true" democracy where everyone's opinion counted equally, and money couldn't buy influence/airtime/think-tanks/etc, this would not be the case"
Right. As long as the government exists, there will always be huge incentives for the wealthy to bribe them and seize more power, so we need to abolish (or at least greatly minimize) the government.
"No...?"
You're right, compared to productivity, they have declined significantly, my mistake.
"And this is bad why?"
Because unions - very slightly - level the extremely unequal and abusive playing field between employers and employees.
"What does this have to do with how well off the plebes are? Are they harmed by the knowledge that other people have more than them?"
You may be interested to learn that historically this is a great predictor of social unrest, violence, decline, etc.
It is a dangerous and unstable state of affairs, even setting aside the obvious moral problem.
"Right. As long as the government exists, there will always be huge incentives for the wealthy to bribe them and seize more power, so we need to abolish (or at least greatly minimize) the government."
Wow, that... could not possibly be more wrong. The government is the *only* check on the abuses of the wealthy. One need only look at a tiny amount of history to see that.
The alternative to government being a check on the wealthy tends to look like the French Revolution.
>"...in a "true" democracy where everyone's opinion counted equally..."
That would be dystopian; most people's opinions on most topics are worthless at best.
Haha, fair enough, but I think the point remains. Would perhaps have been better stated as, "where everyone's interest was represented equally".
The Federalist Society runs on something like $20 milllion a year. That comes from ~dozen+ large donors (some of which are billionaires, but even there we're usually talking 100s K and occasional single digit millions gifts) and many smaller ones. While billionaires do supply funding, are they a necessary pre-requisite for something like the Federalist Society and other similar think tank organizations to exist? I don't know, but it doesn't necessarily seem like it. it's less than $0.50 per a registered Republican for example. Many individual campaigns spend way more than that.
I also don't think it's success is particularly money driven, it has a lot of influence, but I don't think that predominately flows from the (rather modest in the grand scheme of things) amount of money it controls.
It is a credible, purpose built elite network. It's not the money going to the organization directly. That's peanuts.
It's that its members will have access to endowed chairs at elite law schools (funded by large generous donations), positions in lucrative firms, an assured client base etc.
There are billions of $ on unofficial retainer for the members.
For a recent example, who paid off kavenaughs gambling debts? The actual answer doesn't really matter because it was clear that any Federalist society member who got near the high court could reasonably expect any money problems to be "dealt with".
As a card carrying member of the Federalist Society, I would very much like to join whatever Illuminati organization you're talking about. All my membership ever got me is nasty looks from my law school friends and disappointing results during OCI. You're mistaking the money and attention that surround literally every Supreme Court nominee, regardless of party or other affiliation, for the influence of what is essentially a conservative/libertarian alternative to an ideologically captured ABA (minus the massive state subsidies).
You grossly overestimate our ability to conspire.
It's stochastic. There are events at universities and such. Some judges who probably specify "I only want federalist society clerkships". But that's not the point. The point is to make a pool of people who will reach the legal rulings favored by Republicans.
Look at what is happening with Judge Cannon in Florida. When she was appointed in December of 2020, how did the Trump White House know that she would bend over backwards to help Trump, to the point of going against the 11th circuit and writing in extra arguments that his own lawyers didn't make?
They saw that she was a member of the federalist society and that was enough.
You can read a nice article where many federalist society people (who are no longer sitting judges) think what she is doing is outrageous and goes against unitary executive theory... https://www.politico.com/news/2022/09/20/how-judge-aileen-cannon-broke-with-conservatives-00057647
But it's only a contradiction if you think that the purpose of the Federalist society is to champion conservative legal theory and make sure it's internally consistent.
If you think that the purpose is to identify a cadre of legal professionals who will do what's necessary to make sure Republicans win in court... then it makes perfect sense.
I imagine you are in the first group, as a card carrying member. There are a lot of people who fit that. I saw Scalia give a talk in Singapore about two weeks before he died and it was compelling and interesting and I agreed with much of it.
But the reason the Federalist society exists is the second purpose.
We are seeing it right now with Judge Cannon. The Federalist Society being next to her name meant that there were better than even odds she was going to figure out how to rule in favor of Trump regardless of the law or facts of the case.
Why bring up the Federalist society? Its core function could be done with almost no money. Once the fundamental recognition that the legal academy is radically left wing, and that as a result Republican presidents can't rely on them, the creation of such an entity really can't be stopped. If Leto and co didn't exist, the RNC would have naturally decided to form an internal counsel that does much of the same.
And its not like Democrats are running around with a bunch of failed nominees. There hasn't been a Dem-appointed judge that went rogue and sided with the Republicans on basically everything for several generations.
See the idea of Democratic judges vs Republican judges is recent.
The Supreme Court wasn't always seen as a nine member appointed legislature.
The Federalist Society was aimed at this idea of judges as policy makers.
If it was replaced by "Republican judge group" or some such, it would be much less effective. It needs the plausible deniability of not being partisan.
Democrats don't have an equivalent legal fraternity as Democrats generally still buy into the idea of judges as being neutral judicial actors calling balls and strikes. See Bernie people in 2016 yelling about how it was wrong to bring up the supreme court, or see all of the left wing legal people who wrote glowing praise of Gorsuch and Kavenaugh and Barrett during their nominations. All three of them said that Roe was settled law. All three of them were lying through their teeth and it was super obvious that this was true. But the norm in elite left leaning law circles was to buy into the neutrality of judges. Which elite lawyers could buy into, because these Trump nominees were members of the Federalist Society, not the "Republican favored legal outcome society."
Roberts, in his dissent on the Dobbs decision, was essentially saying, "Guys, we have been able to keep people from seeing the Federalist society as the Republican favored legal outcome society by not always using our power to maximal effect. Please don't rip off the mask. You can shear a sheep many times, you can kill it only once."
"Democrats don't have an equivalent legal fraternity as Democrats generally still buy into the idea of judges as being neutral judicial actors calling balls and strikes. "
This is just wrong, they have such a place, its called the legal academy.
Basically nothing in your post is even adjacent to the truth "all the left wing legal people who wrote glowing praise of Gorsuch and Kavenaugh..."
You mean when they were falsely accusing him of gangrape?
The legal academy is not wholly left wing. See how all the right wing justices are card carrying members of it.
As for what I mean, see this piece. https://www.politico.com/magazine/story/2018/08/02/im-a-liberal-feminist-heres-why-i-support-judge-kavanaugh-219081/
Or this one, Titled "A Liberal’s Case for Brett Kavanaugh"
https://www.nytimes.com/2018/07/09/opinion/brett-kavanaugh-supreme-court-trump.html
You could find those for Barret and Gorsuch as well. People who were at the top of the legal profession pretending that the position of these justices on certain issues was somehow unknowable and that they wouldn't act as legislators in office. Heck, Kavanaugh only got on the court because the Republican senate decided not to vote on Garland. A principle that was then forgotten when Ginsberg died.
The Epic Store example is really interesting because it shows that truckloads of money aren't enough. ES is universally reviled by gamers because everyone knows it's bundled with weird Tencent spyware, and even though they give out free games left and right nobody in their right mind will buy something on Epic instead of Steam. Whenever a game announces it'll be ES exclusive everyone groans. Gamers hate ES even when grudgingly accepting freebies from them.
On the other hand, Steam is comitted to "just working", having a very customer-friendly design philosophy, and overall being a great product that - so far - is not ran into the ground by MBAs seeking to maximize short-term profit. Combined with network effects, they are completely invincible to external disruption.
Are Steam profits fairly earned? It's debatable, but I'd say yes - they are defending their niche on their own merits, with the first mover's advantage acting as a force multiplier.
Try telling an audience of gamers that Steam is a monopoly and they should be glad that competitors are coming in with their own storefronts and launchers to introduce competition and fracture Valve’s hold over PC distribution and they’ll crucify you.
I personally am the exception to the rule. I hate Steam with a burning passion (mostly because I yearn for the days that I could launch a game without launching a store full of ads first). But I’ve had this argument over and over, I have gotten nothing but flak and vitriol every time, and I acknowledge that most gamers love Steam, it’s way more dominant in its niche than Amazon for reasons of consumer choice and the market is happy that way.
The argument that Amazon is a monopoly is pretty weak on the merits—yes they make a lot of money, but so do a ton of other online retailers. But what we should really be asking is “can we figure out if people love Amazon?” And yeah, I love Amazon, and I think there’s pretty widespread evidence that the vast majority of people (not the majority of online voices, which is different and maybe not anchored to any real world effect) love Amazon for good reason.
You should know that you can absolutely launch a steam game without ever launching steam or interacting with the storefront...
Buncha ways to do it. Is that your true rejection?
Not every game, sadly. Steamless + Goldberg Steam Emulator is the best solution I've found, but it does fail often.
Also, it's okay only if you don't mind breaking multiplayer, updates and/or steam workshop. Speaking of which, SW alone is a massive improvement in usability over downloading random zips off moddb and searching for obscure %APPDATA% subdirectories to dump mods into.
Predictable Steam gamer, can’t abide Steam being criticized even if it’s anlong with a compliment and comes in misinformed and in denial.
Can any Steam game be launched without launching Steam? No. Can I buy a game on Steam’s store without installing the Steam app? No. Does it in fact prohibit updates, mod compatibility, and multiplayer if you circumvent the Steam app? Yes.
Honestly, I’d rather the days that games game in a CD sleeve in a cardboard box, but you do you man. Just don’t expect the rest of us to be thrilled about you willingly shackling yourself to a single seller as if Steam is your devoted girlfriend. They’re just making money off you dude, it’s all ecosystem lock-in.
More storefronts would be good, except that they primarily compete via exclusives and that's awful. Maybe if someone makes a competitor to Steam that's good on its own merits I'll use it - I've bought games from GOG and the Humble storefront before, GOG in particular both because of its niche of having old games, and because I approve of their stance on DRM - but the introduction of players like EGS and Origin to the market meant I had to get a bunch of new bloatware if I wanted to play a given game, and now my library is spread out over multiple storefronts and it's a pain.
Steam is literally a natural monopoly. Just listen to all the whiny gamers admitting they'll pay virtually any price to have all their games on a single launcher. And ideally they won't have to manually add them either. They'd rather not play a game than buy it somewhere else and use Steam's relatively simple "add non-steam game" feature.
Hell Gamestop bought Stardock's Impulse and then eventually closed it. I guess Gamestop is like Sears for games but at least they tried. Sadly I lost $100s of dollars of games due to the closure. Didn't download them all in time, mostly due to disk space.
Yes, Steam is customer-oriented, Epic is developer-oriented, with the 12% price cut being their biggest marketing point, and the absolute refusal to allow user reviews the second biggest one. Which is actually beneficial only for the bigger games, the sales of which are brand name and ad-driven, while indies survive mainly on good word-of-mouth (and, these days, Epic's exclusivity bribes, thanks for that Sweeney, I guess).
See, as a customer I can see the merits in them taking a smaller cut, I like supporting the devs of games I like. Not having reviews is more consumer-hostile than developer-friendly, though - if it's a good game, reviews make me *more* likely to buy it, they only hurt bad games
Steam does provide some infrastructure in exchange for their larger cut, like discussion boards, modding support, and these days they allow pretty much anyone to publish their game there for a symbolic fee. Whether this justifies 30% is another question, but that number is a long-standing multi-industry standard that Valve didn't invent, and they have negotiable arrangements for valuable partners.
As far as luck vs. talent, it's mathematically trivial to show that in an open competion, the difference in outcome between high-talent individuals is essentially entirely attributable to luck. Talent matters when you're talking bottom decile compared with top decile, but inside that top decile, it's mostly luck, and let's be honest, that's mostly where the conversation is happening in the first place.
so open competition between top decile basketball players in the world (millions of people?) will result in an outcome that is purely random i.e. could be just about anyone among that group? We are missing out on tens of thousands of Lebrons and Lukases and Giannises because the other ones just got unlucky?
Pretty much. Keeping in mind of course that one small component part of Lebron's luck is that we highly value people who are good at basketball as opposed to, say, water polo. Some poor schmuck out there was born to dominate water polo but there's no money in it so he had to go work at walmart instead.
Giannis is actually a great example. Dude's family had the good fortune to reach Greece, who knows how many Giannises there might be stuck in poverty back in Nigeria.
both your arguments are about people who aren't even playing the sport / didn't get to play the sport, as opposed to people who play the sport and aren't as talented. I absolutely agree that a ton / most of human potential is wasted by poor allocation or lack of opportunity, but that is a completely different point than saying that among those that did get to try, if we reran the simulation 1000 times anyone in top decile would have a near equal chance of winning, which is the point you originally made above. I do think if you move the percentiles high enough the point starts becoming true (i.e. both Warriors and Celtics had a substantial chance of winning last year and large portion of outcome was luck), but we are not talking top decile, we are not talking top percentile, but something way way way higher than that.
The Warriors and Celtics are basically the top decile of NBA teams.
That is an extremely selected sample -equivalent to saying that whether Bezos is the world's richest man or 5th in the rankings is a matter of luck, with it implied that him getting over the 1 Billion threshold is pure talent.
If you’re writing up a list of the 100 greatest basketball players of all time, it’s probably not luck at all that Michael Jordan ends up somewhere near the top of that list. But whoever is #100 on that list, it’s almost entirely luck that they got spot #100 rather than 101 and missing out on the list entirely.
This is total luck blindness. Take any great athlete and give them one bad injury and their career ceases to exist in a puff of misfortune.
Good point! I shouldn't say "not luck at all". But there's still a gradient of how much luck there is, and there's much more as you get closer to these edge cutoffs.
This would be true if you took two equally talented people and put them on an even playing field. A lot of the "hard work" that Bezos and other billionaires put into their companies was the thousands of hours put into getting ahead of their competition and staying ahead. Bezos spent several decades building Amazon before it was considered worth discussing. Could someone else have done that? Probably, but that's far less sure than two equally talented people in some kind of sterile competition. Would someone have done it? That's a much better question, and we have way more real-world examples of people starting something and cashing out in 7 or 8-digit wealth, than we have of people sticking it out for the next 20 years to make it something truly awesome.
If you're going to make up numbers for the magnitude of skill differences and luck effects then sure, it's mathematically trivial to show whatever you want to show.
Meanwhile in Starcraft 2, the top 10 players are expected to reliably outperform the top 11-20 players.
Are you aware of the most replicable finding in psychology, that IQ is stable over time for an individual, strongly predicts a wide range of life outcomes, and does not have diminishing returns?
If you look at the people in the top decile of the top decile of the top decile of the top decile of intelligence, they are significantly more successful than the people in the second decile of the top decile of the top decile of the top decile of intelligence, for example.
Also, as everyone should know, correlation in the middle of the distribution doesn't imply the same degree of correlation at the extremes.
https://slatestarcodex.com/2018/09/25/the-tails-coming-apart-as-metaphor-for-life/
Even if you buy IQ as a metric, it's not sensitive enough to resolve differences to that degree of precision.
IQ tests can't measure the tails the bell curve (they're literally capped due to norming issues), so there's no way you could even check for "diminishing returns" at the top end. But there are certainly lots of people with ludicrously high IQ scores who never amounted to much and lots of really famous and successful people with a "mere" 125 or whatever.
> Some people say that if he sold all his stock at once, it would go down a lot. But why? Because people thought he was selling because he knew there was an impending catastrophe? What if he said “In one year, I will sell all my stock, just because I want access to the money,” and then did that?
The "I want access to the money" is the key point. You don't sell *just* for bathing in your money, Uncle Scrooge style. You sell because you want to do something with the cash *now*. (Most) buyers know this, and that you as a seller will take a somewhat lower sell price in exchange for actually being able to sell. It's the cause of the whole price spread. If you want to sell *all* your stock, you must have a very good reason to want to sell it *all at once*, and this reduces a lot your ability to negotiate. It's not even like the discount on price that is usually applied when mergers happen - in that case there's always a "keep operating as usual" option. But Bezos wanting to sell all his stock - that sounds like for some reason he doesn't have another option.
Re: #12, M-ldb-g recently wrote a post on the same topic: https://graymirror.substack.com/p/on-money-and-power
great
I don't think you're taking #9 seriously enough. It's not the downside of your business potentially failing. It's the opportunity cost of giving up a lucrative "safe" job for a moonshot. Anyone with the brains to start Amazon can certainly earn enough to have a decadent standard of living and/or retire early by working an incredibly stable job in medicine, finance, tech, or consulting. By trying to found Amazon, you're not just risking being unsuccessful, you're giving up an easy path to wealth for a low chance at a very high wealth and a high chance of mediocre to bad results that are far far worse than what you would have gotten by not being an entrepreneur at all. I don't think entrepreneurs are underpaid (adjusted for risk), because if I did, I would become one instead of taking the easy path that I'm on.
I don't think that Scott gives this and the question of unintended consequences enough thought. The idea that Bezos2 simply takes his place if Bezos1 is disincentivized cannot be true, because the same disincentives affecting Bezos1 also apply to Bezos2. If you take away the ability to become a billionaire by building something world-shaking, then Bezos1 *and* Bezos2 lose that ability, so they both look for something with a more regular and guaranteed revenue. They have an easier life, retire in their 30s with more money than they know what to do with, and we lose out on those revolutionary ideas that so many of us depend on (including AWS, which more people use than Amazon).
This thread is exactly right. I love Scott's writing in general but it does show that he hasn't studied economics seriously enough.
This is exactly correct, but even more so than what you painted. We don't just care about the incentives of Jeff Bezos, who would have been successful at anything, probably. We need the incentives to align for everyone involved to get a successful startup - founders, early employees, VCs, and their customers.
Early employees accept stock in lieu of fair market compensation (cash). They literally won't join startups if there is no potential payout. Upping capital gains on windfalls hurts early employees. Forcing out founders hurts early employees. Taxing paper wealth (options) is already brutal. Compensation to offset those new risks/penalties will come from where?
VCs fund startups by throwing billions of dollars at corporations that basically burn cash. They only make good on black swan events (1000x payouts) that make up for their losses on everything else. VCs will cease to invest if you make it unprofitable (through any means) - that money will be reallocated to more productive means. The companies they would have founded will be founded in other, friendlier jurisdictions.
Finally, we have their customers. B2B startups would just die overnight. Who would do business with a startup when you expect the founders and early employees to bail no later than a Series B because they would always make way more money?
Startups don't simply pop into existence. They come about because all of the parties involved are currently incentivized to make it happen. The consequence of destroying startups is that innovation will only happen at large, megacorps, if at all, which I'm guessing is not what you want, either. If you heavily disincentivize billion dollar companies from coming into existence, you should not be surprised when new billion dollar companies are no longer created.
You're right, but it's EVEN WORSE than that, because you guys are only considering the unintended consequences on the business side. What about the government side? It hands even more concentration of power to an institution that already has a monopoly on forcing people to do things. Our best minds will now compete for creating political power, not wealth. And political power is zero sum, not positive sum
I think your response to 9 is only true in very rare cases. Yes, if your startup lasts long enough to hit a 10+ figure valuation like WeWork you aren't ending up in the poorhouse if it fails. But the vast majority of startups fail very early on (95% don't make it to year 3). These entrepreneurs are just average people putting their house and life-savings on the line, and when their business fails they are significantly worse-off than the counterfactual world in which they did not risk their capital and held down an average job. They're stuck in a huge pile of debt and have often forgone a salary to help grow the business - by contrast their employees are out a job, but otherwise unscathed.
Literally the worst-case scenario for an entrepreneur is that they have to get a job like the rest of us. So scary!
No it’s losing all their life savings and being behind in career progression when the have to get a job.
Exactly, so, having to get a job, like the rest of us.
By your logic, people who take time off to raise a family and go broke doing it (i.e. a great many people) should be compensated in the billions, too.
That doesn’t seem analogous at all. People who take time off to raise a family make a sacrifice - and in return they hopefully get the rewards of raising a family (but may not!). People who start a business make a sacrifice - and in return they hopefully get the rewards of starting a successful business (but may not!).
In neither case am I arguing that these people be externally compensated by the government for their choice. The argument is with the claim that starting a business involves no sacrifice - which is blatantly untrue. If there was nothing but upside everyone would do it - they don’t because 97% of the time you just lose a bunch of money and time for no gain.
I'm not claiming there's no sacrifice. Just that the worst-case scenario is really not even slightly bad compared to the lot of the majority of people.
It looks bad if you lose your fortune if you compare to where you started, but if you compare where you end up to others, you're no worse off than they are. That's nothing we should cry about.
Considering Scott’s whole article is about the incentives of entrepreneurs- it’s relative not absolute effects that matter. Who cares of a failed entrepreneur ‘is not really even slightly bad compared’ to other people (although this is still very silly - the average person has savings, the average American owns a house etc). What matters is how big the deterrent to innovation is for potential entrepreneurs - and the answer is really big! A huge chance of failure which means setting yourself back by a decade or more when you lose it all!
Somehow you're missing the point each time. How is it you are not noticing that to start a company people often have to invest all the capital they (and sometimes family) have accumulated over decades of work? When they lose it, ye sthey're "right back where they started" -- but having lost the fruits of, say, 30 years of their life. They're 55 years old but now have the savings of a typical 25 year old. That is very, very different from where the average 55 year old non-entrepreneur is sitting.
Sure, they both have to have jobs. But one owns a house in which he has built up 60% equity, has a recent car that's paid off, a bit of a 401k -- and the other has to rent, has a college-student beater car, and zero retirement savings.
The best argument for why founders of companies that hit it big should be compensated in the billions is not the amount of risk they undertook, but the social return on their initial investment. Two day free shipping online orders for most consumer goods is a remarkable benefit to society that would not exist if some individual or small group (Bezos or otherwise) hadn't bet the farm on it.
I would actually argue that's at best no real benefit, and it has come along with huge downsides, just as the "convenience" of getting everything from Wal-Mart (and the resulting destruction of mainstreet) has been a net negative.
I maintain Amazon has been quite bad for society, not good at all.
I’m not terribly liberal, so I don’t care for “check your privilege” type comments at all, but in this case, yes, cheap convenient consumer goods are good for the masses. Amazon’s reduction in the time cost of obtaining them (even just by reducing trips to the store) is a substantial benefit to most people.
No, the best argument is that people voluntarily gave them the money, so it's their money. Property rights are human rights.
Most the unicorn founders would have been millionaires if they had just worked a job. So the tradeoff is a lot different than your average woman choosing between working as a schoolteacher vs. as a chemical engineer. In fact, for most school teachers that is the highest paying profession they could plausibly hold.
> Literally the worst-case scenario for an entrepreneur is that they have to get a job like the rest of us. So scary!
Come on now. Entrepreneurs frequently put their entire life on hold to start a business. They put in 80 hour weeks, use all of their assets as collateral, and ignore everything else (family, friends, vacation, exercise, etc) in the most productive years of their life. The downside is enormous not to mention the opportunity cost.
The downside is: they have to get a job, like the rest of us. Lots of people work 80 hour weeks, have no assets, ignore their family, just to have a roof over their head and enough to eat.
I'm sorry, but I just cannot be made to feel sorry for people whose worst-case scenario is: be a worker.
You’re equivocating. Yes, lots of people work 80 hour weeks, have no assets, ignore their family, just to have a roof over their head and enough to eat. We call those people things like “poor”, “disadvantaged”, “in a very bad situation”. They are in a very different situation than “just have to get a job”. The rest of “us” are *not* in that situation, the rest of us are doing *much better*, even if we’re very far from being billionaires. (And others are doing much worse, and I’m sure some failed entrepreneurs do, if not all of them.)
If your world model is “there are billionaires, and everyone else is like us”, you’re ignoring a *lot* of differences which *matter a lot*. This is pissing me off enough that I’m actually not making the argument I was going for when I started this comment, so I’ll stop here in the interest of not being an asshole to Scott.
also Adam Neumann is 100% an idiot as it comes to building a good company, but he is also 100% a genius at salesmanship. like 99.999999 percentile or something. Jaded VCs who get pitched all day long by entrepreneurs walk out of their first meeting with this guy desperate to give him their money. He's like a modern day Jesus in terms of personal charisma or whatever from what I heard.
"For example, if you get VCs to fund your startup, they pay most of the costs, you either pay yourself a small salary as CEO or don’t, and if your startup fails, they lose their investment, you keep your salary, and you probably go and found another startup or get a good management position somewhere else."
And if VC fund your startup, pay you a small salary as CEO and it succeed, how much of the billion dollars worth of stocks end up in your pocket vs in the VC pocket? I'll admit to be a bit further from the startup-funding world than you are, having neither started one nor living in the bay area, but from my understanding you're playing a bit of a shell game here, looking at the funder, his risks and his rewards, shifting the potential risks to someone else, and proclaim "well look, the funder don't risk much anyway" without looking where the rewards end up in this hypothetical situation. Maybe he would have gotten rich, but, ceteris paribus, reaching a given level of wealth require greater success as they reduce the risk they take via external funding.
That being said, there are two more things I want to point out.
The first, least interesting one is an anecdotal evidence against the "if someone filled this market, then someone else would have soon after anyway", and that's Colombus. By 1492, the Carrack, one of the ship model that was used for his (re-)discovery of the new world, was in use for decades, if not centuries (at least from what wikipedia tells me. Maybe what a carrack changed over time, but I have found no evidence it did). Therefore, the technology to cross the Atlantic was there, and the investment needed (3 months of supplies) was well within every atlantic-facing european polities of the time. So for potentially centuries, the empire-on-which-the-sun-would-never-set ticket lied on the ground, nobody daring to pick it up (or maybe even thinking of it) to see wether it could be cashed out.
Then there is a question that arise from this focus on billionaires: would things change if, instead of Jeff Bezos funding Amazon, it was a collective of a thousand Jeff Bezos funding Amazon and ending up each with a wealth of 1 millibezos? Is the redistribution of surplus a concern because of corporations that exploded in value, or because of centralized private owership of said corporations?
Columbus just got lucky because he mistakenly thought the world was much smaller than it is.
Maybe. But my point is that the capacity for the voyage probably existed for a long time before it was done. Therefore it's not (always) a matter of "If it's possible, then someone will do it sometime soon anyway". Thus a point in favor of providing incentives for experimentations and investments (or rather, to not spoliate the returns of these).
Sadly, your comment in 8 exposes a severe lack of economic understanding (basic supply and demand and market clearing price). Yesterday, less than 0.5% of AMZN shares were traded. Massively shifting the supply curve by having a buyer willing to liquidate a much large block of shares and you will massively shift the equilibrium price.
The innovation results from allowing people to own their publicly traded companies and make huge sums of money are amazing. I don't understand why we even need to consider killing the goose here. Billionaires provoke too much jealousy? Some of us find it unaesthetic for great wealth to exist? "It isn't fair"?
None of these arguments or any other I've seen persuade me in the slightest. I don't think we have a problem.
Big companies are inherently bad for society.
Big fortunes, ditto.
Both distort the market, stifle innovation, exert undue influence over politics, etc.
If you don't think we have a problem, you're not paying attention.
Do you extend these arguments to the government? It is, after all, vastly bigger and richer than Jeff Bezos or Elon Musk.
If you see government as responsive to the people, that's no a problem.
And if you assume spherical chickens in a frictionless vacuum, automatic plucking machines are trivial to design.
Is there any reason at all to believe that?
Some people do, so they have their reasons. It's not like them voted for Musk or Bezos.
But they did vote for Bezos and Musk. In large numbers. With their own money. That's how Bezos and Musk became rich. A much more reliable indicator of public value than simply winning a popularity contest
To the extent that the government is working for the people - no.
To the extent that the government is working for the rich - yes.
This should be fairly obvious and I would have hoped uncontroversial.
What is perhaps less obvious but more important, is that those are not the only two options and they are not the two most likely options. The government may be, and probably is, working for neither "the people" nor "the rich".
But it's very happy for you, as one of the people, to assume that to the extent the government is not working for you then you should automatically blame the rich.
How about if the government are working for themselves, like most other people?
I'll agree with undue influence over politics, not the rest.
I don’t know, SpaceX doesn’t seem like it stifled innovation. And big companies seem to exert much less undue influence over politics, but I *really* don’t think the Chinese society is better for it. (Certainly the US society is doing much better, for all its faults, even though it’s had big companies “exerting influence” on it for much longer.) And don’t get me started on distorting the market.
If you think the main problem we’re having is too many too big companies, you‘re not paying attention either.
It's hard for me to see anything but resentment as the overall motivator.
https://twitter.com/robkhenderson/status/1407680880005586947
I mean, is it your contention that malicious envy (desire to see things taken away from people you don't like) is not a valid idea?
Yeah, you're right, lamenting the idea that some people have more than they could legitimately earn in ten thousand lifetimes while others starve to death and their workers are on food stamps is best described as "malicious envy".
This is a pretty silly comment. The study from the tweet (make of it what you will) finds that using that money to help others simply isn’t what animates the passions of redistributionists.
It is if the counterfactual is a world that is poorer on average and thus has more people starving. The fact that the people next to them are also poor is not a winner.
The left can produce surveys with biased language too.
Look, we "solved" this problem a long time ago. It's called progressive taxation. Now in fact the kind of progressive taxation we have leaves some big loopholes, so if you are in the right position you can have no "income" to be taxed, and we could fix that. But we don't need a whole new conceptual framework for figuring out how to tax people with really high incomes.
You could tax larger companies at a higher percentage rate on their profits, but they could avoid that by breaking up their coroporations...but that could be a feature.
To me it does not really make any sense to tax business income at all. We should tax the owners.
On what? Capital? Realised capital gains? Unrealised capital gains?
Yes. Impute the business income to owners and tax it as ordinary income and indexed realized capital gains as ordinary income (Inheritance counts as a realization event). [Tax would be "withheld" at the highest personal rate for non-US tax residents.]
On money not being effective for politics.
This idea sounds pretty counterintuitive on priors and I don't think that the amount of evidence from the old SSC essay is enough to compensate for it, considering it didn't really explore some of the obvious possibilities.
I would expect money on politics to be somewhat a zero sum game between two opposing parties. It's less important how much you invest in absolute scale, just the fact that it's about the same as your opposition. Dramatically increasing the amount of money in politics wouldn't change much because both parties will do it.
On the other hand, I also suspect that the returns from investing into politics are mostly long term. It's not just how much dollars have been thrown on campaining this year, it's about steady supply of dollars being thrown throughout time.
The thing is, it's not at all about getting politician X elected.
It's about influence, access, model legislation, threats (do this or I'll pull my business from your district etc), control of media, control of think tanks, etc.
It's fairly irrelevant who's elected, as demonstrated by the extremely small distinction between Republicans and Democrats on economic issues.
I find it very odd that when we look at something like sports we think it's all talent (Usain Bolt = fastest man in the world, not lucky) but when we look at something like business we think it's often luck. Don't get me wrong, luck plays a role, but talent exists and there is a tail where super-talent exists.
And if you're born with super-talent and no capital (or born in South Sudan, as a woman in Saudi Arabia, etc etc), then it doesn't matter.
By definition, luck is randomly distributed, so you shouldn't have a problem with this. Let's say you need 1 in a million luck, and to be talented to be super successful. Then, the super successful people will still just be all the most talented people from the random subset of people who have 1 in a million luck.
True, but not really statistically likely. The places with current high capital are more likely to produce people with capital building talents.
Usain Bolt is insanely lucky. Most people agree with this. Or Michael Phelps. If every person in the world worked as hard at swimming as Phelps did he'd still likely be in the top 100.
Of course Phelps doesn't have a lot of political or economic power, just moderate fame, especially since his sport, and Bolt's sport, are not big money makers. So no one cares.
The tails of the distribution are almost always going to be super-talent + luck + hard work. These are massive outliers - all factors need to working in your favor.
s/+/*
I'm confused what the difference between luck and talent is. Did Usain Bolt work for his talent?
Unanswerable question. We can include everything under "luck" if we want since all our behaviors are the product of the grey matter we were handed.
Under dualism, one might consider a soul that ends up in the right body with the right genetic makeup to be lucky. Under monism, I don't think that makes much sense.
"And the reason they all failed, is that none of them were run by billionaires"
so this part is demonstratively false, because for the critical early period of SpaceX Musk wasn't even a billionaire. this article https://hbr.org/2022/07/does-elon-musk-have-a-strategy says that "Musk has consistently had a lot at stake in his companies. His initial investment into SpaceX was $100 million of the $175.8 million earned from the sale of PayPal. He would continue to invest his entire personal wealth into SpaceX and Tesla until 2008, when he ran out of money and had to borrow from friends."
and both SpaceX and Tesla almost failed in the depth of the GFC. He got lucky and managed to raise external financing etc. but it was close.
Did having substantial means help him get these companies started? sure. But it didn't require billions and billions, and thousands of other people would have had the financial means to do it, they lacked the skills and the conviction (recklessness).
I've seen even more ridiculous claims about how the fact his (scumbaggy) father lent him and his brother some small sum (in tens of thousands) to start their first business and how that means all Elon accomplished all his life derived from (apartheid) white privilege, etc.
Story time: I was an intern at Beal Aerospace. Andy Beal had written a $250M check to found the company; when NASA announced subsidies for the legacy producers, he threw in the towel.
The ability & willingness of both Musk & Bezos to direct an effectively unlimited amount of funds without regard to how long it will take to show a return is essential; hobbling their ability to accumulate assets would have precluded that.
but if you read my comment above Musk was far from disposing of such unlimited funds, until his rockets stopped exploding and started landing correctly and then yeah the unlimited money showed up. The differences were rather a) i assume Andy wasn't ready to put up his last 40m to fund the company and b) say what you want about his personality and twitter antics but Musk can be extraordinarily convincing and hence good at raising money, not sure that was the case with Andy? Bottom line is it's not Musk's (fairly recent) tens of billions in net worth that allowed him to push SpaceX / Tesla into orbit, it's insane conviction/risk appetite, (maybe) strong engineering instincts, charisma/force of personality, etc.
However yeah if he ever does another startup that is nearly as successful as these two (maybe starlink should be considered a separate venture?) his balance sheet will likely have played a far greater role.
That was addressed in the original thread. Musk became a billionaire before SpaceX transformed the space launch vehicle, and it required Musk's billions to turn SpaceX from a clever niche player into what it is. If you say "people can be hundred-millionaires but not billionaires", there will be a thing called "SpaceX" that some rocket geeks know about, but it won't be landing Falcon 9 boosters on droneships and don't even think about Starships.
so to dispel any confusion: Musk's didn't have billions sitting around during that time period you are thinking about. Musk's billions WERE Tesla and SpaceX. He got a 176m payday (pre-tax mind you so actual post-tax number is lower) from his Paypal stake and poured nearly all of it into the two companies. After that he was tapped out and all the further capital used to sustain and develop these firms came from _external_ investors. Musk didn't have other major assets at the time, he wasn't selling Tesla to fund SpaceX or vice-versa, and his pay packages at both firms were virtually all in form of stock grant/option packages, he just didn't have any other sources of money to liquidate to put more into these companies even if he wanted to.
It would be entirely correct to say that venture capital and NASA contracts and Tesla IPO proceeds and carbon offset sales and Tesla customer order deposits and that critical government loan to Tesla around 2008/09 are all things that have been funding his companies after Musk's initial money ran out, but that has nothing to do with whether Musk was or wasn't a billionaire and it wasn't "Musk's billions", and someone equally persuasive but with a minuscule net worth could conceivably have done exactly the same (although clearly him 1) having demonstrated prior success and 2) being willing to put everything on the line are strong components of his appeal that wouldn't be matched by someone who is not a major stakeholder).
In response to:
"Suppose Jeff Bezos just really loved founding businesses, and couldn’t imagine working for anyone else, and he would found and run Amazon for $10/day, just enough to live in a tent in one of his warehouses and eat cold beans."
I'd say even we discover some kind of super-Bezos who will start companies and find new market niches for $10/day, we should pay him more, for a few reasons:
1) I would want this hypothetical super-innovator to be able to casually buy the medical care, therapy, and personal relaxation that he might want. A person who is super-useful to society like this *should* be able to use money to get some of the everyday issues out of the way. Otherwise, if we pay him "just enough to get by", we end up with a sick, stressed out, performing-below-optimal super-innovator. And maybe we only get 20 years of awesomeness out of him, instead of 40 or 60, when he dies lonely of a heart attack at a too-young age.
2) It sets a bad example for the NEXT company founder. There's probably a guy out there who could be motivated to found cool companies on the margin, but when he sees it pays $10/day, he's opting out.
3) Maybe we want the super-Bezos to have the resources to attract a mate? And then to have or adopt kids, so he can pass on his values and worldview to heirs? Might just get someone who excels like him, maybe even in other fields, not just business.
4) It offends my sense of justice. If we pay super-Bezos $10/day, and somewhere out there, we have a person making six figures being basically a parasite on the system, it seems wrong. (Picture the worst obstructionist bureaucrat, or an ambulance-chaser lawyer, or a vapid celebrity, or whatever person you think most counter-productive in society who makes big bucks. Heck, go with outright criminals).
Having people who are "part of the problem" prosper and make many orders of magnitude more than the super-Bezos would offend me. In the same way that socialists are upset that CEOs make 250 times as much salary as a their workers, there are people would be just as upset if society under-rewards the super-Bezos innovators who make our lives better, relative to people who are much more a negative to civilization.
Turning current billionaires into a new exploited class would be the fastest way to get people saying "Huh, maybe Atlas Shrugged had a point..."
"I think the political power of billionaires is vastly overestimated."
This is incredibly naive, and really ignores the facts on the ground. I think you may have been distracted by looking for trying to _buy elections_, which is not how influence works, and, as you say, is at best slightly effective.
Intuition pump: if Jeff Bezos calls up a Senator and asks for a meeting, and so do I, who did you think is going to get a meeting?
Intuition pump: who do you think can write model legislation that benefits them, fund think tanks to write papers about how it's a good idea, pressure the newspapers they own to write favourably about it - me, or Jeff Bezos? And so whose policy preference is likely to get implemented? Me, who called my representative and left a phone message, or Jeff, who presented them with finished legislation that already has broad support in the public and the legislature and all they have to do is introduce it?
And finally - if we agree it's better to be a billionaire, and we live in a democracy where billionaires are vastly outnumbered, why don't the plebes vote to share out (some large fraction the of) the wealth of the billionaires? Is it because ordinary folks really believe that that wouldn't help ordinary people. I don't think so. It's because billionaires hold extremely outsize control of the levers of power, and work hard to make sure that's not on the table.
I know Bezos owns the Washington Post but is there much evidence that paper's content is more favorable toward his interests than that of its competitors?
My impression is that most of these deals only touch some narrow topics--the typical example that comes up is the Sierra club switching to favor immigration, and the New York Times not ever publishing anything negative about Carlos Slim's telecom monopoly. I think you'd likely only see this in coverage of, say, Bezos's divorce or Amazon specifically, but even there you might get it wrong (because maybe Bezos doesn't actually care about the coverage of his divorce, and so is buying credibility points for the Washington Post there).
Was the NYT critical of Slim prior to him investing? Are other comparable papers?
Thought exercises are good, but you can't stop with just doing the obvious ones.
Intuition pump: If you won a billion dollars in the lottery, how quickly could you get a meeting with a senator? Would it be faster than Greta Thunburg? (Or any of Jon Stewart, Tucker Carlson, Thomas Piketty, Al Sharpton, George Clooney, or Ezra Klein?) Is it money that's important, or connections? You can, given time, buy connections, but most of the people with money either got the connections first, or built up the money and connections at the same time. Along the same lines: why do so many politicians and their family members end up rich?
There is a chicken and egg aspect to it in that at some point it becomes a self-perpetuating cycle, but people should be able to consider how money and power relate, and try thinking through the matter from both ends.
Intuition pump: if we agree where it's better that nobody have too much power, and we live in a democracy where the powerful are vastly outnumbered, why don't the plebes vote to give themselves more power? When you can answer that question, you should have some insight as to the limits of representative democracy.
What? You could get that meeting tomorrow. Way faster than Greta could do it. And you would have multiple options on how to arrange it depending on the Senator you wanted to meet and their personality.
I don't think this is true, with the limits of political alignment (Greta isn't going to be able to call up a Republican Senator). For starters, the internet is full of stories of political activists (*cough* James O'keefe) and BS artists that have no problems with falsely identifying themselves to get close to politically sensitive targets; just calling your Senator's office and saying 'I'm a billionare, arrange a meeting' isn't going to work. Your billionaire lottery winner may be able to eventually get to any Senator, but it will take a while for the checks (both paper and background) to clear.
Let's play a game as a thought exercise. It's a form of Six Degrees of Kevin Bacon. You've just made a revolutionary scientific discovery: the world is doomed unless we do something ASAP, but if we do something we'll also cure cancer. The evidence sounds like a crank when described, but you can give a live demonstration that will convince people that see it. You need to get it to the President as fast as possible. How do you do it?
The small company my brother works for got screwed over on a government contract. The president knew someone that was a major campaign contributor to the representative who was able to arrange a meeting. I show my brother, who shows his boss, who shows the guy that knows the representative. The representative's likely a degree out from the Senators in their party, the most powerful of which are likely a degree out from the President (even of a different party). Do you know someone that has your Representative's (actual) number?
Greta Thunburg has attended (and addressed) the Davos Economic Forum (as well as the British and French legislatures, the Pope, the UN...). Presumable she, or her handlers, have exchanged business cards with someone that can vouch for them. "Remember me? We spoke at Davos! I'm trying to get in touch with...." She probably gets to the US President in as much time as it takes me to meet with my Representative.
An arbitrary person with 1bil might have trouble reaching a Senator just because they would never have thought about it before. Perhaps I should have specific someone who at least has engaged in politics on Twitter or something in a semi-serious way.
I personally could be talking to a Senator the next day, through a variety of relatively marginal connections. Like I'd message Scott here or I'd email Scott Aaronson or Lawrence Lessig. I'd have a moderately well tailored pitch for why they should help me.
I've talked to all of those people in varying degrees but we don't have a "connection". Like we aren't bros and we don't hang out and I don't have their personal phone number or anything.
I'd show them the news story about me winning the lottery and go from there. I'm discounting paths that would not be easily available to a normie online politics discusser. Like I have the personal phones of a couple people of moderate political connectedness in SF and/or NYC. And I think tons of people on this blog have better connections than me.
I guess a randomly selected person at a HyVee in eastern Nebraska who won the lottery might not be able to get to a Senator as fast?
Sure, it might not *literally* be the next day, but Joe Schmo cannot get a meeting with a Senator, no matter what. The billionaire donates ten thousand dollars (or whatever, insert sum here), gets a personal phone call the next time the Senator is calling big fish donors, and says, hey, there's a lot more where that came from, I'd love to do lunch, bam, it gets on his diary.
It is literally that simple. I have seen it happen (not in America, but it's the same principle).
Power is the ability to perform work. Political power is the ability to accomplish things in the sphere of politics.
We're talking about the political power of money versus the political power of connections. There are a bunch of questions associated with this, and it's not obvious which order they need to be answered:
Is a billionaire powerful because they have money, or are they powerful because they have connections?
Is it easier to turn connections into money, or money into connections?
In what circumstances are connections better than money, and in what circumstances is money better than connections?
Who benefits more in a relationship, billionaires/celebrities or the political causes they advocate for?
Greta Thunburg is an extreme edge case, but the case is completely illustrative of the power of connections. Here's someone who's credentials are 'photogenic political mouthpiece for a popular cause', and who's family is (while well off) not the billionaires you're talking about. And she doesn't just 'meet with a Senator', but address the Davos WEF and British Parliament, and meet with the PM of Canada, the UN Secretary General, and the Pope. You don't think that that represents a lot of power?
"why don't the plebes vote to share out (some large fraction the of) the wealth of the billionaires?"
The 4th Amendment.
Our government, even on behalf of the people, can't pick and choose who must forfeit some portion of their wealth to satisfy the desires of the more numerous. General plans, including taxation as well as confiscation, have obvious downsides even if they would be legal. Not only people who personally hope to be rich notice that society is worse off when the government feels free to take what the people have.
Wow, this constitutional scholar just took down the whole tax system!
That's both obnoxious and a poor reading of what I wrote, so thanks for that.
The government cannot single out individuals for takings, so any kind of taking can't be of the variety we often hear in regards to billionaires, but instead would have to be part of a general tax code. Such a general confiscatory tax would be severely detrimental to the economy, even if we did come to a conclusion that some billionaires are "too rich" or whatever.
Nobody has ever proposed singling out individuals, so I think taking your comment as disingenuous stands.
Also - a wealth tax and/or land value tax and/or more progressive income tax and/or more reasonable and progressive cap gains would obviously be extremely beneficial to society and the economy, as it would distribute wealth more equally and create more demand.
Would it create more supply? Or just more demand with the same/less supply?
Wealth tax -> extremely detrimental
Land value tax -> extremely beneficial
More progressive income tax -> marginally more detrimental
Progressive capital gains tax -> significantly detrimental
The implications of each of these are distinct; conflating them weakens any subsequent argument.
LVTs are not extremely beneficial! They have incredible disincentives built in that never get addressed.
Then you're proposing a system that disincentivizes the creation of large and complicated systems, including companies that provide significant value. I consider that a very bad trade.
Pfui. Why wait as late as after the wealth has been accumulated, the harm already done? Your proposal lacks vision and courage. We need to start with the obnoxious insidious antecedents of disparate wealth accumulation.
For example, in school. Clearly getting good grades is part of the path to unequal wealth accumulation, so we need to redistribute those grades to even out the playing field. The work of A students should be confiscated, in part, and given to D and F students to turn in as their own, so that pretty much everyone gets a C. (I don't think we need to worry about the would-be A students being disincentivized, because of course everybody knows they mostly do it for the sheer love of learning and mastering complex subjects.)
And being tall or good looking is clearly advantageous, so the tall and good-looking people should have to wear disfiguring handicaps -- bad make-up, prosthetic scars, big clown noses -- while homely people should be given free cosmetic surgery and fabulous custom-tailored designer clothes.
What about people who are articulate and speak well? Another unfair advantage! They should be required to wear inverse hearing aids that make loud buzzing noises in their ear at random intervals, so they can't form sentences any better or faster than the average schmo.
Think about the inequality created by some people having excellent parents in stable home, versus others living in unstable single-parent households, headed by someone with a meth problem. We should level out this playing field, too. Everyone under 18 should be forced to switch homes every 24 months, and a system should be set up whereby nobody accumulates any excess unearned parenting "wealth" by spending more time in a stable household with engaged and intelligent parents (or, God forbid, parents with valuable social connections). It should be equally likely that any child spend 5 years in a crack den being occasionally molested as 5 years in a beachfront villa with private tutors.
Only this way can we be sure that unequal wealth never even arises in the first place, which is surely a much kinder and pro-social approach than struggling to right wrongs well after they've taken place.
The paper wealth thing is *important*.
It's not about how much money Jeff Bezos could get access to - consider the alternative reality where Jeff Bezos cashed out for $30,000,000, and paid his parents back with ten times their investment, and went on to retire.
To become a proper billionaire, you don't just need grit and luck. Those two things are important, but the most important factor is actually this: You want to be wealthy more than you want to be rich. Money is like power, and power is not the same as freedom. In order to attain either, you must use them in particular ways, which preclude you from using them in any of the ways you actually want to use them.
In order to be a billionaire, you can't cash out as a millionaire and buy a mansion and a yacht and live a supremely wealthy lifestyle. You have to wait. And wait. And wait.
We should celebrate billionaires - not for their wealth, but because of all the consumption that getting there required that they forego, for the personal austerity it required, and for the fact that they funneled the vast majority of their personal resources into society instead of themselves.
"the personal austerity it required"
I don't think Bezos was in fact living in a tent eating cold beans while he waited to make his first hard-won billion, leaving those mere millions untouched. I too could live 'austerely' if I had the cushion of "well, if it comes to it, I can always cash in for a measly $30 million".
I feel a Chesterton quotation coming on 😁
The Good Rich Man
by G. K. Chesterton
Mr. Mandragon the Millionaire, he wouldn't have wine or wife,
He couldn't endure complexity; he lived the simple life.
He ordered his lunch by megaphone in manly, simple tones,
And used all his motors for canvassing voters, and twenty telephones;
Besides a dandy little machine,
Cunning and neat as ever was seen
With a hundred pulleys and cranks between,
Made of metal and kept quite clean,
To hoist him out of his healthful bed on every day of his life,
And wash him and brush him, and shave him and dress him to live the Simple Life.
Mr. Mandragon was most refined and quietly, neatly dressed,
Say all the American newspapers that know refinement best;
Neat and quiet the hair and hat, and the coat quiet and neat.
A trouser worn upon either leg, while boots adorn the feet;
And not, as any one might expect,
A Tiger Skin, all striped and flecked,
And a Peacock Hat with the tail erect,
A scarlet tunic with sunflowers decked,
That might have had a more marked effect,
And pleased the pride of a weaker man that yearned for wine or wife;
But fame and the flagon, for Mr. Mandragon obscured the Simple Life.
Mr. Mandragon the Millionaire, I am happy to say, is dead;
He enjoyed a quiet funeral in a crematorium shed,
And he lies there fluffy and soft and grey, and certainly quite refined,
When he might have rotted to flowers and fruit with Adam and all mankind,
Or been eaten by wolves athirst for blood,
Or burnt on a big tall pyre of wood,
In a towering flame, as a heathen should,
Or even sat with us here at food,
Merrily taking twopenny ale and cheese with a pocket-knife;
But these were luxuries not for him who went for the Simple Life.
Austerity is relative.
What do you want millionaires to spend their money on: Yachts, or the economy?
The former is consumption. The latter is how you get billionaires - and also, not coincidentally, how we end up with a nicer civilization a few decades down the line.
There's "austerity" as in "expensive interior design for minimalism" and "austerity" as in "too damn poor to purchase furniture".
Praising Bezos, and billionaires in general, for "personal austerity" is exactly what Chesterton was getting at, the kind of journalistic fawning over the millionaire who lives so quietly:
"If a journalist has to describe a great politician or financier (the things are substantially the same) entering a room or walking down a thoroughfare, he always says, “Mr. Midas was quietly dressed in a black frock coat, a white waistcoat, and light grey trousers, with a plain green tie and simple flower in his button–hole.” As if any one would expect him to have a crimson frock coat or spangled trousers. As if any one would expect him to have a burning Catherine wheel in his button–hole."
It would be a lot more human in Bezos if he did splurge on yachts, as he has now done with his own Real Toy Rocketships. Are yachts and yacht-making and boatyards and engineers and all the rest of it not part of the economy, too? Again from Chesterton:
"There is more simplicity in the man who eats caviar on impulse than in the man who eats grape-nuts on principle."
Living "austerely" merely to become obscenely rich, rather than merely hugely rich, is not austerity. It's miserliness.
Sure. Scrooge went cold himself; it's a key part of his character.
But "part of the economy"? Encouraging the rich to buy yachts is like encouraging kids to break windows. No, billionaires, keep doing your weird autistic number-maximization shit. It's great. We love factories, we love the things that come out of them. Reallocating workers from building factories to building yachts isn't a good thing.
> There's "austerity" as in "expensive interior design for minimalism" and "austerity" as in "too damn poor to purchase furniture".
Come on, Deiseach, you know better than that. “Too damn poor to purchase furniture” means “too damn poor”, not “austere”.
“Austerity” means “you have the means for luxury and you insist on using them for something worthier”. I’m 75% sure Musk lives in a cheaper house than I do. (I don’t *own* it, and prices here are silly, but still.) And he doesn’t do that *on principle*.
I think the "austerity" in question is not wealth or things, but the lifespan you *could* spend either working or enjoying yourself -- being social, being with family, doing hobbies or talking walks or reading fun books. The man who wants to be a billionaire pours all of the hours of his day, and the days of his life, into that pursuit. He "spends" very little of his lifespan doing the not-at-work off-hours things that the rest of us find add much of the meaning to life.
Considering the hours of our life are the only real wealth we have, and we cannot beg, borrow or steal even a single extra, it's a pretty significant sacrifice to do this. I wouldn't do it, which is probably the major reason I'll never be a billionaire. It could be these are weird people who derive such satisfaction from working towards building enterprise that vacationing in Italy or even knocking back a few at the local pub with friends just doesn't compare, so we needn't pity them. But it's hard not to be at least impressed with the laying out that high a fraction of your personal capital in just one direction.
I'm struggling to identify what problem we are trying to solve. Bezos (and small number of other people) have billions of paper wealth from founding extremely successful companies. They and their progeny (and some number of philanthropic organizations) will want for nothing.
In the counterfactual world where Bezos doesn't have $140B of stock I don't think the question about what harm it would cause is whether or not Amazon exists, its a world where the Xth most successful online retailers doesn't exist and the overall impact on growth and innovation. How many marginal founders are discouraged? How many marginal investments never happen?
Assuming the downside is that the world is X% poorer or growth is X% slower by overshooting balancing the incentives to take risk and preventing 'unearned' billionaires what is the upside?
Giving workers a share of stocks and dividends should be standard practice. But I think Matt Pencer miss the point : Bezos could afford to gamble on Amazon because he was not living paycheck to paycheck (and anyway had parents able to invest 300 000 dollars to back him up if needed...). Most of his warehouse workers could simply not afford these investments, even if they were just as bold and intelligent as Bezos is.
Buying your employer's stock isn't a great idea because it amplifies the risks to you of them doing badly. Not only are you out of a job if they go bust but that stock is now worthless.
The fact that workers universally prefer cash to equity is strong evidence against syndicalism / worker co-ops being a good idea.
Also, I think you're missing the point: anyone could have invested into Amazon in its early stage and captured the 1000x return, it's just that Bezos chose to keep the vast majority of his net worth as stock, and the bet paid off. Random people could have invested in it, poor people could have pooled their money into a larger fund and invested in it, anyone could take out a loan and put borrowed money into it, etc. So Bezos's return is not primarily derived from his personal labor of running the company, but from his continued choice to keep holding a large number of shares over the years.
This notion that fortunes gained through hard work or cleverness are somehow more legitimate than fortunes gained through luck strikes me as wrong. It's pretty clear that our intellect and capacity for hard work are themselves largely products of luck. Does this mean we shouldn't be entitled to their full benefits? I think not.
Why not simply recognize luck as just another inalienable aspect of our selves that we have full ownership of? After all, we are all forced to bear the consequences of very bad luck individually - just ask Steve Jobs or Kobe Bryant. Their personal fortunes couldn't save them and no amount of redistribution is going to protect you from the consequences of a currently incurable disease or rapid deceleration. If we have to bear the full burden of so much of our worst luck, it's only fair that we should be entitled to the full benefits of our best luck. Whether someone is very lucky enough to become a multibillionaire by creating a popular new product or by being born into the right family, they should be entitled to their exceptional fortune.
As long as people are forced to personally bear the negative consequences of the bad tail of the luck distribution, I don't think it's very fair to lop off the very good things that can happen to them at the other tail of the luck distribution in the name of redistribution. Redistribution to flatten luck in the middle of the distribution, where redistribution might actually be able to counter moderately bad luck, might be more defensible.
With that intuition, the oddity is the popularity of lotteries/gambling, which inject luck into outcomes and make them significantly unequal among participants.
I generally view lotteries as evidence that the popular indignation over unearned wealth and relative inequality is not actually as popular as it pretends.
The idea is that taxes could disincentivize hard work, but not good luck.
I don't think it's the purported tax efficiency aspects that are putting the "unearned" wealth of billionaires in the crosshairs here. The rhetoric is generally "let's heavily tax billionaires because they shouldn't exist/they don't really deserve their fortunes" rather than "let's universally tax "unearned" income at marginally higher rates because it is tax efficient".
This seems correct to me. The best predictor of support for redistribution is malicious envy. https://twitter.com/robkhenderson/status/1407680880005586947
A huge amount of "good luck" consists of recognizing opportunities and taking risks. Taxes can definitely disincentivize that.
Most taxation distorts the payoff matrix, because the gains are taxed away and socialized but the losses remain personal. So the expected payoff is skewed negative, which naturally means any rational bettor needs a higher probability of success to take the risk.
It would be different if we socialized both profit and loss, and there are some aspects of the tax code that attempt to do this, but they are greatly limited by the envy of the non-entrepreneur, who doesn't see why *he* should have to pay extra taxes because Joe Entrepreneur over here escaped paying any taxes at all because of his huge business loss. I mean, Joe took the chance and started the business, I had nothing to do with it, why should I compensate him for his dumbass decision? Et cetera.
An interesting thought experiment is to ask people who would favor taxing most of Bezos's current wealth away the following question: suppose Bezos had failed, as most start-ups fail, consuming let us say $300,000 of his and his parents' savings. Should the US taxpayer have made them whole, or partly so? Thanks for trying, guys, here's the 90% "tax" on your losses back.
And if you don't think we "own" any part of the losses, on what basis do we "own" any part of the gains? It seems likely it should be both, or neither.
"I’m still not sure about this line of thought. How is this situation? Do we think Mark Zuckerberg wouldn’t have founded Facebook, or Bill Gates Microsoft, if he could only get $1 billion? Can people really tell the difference between $10 billion and $100 billion? Has Jeff Bezos even spent $10 billion?"
I used to argue this point the way you are now, and I no longer agree with it. The counterfactual is not a world where we have complete control and can look at Jeff Bezos and magically reduce his wealth in hindsight, perfectly determine the correct level of wealth at various stages, etc. Functionally, we have to use legal mechanisms, laws, and generally applicable processes in doing this. Unintended consequences is a huge problem here, especially because the political pressure to make this happen is coming from the same sector that wants to implement real Socialism - they could potentially win in direction and in magnitude and not just direction, and then you and I both agree that we're losing something of real value.
One of the things that made Amazon so successful was that Jeff refused to pay dividends on profit and continually reinvested into the company. This was a very poor business decision for a lot of people (there's even an episode of Futurama that makes fun of this plan, referring to Amazon as a risky investment), but it was the real key to his long term success. Tell me what point in that process we should suddenly start taking away his "excess" wealth? The value of Amazon stock was going up pretty quickly, but Jeff himself and the other investors were making very little from it. This ties in with the other point about his wealth coming just from Amazon stock. Had he been concerned that hitting a certain wealth level would have gotten the federal government to take a look at his operations and confiscate the "excess" amount, then he really would have been better off sticking with the investment job he had before.
You asked about whether he could sell his stock. This is a complicated question, because you have to find a buyer. If you've followed the Elon Musk/Twitter situation, you can see some of the complications of lining up capital - for $200 billion there's essentially no way a single buyer could even try it. You hinted at a decentralized approach - many small investors. There really isn't a $200 billion pool of money waiting around for purchasing stocks like this. Unless the stock was significantly cheaper, people would have no reason to invest more money than the otherwise planned to do so in stocks, or to sell off other stocks in order to buy Amazon. If they did, we'd also have $200 billion of other stocks being sold off and all the market problems that would cause! Jeff could probably put up every stock he has for sale (assuming market rate) and may not actually sell it all for years to come. I haven't checked, but I'm sure there's lots of Amazon stock available for sale right now, yet it's not all being purchased at one time.
Jeff is stuck with Amazon stock as his wealth, for many years to come. He may not mind that, but he doesn't have a choice. Similarly, Mark Zuckerberg is stuck with Meta stock, and I'm sure he would prefer to have that money somewhere else due to how volatile Meta stock is.
Re #8: Travis Kalanick sold out of his entire 2.8-billion Uber stake without a huge effect on the price. https://www.cnbc.com/2020/02/06/travis-kalanick-left-1point2-billion-on-table-by-dumping-uber.html
He had at that point been kicked out of the CEO position, but Bezos is no longer running Amazon so it's a reasonable comparison.
I'm surprised you have such confidence in the estate tax. I've always heard it's a high-distortion low-revenue tax. People figure out ways around it. MR has covered this repeatedly, and usually folks here have more awareness of that:
https://marginalrevolution.com/?s=%22estate+tax%22
Georgist land-value taxes & consumption taxes seem sufficient to deal with idle-rich heirs.
Also, since there's so much talk of "natural monopolies", it's worth pointing out this critique of the concept:
https://mises.org/library/myth-natural-monopoly-0
But that's aiming at things like utilities rather than software companies.
"(sports are a useful sanity check here; some teams are clearly better than others - but also, two good teams that play each other ten times might get five wins each)"
Wouldn't the correct analogy be which 30 people become one of the starting quarterbacks in the NFL? The answer to that seems to be almost 100% talent/hard work, with talent being the much bigger factor.
I would not say it’s 100% talent/hard work that distinguishes the 30th starting quarterback from the would-be 31st.
maybe not, but by #60 or so no amount of luck is getting them over the threshold.
Luck is obviously a factor here too. Having parents who could take you to games (and feed you adequately). Not having a better QB on the team when you started out, so that you always played in a different position. Not being injured throughout your HS and college career for long enough to derail your path. etc. etc. etc.
I don't think Scott has been looking at the transfer market recently, or how there are perennial accusations of "buying trophies" by clubs hoovering up the best talent by paying eye-watering sums of money to sign those players.
Or how important those transfers are, e.g. "we need a top striker, pay whatever it takes to get one" by even fans themselves.
https://www.bbc.com/sport/football/gossip
Or look at FiveThirtyEight match predictions; sometimes they hold up well, other times I look at the odds they're giving and think "No, it'll be closer than that for those teams":
https://projects.fivethirtyeight.com/soccer-predictions/premier-league/
Bezos can't sell all his stock because the "stock price" of Amazon is just a convenient fiction. It's nothing more and nothing less than "the last transaction of Amazon stock was at price X", i.e., how much you'd have to pay for a single share of Amazon right now. Multiplying this by the number of shares always yields an overestimate of how much the company is actually worth. This is easy to visualize with an order book, i.e., a sorted order of potential buyers in descending order of price they're offering.
Now, for stable and boring companies, the order book is pretty flat, as pretty much everyone agrees on how much the company is worth, and in particular, there is more demand for the stock than there are units of stock. The price can still change quite dramatically (for example, shipping companies' profits respond very strongly to economic boom/bust cycles), but everyone's value for the company goes up and down in lockstep. So whatever the current stock price, that's real wealth.
Now, in contrast, consider a less certain business like the latest DeFi startup, AI lab, etc. The price of this is often driven by hype that's not shared broadly by the market. Let's say there's 1000 units of stock, and 5 people clamoring to buy it at $1000, and everyone else is only willing to buy it at $1. There's a very steep drop in the order book. The company isn't worth $1'000'000, but this fact is not immediately exposed to the world if the owner sells less than 5 shares. The owner has quite a lot of wealth on paper (and will even have to pay taxes on the inflated value!), but he's not holding much real wealth.
You see this pattern in silicon valley over and over. A company is valued extremely highly based on "potential" and "growth", even as it runs at a loss for years on end. Investors have strong incentives to keep the price propped up as long as possible, as they might be able to cash out before it all implodes. For startups not yet on the stock market, you'll often hear news of them "raising a series C round at a $1B valuation", which doesn't have to mean anything more than some sucker was willing to pay $1M for .1% of the company.
You're completely ignoring the supply side, i.e. the orders of the potential sellers. The value of a company (or any tradable item, for that matter) isn't determined by the buyers alone, but also by the sellers. Just like Bezos trying to sell all his stock would immediately tank the stock price, Bill Gates trying to buy all Amazon stock would immediately catapult the price through the roof.
Yes of course. the stock price gives an upper bound of how much you'd get if you sold the company, and a lower bound of how much you'd have to pay to buy the company. If we take a static snapshot of the order book, for each of the two situations one half of it is irrelevant.
My larger point is that nothing like a "true price" can possibly exist for a unique entity like Amazon, regardless of the legal and social fictions we've spun around the issue.
I get in general that both supply and demand determine prices, sure. But this isn’t about price, it’s about something like “total extractable value”.
I don’t get your example. If Bill Gates tried to buy all Amazon stock, yes, that would catapult the price, but that is *also* about the demand side. (Bill Gates demands to buy stock.) It seems to reinforce Vitor’s point, in fact: as long as someone is willing to pay to buy something *for long enough*, that sets the “value”.
On the supply side, I’m very willing to sell the USB key on my desk for 78 billion dollars, but that doesn’t say anything about its value, not even if someone is willing to pay me ten bucks for one of the 7.8 billion shares of it I could split it in.
Re: #2, "This isn't a moral problem" / wealth redistribution
--
The root of every problem is a moral problem. Should we redistribute 5% of billionaire wealth only to the typically, socially responsible? The West has transitioned from having approximately the same values that become increasingly bent, twisted in their application and finally tossed to recognizing any two people with similar opinions as being a minority that should be protected.
--
"The Founders [of the U.S.A.] wished to achieve a national majority concerning the fundamental rights and then prevent that majority from using its power to overturn those fundamental rights. In twentieth-century social science, however, the common good disappears and along with it the negative view of minorities. The very idea of majority—now understood to be selfish interest—is done away with in order to protect the minorities.
…
This breaks the delicate balance between majority and minority in Constitutional thought."
--Allan Bloom, Closing of the American Mind, 1987
[edit/add]-------
"Incentives are the most powerful force in the world and can get people to justify or defend almost anything. When you understand how powerful incentives can be, you stop being surprised when the world lurches from one absurdity to the next."
--Morgan Housel, Incentives: The Most Powerful Force In The World, Sep 20, 2022
I had been convinced that the power of money in politics is vastly overstated, but Bloomberg actually made me update to think it is *more* significant than I had realized. He had no natural ideological base in the party, hadn’t been running all year the way everyone else had, and the field was already saturated, and armed with nothing but money, he *still* managed to get nearly 20% of the vote on Super Tuesday! He didn’t do as well as Sanders or Biden, but he beat everyone else (though it’s a bit hard to judge because many of them dropped out a few days earlier and many Warren supporters voted strategically for Sanders).
“Neoliberal pragmatist” was occupied by Deval Patrick, Michael Bennet, John Hickenlooper, Jay Inslee, and maybe a few others. Even “Mayor of New York” was also an occupied lane in the primary, with Bill de Blasio officially in the running!
I think polling from November to February of that primary cycle made clear that none of those others was going to get 15% just by being the last one standing. Bloomberg actually created the space for this lane somehow when he entered, and his buckets of cash seem like they must have done a lot of the work. (I believe Deval Patrick had a similarly late entry and made a bit of splash among elites, but never budged in the polls.) It seems likely that Bloomberg also had a lot of staff who either knew how to *effectively* spend that cash, or knew how to figure out how, and thus his success probably represents the outer limits of what money can buy (ie, the delegates from American Samoa).
All of whom were lower profile candidates than Bloomberg. Part of that might be because of his wealth - but I think equally being Mayor of NYC is just a way more visible position than being an unknown Senator or worse.
It's strange to me that in your response to Metaphysiocrat you didn't address the other half of his point. If you don't believe that power inequality is problematic for billionaires, then why do you believe their wealth is problematic at all? As he says, raising the poverty floor is a far more important goal, unless you believe that extreme wealth leads to problematic extreme power.
Combining this with John Schilling's excellent answer, I think the type of power created by extreme wealth is actually mostly a good thing. Elon being a prime example, but there are many throughout history. If extreme wealth, as you say, does not confer extreme political power, then the primary channel through which it can be expressed is extreme consumption, or extreme innovation. Since consumption is at least somewhat self-limiting (and to the extent that it isn't, it makes the wealth disappear anyway!), it's not clear to me exactly what the problem you're attempting to solve here is.
This is the abstraction of the point raised by Schilling that you excerpted: Yes extreme wealth creates extreme power inequality...and that's a good thing. We need people with the power to act autonomously in the world in order to make progress. Is our selection process for that power perfectly fair? No. But it's pretty good. Elon2 might be 99.9% as good as Elon1, or maybe Elon2 is even 101% as good, but Elon1 got a little luckier. However, it's clear that they're both very good allocators of capital, and if we're just flipping a coin between them, we probably won't go too far astray. It's hard to imagine a better system in expectation. Keeping in mind that the purpose of an economy is not primarily moral justice, but a better functioning world for all.
Considering the counterfactual world where we were to take, say, the top 100 Elon's and allocate capital to them in perfect accordance with their quality as businessmen/innovators, how many SpaceX's would we get? I think Schilling's answer is that rather than getting 100 SpaceX's we would get 0. This seems to me to be the "hard problem of the anti-billionaire argument". In the absence of extreme pools of private capital, where do we source the extreme innovations from? Sovereign wealth funds like Norway's aren't going to do it, and even VC isn't risk hungry enough for a rocket startup.
As an aside: for the issue of billionaire's selling their stock and depressing the price, this is definitely a real thing, but it is mostly beside the point. It's true that if Bezos liquidated Amazon stock tomorrow, he would get far less than current_share_price * bezos_share_count. This is a simple function of how liquidity works in markets and is true of any very large buy or sell, not just that by an owner of the company (although owner selling may carry extra information and have even greater impact, if its known). Market makers respond to the buy/sell imbalance by shifting the midprice around which they provide liquidity. This is how the market adapts to shifts in demand. Bezos liquidating his entire portfolio would obviously be a dramatic shift in that imbalance. However, the reason this issue is mostly beside the point is that, while he wouldn't get say, $200B, he would still likely get at least $100-150B or something in that range, and the difference there is probably mostly immaterial to the substance of the issues under discussion.
The inability of wealth to express itself as power , if it exists at all, is not a natural law, but the result of culture and institutions that have evolved to stop it. IE, If we get to relaxed about billionaires, we may well.see plutocrats. Ie, suspicion of billionaires might be a feature.
One thing billionaire CEOs can do besides selling shares is borrow from the company. No capital gains tax. I believe Levine covered how this works before, unless I'm thinking of someone else.
On influence - I'm glad to see truism challenged but this understates the power of media, which shifts salience any direction billionaires want. That won't allow them to elect anyone they'd care to, but powerful distraction tactics at least.
One other reason that there isn't much money in politics is that politicians are cheap. So many of them become lackeys for anywhere between 100-300k. Why spend more when you don't have to?
I would be curious to see how Scott's intuitions would change were he to spend a little time working in business.
I was going to be snarky but then I remembered I’m not a native English speaker and I realized I didn’t actually understand what you mean. So, what do you mean by “working in business”? AFAIK Scott does have two actual businesses that he’s working in.
Substacking and private psychiatry are not the sort of businesses that I was thinking of.
Running a private medical practice seems to me comparable to any other kind of running a small business - is your argument that he doesn't have enough skin in that game because he earns so much from Substack?
Perhaps I don't know enough about his clinic. But providing medical care seems very different from the kinds of businesses being discussed.
PS I don't mean to be snarky myself, neither towards you or Scott. My intention was to remark on the extremely abstract way he was considering these questions - and to suggest that if he spent time in large or even smaller organizations, facing entropy at every turn and in a number of dimensions, seeing the constant crush of ideas meeting reality.... That his underlying intuitions and therefore his reflections, regardless of philosophical or moral stance, might change in interesting ways.
An economically rational entrepreneur isn't incentivized by becoming the next Amazon. If you look at the distribution of possible gains from starting a company, Amazon is a long tail gain (low probability of large return). The rational entrepreneur should be motivated by the the mean gain from starting a company. If we lop off the long tail with taxation or public policy, the probability weighted gain(expected return) hardly moves at all.
Now you might reply that the entrepreneur is motivated by that long tail even though it not entirely rational. And you might be right. But once you admit the entrepreneur is not rational, the foundation of the neoliberal incentives argument falls apart. (For example with irrational entrepreneurs the best public policy might just be to use advertising to deceive the entrepreneur about the size of the long tail; encouraging a lot of investment at very low cost)
I suspect you're underestimating the effect of epsilon% chance of $inf on the mean of the distribution.
Relatedly, very small probabilities of very large effects are the essence of a lot of X-risk prevention efforts.
A 99% tax on $inf still has an infinite mean. ie Public policy can't actually move the mean by taxation of the long tail in the example you provided and this will be true to varying degrees for lots of long tail distributions.
My understanding of VC space is that approximately *all* of the EV is coming from the ~ 1 in a 1000 companies that achieve valuations over $1billion, so putting high taxes on those will dramatically shift the mean -probably to a negative number, given that something like 90% of start-ups lose most or all the money invested in them.
VC funds have a different perspective because they're trying to average over many different startups. But for *an individual would-be entrepreneur*, you're basically gambling your life on a lottery ticket, and you aren't going to get many tickets (often only one!).
I don't think that is how venture capital firms work at all. They typically are aiming for an "exit". Which is to say they prefer to realize a profit by selling their shares in a few years, rather than holding a firm for the decades it takes to grow a modern Apple or Amazon.
Facebook in a millenium?
My bet is Fb in 10 years a shadow of its former self. It's already peaked. Generational turnover and surprising devopments will change its place.
As one of the "crazy" non-Facebook users (I had an account for a few months in 2006? and decided it was a waste of time) I can report that not having an account was a noticeable social issue for several years, but just hasn't mattered at all the last 8 or so.
Some of that might be life changes, but some of it is Facebook being not nearly so central to everyone's social life as it was for awhile. I agree it seems to have lost a huge amount of steam at least in the US.
What seems to be missing here is a discussion of investor behaviour. Yes, Bezos in the early 2000s is motivated by a desire to 100x the Amazon share price for his personal gain. But in order to do this, he needs money to invest in increased capacity, and Amazon is not reliably profitable enough to generate the funds he needs. The old joke that "Amazon is a charity operated by its investors for the benefit of the consumer" points to the fact that for most of Amazon's existence it was dependent on investors to fund its expansion.
If, by some law or regulation, Bezos were prevented from 100x'ing the value of his shares, that might have affected his motivation. But he also has some intrinsic motivation to run the biggest and best possible online store and infrastructure provider in the world, and so he plausibly might have continued even with a much smaller payday on offer. The same is emphatically not true of the investors who bankrolled the operation, who only did so because of the very real prospect of future share price increases.
It is hard for me to imagine a scheme which prevents individual founders from benefitting from massive increases in the value of the firms they found, while continuing to allow investors to benefit from the same. And the systemic effects of reducing returns for investors would seem to be at least as large, if not much more so, than the effects of reducing returns for founders.
It bothers me that people complain about the resources that billionaires have at their disposal but not about the resources that politicians control, which are greater by orders of magnitude. There are cities and counties, run by small groups of people, with budgets larger than Bezos. The teachers' union in my state (Maryland) can buy way more votes than any rich person.
The concentration of resources and power is greatest in government, and yet people want to take money away from billionaires and give it to. . .government.
If you feel like "This is democracy. It's ok for politicians to have power over resources, because they are accountable to me," well, go ahead and believe that. I need to be convinced. To me, the only case for democracy is that it provides a peaceful means for solving the succession problem.
"And effective altruism tried to use $10 million of Sam Bankman-Fried’s money to get a biosecurity expert elected to Congress in Oregon. They were pretty smart about it: chose a district with no incumbent, found a really amazing candidate with an incredible personal backstory, pulled out all the stops. They spent the third most of any race in the country - about as much as it was possible to spend, I don’t know what else you could even spend the money on - and they lost by a landslide in the primary."
No, they *weren't* smart about it, and here's why I think that. When I read about this, I did a little digging because, to me, it didn't seem to fit with my mental image of Oregon. Here are the results of my rigorous research (and if they want to throw good money after bad and send a few of Bankman-Fried's bucks my way for the sake of after-the-race analysis, I won't say no).
(1) The 6th district is new, being carved out of existing Districts 1, 3 and 5. These are all reliably blue, having returned Democrats in the last election, So it's not unreasonable to think they'll return a Democrat this time round, too.
(2) But is it reasonable to think they'll select Carrick Flynn instead of one of his rivals?
(3) So who are the likely voters, and what are their likely interests, and who are the rivals? When I saw one of them was well tied-in with the union, I said to myself "Yep, that's the one".
(4) Okay, what is the economy of the district (and it's nearly always the economy, stupid) so as to see the interests of the voters (not the EA people who think biosecurity is aces and everyone should think it is aces, too) and what they are likely to be concerned about and how they'll vote.
https://oregoncapitalchronicle.com/2021/12/21/oregons-new-congressional-district-has-a-diversity-that-likely-limits-a-lean-too-far-one-direction/
"The new 6th Congressional District will run from southwest Portland with a slice of Washington County, south through Yamhill, and include the Salem area. The new 6th, then (somewhat like the 5th), will include three distinct pieces: The Portland metro piece (on the southwest side, including Tigard, Tualatin and Sherwood); Yamhill and Polk counties, which include rural areas and small and mid-sized cities, and the Salem area, a mid-sized urban area with an identity distinct from the other two.
Most of the land area will be in Yamhill and Polk counties, but more than two-thirds of the votes will come from urbanized Washington and Marion.
This is a geographically coherent area (Highway 99 runs like a string through the middle of most of it, except Salem) but most people here probably won’t think it fits together.
The northern reach near Portland, where almost half of the people live, think of themselves as Portland metro people and may be a little discomfited jostled in with those non-urbanites. This suburban area touching on southwest Portland, including much of southeastern Washington County, will include more than a third of the district’s voters, but well shy of half, not enough to control election decisions outright. A candidate still would need to pick up additional support in other areas to win.
The cities of Salem and Keizer together have about 218,000 people, just under a third of the new congressional district, which is less than the Portland metro section but enough to provide an essential difference in the vote totals.
And the Yamhill County and most of Polk County see themselves as separate from either Portland or Salem. Yamhill and Polk together have almost 200,000 people, but about 25,000 of those Polk people are in West Salem. Small town Polk and Yamhill make up about a quarter of the new district.
These are three distinct constituencies, and all have enough people that a candidate will ignore any of them at their peril."
So there's a mix of college towns/urban sophisticates (ahem) and rural/small towns out in the boonies. Assuming the college towns will vote for Flynn (because he's been off to college and the Big City too, and the issues he is pushing are more likely to match with what they are interested in), will that be enough?
No. He has to appeal to the people of the "hills and hollows", and although he comes from that background, he's long enough gone for it not to count. Even if people are sympathetic or like him, he's not really a native anymore, while his rivals have stayed behind, lived there, and established track records in politics there.
So the EA campaign was dumb because:
(1) too much "Portland metro" mindset. They assumed that because Flynn was running on an issue that they think is Big Important, the voters will also think it is Big Important. Bad assumption.
(2) they should have, but plainly did not, anticipate the fuel for attack ads that the outside investment would provide. Flynn's party rivals jumped *hard* on "why are these outsiders interfering in Oregon local politics?" and this permitted them to portray him as the tool for people who had no ties to the area to use him and it for their own interests:
https://www.wweek.com/news/2022/05/04/the-6th-district-food-chain-how-crypto-swallowed-the-race-for-a-new-congressional-seat/
"Jon Isaacs, who was Sen. Jeff Merkley’s campaign manager on his first run for the Senate and is currently organizing an independent expenditure for Portland City Council races, says there’s “no comparison” between the campaigns he ran and the one he sees for Flynn. (Isaacs has given to Salinas.)
“Carrick Flynn could be anyone,” Isaacs says. “He has no campaign of his own. He has no record of community involvement. There is one person who appears to have little to no interest in Oregon, and he’s picked [Flynn] and he’s going to spend what it takes to get this person elected.”
(3) this was symptomatic of their misunderstanding of how politics works - the eventual winner who beat Flynn, Andrea Salinas, was involved in the creation of the new district. "Mr. Smith Goes To Washington" is a great movie, but it's a movie, not real life.
"State Rep. Andrea Salinas (D-Lake Oswego), who had served in the state Capitol for six years after first working as a lobbyist, led the effort to draw the new maps for Oregon’s six congressional districts. (She chaired the special committee in the Oregon House.) By Oct. 5, eight days after the Legislature approved those boundaries, Salinas was seeking the seat for the 6th District—some of which overlaps her legislative district. Her own home was not inside the new district’s borders.
...Salinas won the endorsements of key Democratic interest groups (the Oregon League of Conservation Voters, Planned Parenthood, Service Employees International Union) and has raised $520,000."
(4) this was also symptomatic of their misunderstanding of how campaigns work (and a lot of this is on Flynn himself, since he was the one running for office, after all) - local issues, local issues, local issues. What do the loggers, forestry workers, viticulture workers, the people in the rural and small town areas *want*? Flynn versus Salinas was "Vote for me and I'll head off to Congress to work on some airy-fairy project none of you have ever heard of" versus "Vote for me and I'll work for more money in your pay packet (and also your union is backing me)". Gosh, I wonder who the guy who works in the local feed store is going to vote for?
I'm a representative of the typical idiot in the street, and I'm here to say that to win elections, you have to bring issues down to the level of the idiot in the street. "How does this affect me? How does it harm/benefit me?"
Flynn may have had a point about biosecurity, but he didn't bring it down to the level of "how does this affect me?" He should have run on "Remember the Covid restrictions, when you couldn't hold your wedding or go visit your dying grandma in the hospital? I'm going to work so this doesn't happen again, and here's how".
The mistakes EA made were thinking the issues they are concerned with are issues ordinary people are concerned with, that throwing huge amounts of money at it will win the campaign, and that their candidate would appeal to the normies because, uh, he comes from a normie background himself even if he did pull himself up by his bootstraps. It's the same mistakes as Hillary Clinton's Big Data driven campaign made. It wasn't smart, it was dumb.
I think that really showed Flynn's inexperience, and of course, that must have affected voters' confidence. If the guy can't handle home-town political shenanigans, how on earth is he going to handle Congress, where he will be one new fish in a big pond?
He even managed to get an environmentalist group mad at him, which took some doing, as that's the kind of (excuse me for this) hippy-dippy stuff that his natural constituency (and the EA backers) would be well into, so he probably managed to cheese off that section of putative supporters as well - and even if he didn't exactly say what was alleged, rivals made political hay out of it.
https://www.wweek.com/news/state/2022/05/01/environmental-groups-condemn-congressional-candidate-carrick-flynns-comments-on-spotted-owls-timber-unity/
Irish politics has probably made me very cynical, but "fresh-faced idealistic candidate gets elected" only works in the movies. In real life, either Fresh has a ton of local connections in the party etc. (like Salinas with the union backing) working behind the scenes to get him elected, or he gets eaten alive even by those in his own party (as Flynn did).
You have to admire the lovely job the rival camp did, though; Flynn tries to show he's connected with the local working guys as voters, and the opposition gets to tie him in to the "6th January insurrection". One of the five groups just so happens to be a union (PCUN) that totally coincidentally backed Andrea Salinas as their endorsed candidate, and she just so happens to come from a strong union-connected family. *This* is how politics works, nice EA people! Knowing how to wrassle with the pig (even if pig-wrassling is undignified and gets you spattered with muck), not throwing heaps of money at the campaign (of course you are going to need heaps of money to run the campaign, but money alone ain't gonna win it for you)>
“As organizations who have been fighting for decades to uphold the strong environmental values held by the people of Oregon, we are stunned and deeply saddened to hear Carrick Flynn, a Democratic candidate running for Congress, make comments mocking critical environmental protections, sympathizing with a far-right group that has ties to the Jan. 6 insurrection, and referring to our state’s iconic land use system as ‘insane,’” says the statement released by Oregon League of Conservation Voters, Oregon Wild Conservation Leaders Fund, Pineros y Campesinos Unidos del Noroeste (PCUN), Renew Oregon Action Fund. and RiverPAC of Oregon.
I've personally voted for candidates before just due to seeing a flood of PAC-funded ads attacking them.
The bottom line is that money is important in politics, but you can't substitute it for time, effort, and domain expertise, especially if you concentrate it on a particular candidate. Dumb as it may be, our system is geographical, so a one-issue candidate won't work. Flynn was a terrible choice, no political experience, no apparent interest in politics before this election, and SBF tried to catapult him straight into Congress. And what for? To get one of "us" in Congress? It would have been basically symbolic; one vote doesn't get you any meaningful legislation.
That money would have been far better spent on campaign donations and lobbying efforts for lots of other more experienced candidates with their own backing and roots in their districts, to get them to put more attention on pandemic prevention.
That's why I say this was dumb, not smart. The idea is lovely, but it's all pure sitting at your desk theory. Biosecurity is a Big Important Thing, but outside of your bubble of "people who go to EA conferences hosted at universities", what does that mean to Joe and Jane Citizen?
Carrick Flynn seemed like a good choice: he grew up poor there, he was a local, not somebody parachuted in from outside.
Except for all intents and purposes, he *was* parachuted in from outside. He had moved away and didn't have local community connections. And he was running against people tied in to the local government scene, with union connections, and experience serving in office. He ran on a message that screamed "I want to be a statesman", and ordinary people get to know that politicians who want to be statesmen can't be bothered with helping their constituents because that is local, parish pump politics, and they want To Serve The Nation or something.
Flynn wasn't able to tie his message into local interests. It was all "vote for me and I'll feck off to Washington and work on shit there". And would that get me, the Oregon District 6 forestry worker or daycare assistant more money in my pay packet? Eh, no, but it would be Very Very Important Work on Flynn's C.V.
You can't do top-down like this, you have to build up from the grassroots, and the big mistake here was "WE are all excited about this thing" and not "can we make the voters of District 6 excited about this thing?"
EDIT: I mean this seriously, the major problem here is that EA individuals are too smart to be able to think like ordinary people and the concerns of ordinary people. If you are thrilled at the notion of technocratic solutions and a society run by technocrats, then you are going to bump up *hard* against reality when the plain people who go into the voting booths pick someone different from the candidate you want.
The biggest mistake was wanting to Win An Election, when they should have been trying to build connections and influence policy.
I’m interested in that argument about the John Stewarts of the world being more politically powerful than the billionaires.
It makes some sense. If a class of people were truly politically powerful, wouldn’t that manifest in part as the ability to divert people’s critical energy elsewhere? That is one of the key skills of a good politician.
Hence the partisan rancor over “the Hollywood elite” vs “the 1%.”
A useful heuristic might be “if they’re accusing some other group of being too politically powerful, they are probably about equally powerful.”
Groups that are truly disempowered seem to go into survival mode, trying to figure out how to get by and accept or join the powers that be.
Scott I think the issue here is that the EA attempt to get a Congressman was actually a shit job. They did terrible. I would go so far as to say that they did a Bernie 2020 presidential campaign level terrible job. And that is a pretty damning comparison because, and I say this as a dedicated Bernie 2016 supporter who even went to Iowa in 2020 for him, that campaign was horrifically bad.
The EA guys had no idea what they were doing. Firstly the race didn't have an incumbent but it did have a much more "in line with the constituents" existing candidate. Secondly when you want to create attention for a specific issue you do very different things than what you'd do to actually win.
The EA candidate was viscerally offputting and so was the campaign strategy.
What you'd want to do if you were serious about winning an election is to keep your pet issue as a moderate part of a campaign based on 9-14 other popular issues.
This is why people like Thiel pick a candidate who is on track with the other major issues in the Republican party but who has agreed to follow their direction on the pet issue that most voters aren't even thinking about.
Also a large part of the power than leftists believe wealthy capitalists wield is not about acute instant spending to achieve a goal but long term spending and media manipulation and lobbying existing congresspeople and slowly insinuating themselves into the political eco system.
Like Donald Trump. Trump donated heavily to both sides including famously the Clintons. He was in the social circles of NY and federal politicians. He was all over the media.
In fact when Sanders taught at Harvard as a guest lecturuer in the 80s he gave a famous lecture about the wealthy.
"The national and NYC media spent more time on _____ than on 3 billion people living in poverty. And that was before the divorce!"
Blank is obviously Trump if it wasn't obvious in context and based on the divorce part.
Also typically you would run more than 1 candidate. Run 10 candidates in primaries and hopefully one gets in. And if you end up with extras who get in, that is a win/win. Look at the strategy that the AOC associated movement uses. They ran lots of people besides her.
> How much actual spending power does Jeff Bezos have access to?
Tens of billions of dollars. (Citation below).
> Some people say that if he sold all his stock at once, it would go down a lot. But why?
It would, but I think this is a red herring. Bezos would not do that; he would just sell "small" chunks for a few $B at a time.
https://markets.businessinsider.com/news/stocks/elon-musk-jeff-bezos-tesla-amazon-stock-sales-insider-ceos-record-2021-12
It's widely reported when Bezos sells a chunk of stock. For example he sold ~$10B in 2020 (I think in 3 or so tranches), a year when the stock price appreciated by something like 76%. Sure, that put some downward pressure on the stock price, but so what? It still went up by 76% YoY. As others have noted, if he tried to liquidate his entire position, this would probably tank the price. But that action would be insane and no "paper billionaire" would do that (absent some urgent need for huge amounts of cash), so we don't need to model it. What actually happens is that they sell a "small" chunk at a time, which allows them to cash out without moving the price too much.
Another dynamic that is a bit obscure is that if you are Musk, you can take out a bank loan, collateralized by your TSLA stock. In 2019 he had something like $0.5B of such loans (https://financialpost.com/personal-finance/high-net-worth/elon-musk-short-on-cash-keeps-borrowing-more-and-more-money-even-as-tesla-stock-surges). Sure, you pay interest, but 1) your stock is going up faster than the interest accrues, and 2) you'd probably prefer to pay 6% interest on a loan even if your stock only appreciates at 6%, because then you still control the voting rights associated with the stock. But 2) is extremely theoretical; if you are a paper billionaire, then almost by definition you hold lots of stock in a hyper-growth company - remember that these companies are growing at 20-30% YoY or higher, sustained for a decade or more. (https://www.macrotrends.net/stocks/charts/TSLA/tesla/stock-price-history). Normal intuitions about the rate of growth of wealth do not apply here.
If you want to take a look at the mechanics of what happens when a multi-billionaire needs, say $44B to buy something, you can look at Musk's acquisition of Twitter. That was some syndicated debt (persuading bankers to invest), some cash from Musk's account, and some bank loans to Musk backed by TSLA shares. E.g. see https://www.theverge.com/2022/4/22/23036479/elon-musk-twitter-bid-private-equity.
> You're approaching the question from entirely the wrong angle. This isn't a moral problem; it's an engineering problem: What kind of rewards need to be offered to founders and investors in order for them to bother innovating and founding new companies? The answer has been worked out many times before--every time a company is started. It isn't fundamentally different, nor more or less just, than the way that the wages of janitors vs. engineers vs. blog authors is worked out. It's just more complicated.
I think this puts too much certainty on what founders have "worked out" when they start a company. And it misses a point about the long-tail of the distribution of outcomes.
As a founder you're doing some calculation of EV on your shares. But it's a really hard calculation to do; is my chance of becoming a unicorn 0.1%? Or 0.01%? Hard to model, and makes a huge difference in the EV.
Most of your EV is in the "we sell the company for $10M-$1B" range. While it's possible you'll found an AMZN and get a $1T company, I don't think any founder is putting much weight on that outcome when they start the company and commit to the hard work.
Frankly, these days if you're concerned about EV you go to FAANG, because the EV is way higher there (and with immediate liquidity and much lower variance, too). This might make us worried about reducing the EV of founding a company by taxing multi-billionaires. But since almost all of the EV is in the "I get < $100m" range, I'm not convinced that taxing billionaires actually affects founder motivation much.
I think the data from VCs is actually that a lot of the EV comes from the >1Bil range - Making a successful company is *really hard*, but if you can make a $100mil company, you've probably got better than 10% odds to grow it past $1Bil
I think that's true for VCs, but I don't think the numbers work out the same for founders.
If you're a VC investing in a Series B company, you might put in $20M at $100M post-money valuation. To keep things simple let's say you don't have a preference stack and it's a 1x multiple. So if the company sells for $100M a few years down the line, the VC will get their $20M back and write that off as a loss (you got back your principal but didn't return any yield to the fund), but for the employees that's a $50M or more pot to divide up. The founders could be taking home $10-20M (pre-tax). The preference stack multiple structure means that the founders are disincentivized to do an acquisition at _less_ than the last round, since the VC gets back 1x their initial investment before the employees get a penny. So you'd expect to see companies tend to go all-in on "growth or death" rather than sell for less than their last round.
I think that startup exit valuations are bimodal; when I last looked at the numbers, lots of acquisitions happen in the $10M-$100M OOM, then when you get into the $250M+ range, acquirers start to dry up, and you start looking for an IPO as an exit. (This might be a bit out of date now that we have $T companies that can easily afford $20B acquisitions; I last looked into this in detail around 2015-2017. Still I think this dynamic means there are only a few buyers at a company size of say $500M, where there are many buyers at $50M.)
So I think that whole branch of the probability tree where a VC marks the investment down as a failure that "only" returns the principal, is still immensely profitable for the founders that got their equity for ~free.
Anyway I think this bears a detailed quantitative analysis, and I don't have hard numbers, so I fully acknowledge I have low certainty on this claim. I did a bit of digging and couldn't come up with anything conclusive. (Interested in anything that you or others have to quantify this further.)
"Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium, will people still say 'Yes, but once in elden days upon Earth-That-Was there was a site called MySpace which was on top for about two years and then Facebook beat it, so it’s not a natural monopoly! We could still get a replacement at any time!'”
I think we'd still have people saying Facebook could be replaced, but they'd stop mentioning Friendster and MySpace at all. Instead by then Facebook-3022 would be so deeply embedded in our infrastructure and society that imagining its fall would be more like the end of a great empire or religion. The comparisons might be the fall of Rome, or the rise of Christianity, things that happened despite seeming so unlikely beforehand. Or the end of the greatest Chinese dynasties, which even at their height knew they weren't eternal ("The empire divided, longs to unite, united, longs to divide.").
Nobody else came up with the controversial (made fun of by the media at the time) idea of an internet bookstore. Nobody else figured out that if they could build the software, systems and logistical stack to handle 5M ISBNs that they could handle a 100M SKUs. Nobody else figured out that bad news about an internet bookstore hurting brick&mortar would be good for business.
Bezos wasn’t replaceable. We’d still be shopping in the 90s.
> The majority of Bezos's wealth is essentially from gambling on Amazon stock.
I don't think this is the right lens.
You can claim that the counterfactual was for Bezos to sell all his shares and cash out at a "mere" $200m in 1997, and so by keeping the stock he's effectively buying and holding at that price. But in that counterfactual world Bezos isn't CEO in 1998, and therefore (I strongly believe) Amazon isn't a $1T company in 2020.
As a CEO, you simply can't sell all your shares and keep your job; it's your job to be long on the company. Your board would kick you to the curb if you sold most of your shares; the expectation is that you hold those shares to align yourself with the shareholders' incentives, which is maximizing the long-term value of the company (at least, long-term share price is the goal for a growth company; the dynamics are perhaps arguably more short-term for dividend-bearing value companies).
Indeed, Bezos started steadily selling small chunks after the IPO: https://www.forbes.com/sites/rachelsandler/2021/06/24/heres-how-much-money-jeff-bezos-has-reaped-from-selling-amazon-stock/ -- as a simple example if you sell 1% of your holding per year then the total number of shares sold per year decreases, but for Amazon, the price of each year's sale increases.
> In all, Bezos’s Amazon stake has dwindled from 42% in 1997 to 10% after his sales this year
In summary, Bezos's wealth came from signing up for a deal where he was heavily incentivized to maximize the value of the company and therefore his shares, and then he spent most of his professional life dedicated to that mission. You can't separate the founder's dedication to the job from that crazy financial bet on being long their company even after it's worth $1B; it's the same thing, and I believe it's why the best founders are so impactful.
> I think Bezos should be rewarded for being so bold.
One important thing to note is that to the extent you think that Bezos (and his ilk) just gambled and got lucky, you also should not care about taxes disincentivizing founder innovation. I agree Bezos should be rewarded, but I'm more interested in rewarding him for being one of the best CEOs of our generation, and for having the vision to stick to his mission for so long, rather than just for making a bold financial bet. I struggle to see much impact on innovation by heavily taxing someone that wins $10B in a bet.
> If a truck driver with some extra cash had decided to spend it on Amazon shares in 1995, he would be a multi-billionaire now.
Scott, I think you might be off by an order of magnitude here; if there's a 1000x increase in stock price since the IPO, you need to invest $1M to become a billionaire. I think a risk-tolerant truck driver would need 10x the yield to become a billionaire; I think a plausible blue-collar "all in" bet is on the order of $100k, and coming up with $1M seems a stretch. You need to get your hands on Amazon stock before the company is public in order to get these kind of gains as a non-rich person, which in practice means being an early employee.
I think there is a different reason why the comment about Bezos's wealth coming from gambling on Amazon stock is completely off. It just shifts the question from "why is Bezos rich" to "why is Amazon rich". The claim is that part of Amazon's success is due of a natural monopoly, regardless of who owns Amazon.
"maybe Saudi Arabia would capture the majority of value in the world"
this fundamentally misunderstands the nature of value and the conditions that make it possible for two people to trade.
#5: Basically the issue with the railways is that they set the shipping rates for everything in the country, unlike now where we have a government-owned highway system and thousands of trucking companies ranging from huge fleets to "guy with a semi." If you were growing wheat in North Dakota, cotton in Alabama, or some other commodity crop destined for a far-away wholesale market, you were stuck paying whatever shipping rate the rail company told you to pay, and they had no incentive not to squeeze you as far as they could as long as you just barely stayed in business. In many cases the railroads owned the mills and the bakeries and the textile mills too, so you were basically growing a crop with nobody else to sell it to and stuck just taking a price. By 1900 or so the farmers were starting to band together into coops so that they could all negotiate together with the rail companies as a unit, but obviously you had to coordinate huge numbers of isolated rural landowners to get a movement like this to work (this is where the Grange came from - once a big political power in the US).
Re. this:
<QUOTE>
The strongest force in the universe is leftists’ tendency to spot that some part of business can potentially benefit from something other than pure grit and talent and say “Aha! So all the rightists who say it’s 100% pure merit ability are wrong and therefore it’s 100% pure privilege and luck, zero way ability can ever possibly matter”
But the second strongest force in the universe is rightists’ willingness to spot that some part of business can potentially benefit from something beyond pure random dumb luck and say “Aha! So all the leftists who say it’s 100% luck are wrong and it must be 100% merit!”
Come on! It’s obviously a combination of talent and luck!
</QUOTE remark="why is substack's comment markup still so primitive?">
I've commented on this phenomenon before, but...
Humans don't naturally have the ability to suppose that an effect has more than one cause, or that a statement like "The rich got rich on their own merits" can be anything other than entirely true or entirely false. Many can say "Some X are Y" or "Not all X are Y", but most drop even these non-quantitative "quantifiers" when they combine two claims to make a deduction. "All of the rich got rich partly by luck" + "all wealth gotten by luck is unearned" => "None of the rich earned any of their wealth."
This may be because these are linguistic statements, and language is barely innate, having been only recently tacked onto human thought processes. When it comes to inference made by combining linguistic expressions, only people with mathematical training are even aware of possibilities in-between True and False.
This seems to people with mathematical training to be an outrageous claim. But keep your eye out for people dropping quantifiers, and rounding off "some" to "all", "not all" to "none", "probably" to "P = 1", and "maybe not" to "P=0", and you'll see this is the default human behavior, in reasoning if not in .
Plato and Aristotle excluded all statements that weren't both universally quantified, and either absolutely True or absolutely False, from philosophy, delegating them to the wastebin of "mere opinion". But we don't do this just because of Plato and Aristotle. Most people in most cultures have done this throughout history, and the most-prominent exceptions are ones like Buddhism and post-modernism that just throw up their hands and say that you can't say anything: "it is inept to say is, or is not, or both is and is not, or neither is nor is not".
As a first few thousand Microsoft guy, options had made me a few million by my mid thirties/ten year point.
Like most people I know I diversified into newer startups, I binged on cars, homes, schools, so a decade later I was wondering how I’d cover college fees.
You have to respect those people who stay loyal to their twenty-something vision. But I treasure the career I have now where all I care about is my 50 -something vision, and don’t care less about whether it nets me a Ferrari.
> To the extent you're providing better value than all the other competitors who come along over the years, you should reap proportionate rewards.
I think this is an area where first-principles discourse becomes a bit hand-wavy, and you need to actually look at 1) empirical economics theory, 2) antitrust enforcement cases.
For example, FTC vs. Facebook: https://www.ftc.gov/legal-library/browse/cases-proceedings/191-0134-facebook-inc-ftc-v
With the famous quote from Zuck:
> One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”
Followed forty-five minutes later (presumably after his GC called him and reminded him that all these emails would be in court some day):
> I didn’t mean to imply that we’d be buying them to prevent them from competing with us in any way
Facebook is IMO clearly anti-competitive; they deeply understand how network effects function and have bought up competitors with the explicit goal of preventing them from becoming threats.
An interesting question with Facebook is, what if there were no other "social mechanics" and therefore they didn't need to do anti-competitive things like buy potential competitors, and they just acquired the natural monopoly through network effects. Then I think you need to fall back to a classical antitrust analysis to determine if they are mis-using this natural monopoly.
I think in practice, lots of the extremely big companies do have monopoly power in some area (or at least anticompetitive practices), and the big questions are whether monopoly is inherently bad (see Milton Friedman) and whether we should discourage monopolies that benefit consumers (see Ben Thompson on Aggregation Theory).
One of the nice things about focusing the discussion practically on antitrust is that by construction it doesn't affect any but the very largest companies, and indeed keeping markets competitive is good news for future founders (though it does depress the market for acquisitions somewhat by removing e.g. Facebook as a potential buyer of Instagram). Making markets more competitive means it's easier to start something new and grow it. So Zuck might "only" have $1B in the bank if Facebook was prevented from buying up future threats, but that's still a nice reward for adding a bunch of value to peoples' lives. And it means that instead of Zuck going from $1B to $100B, there is room for a bunch of other people to come in and grow their ideas to $1B too. And if Zuck can out-compete everyone in a well-regulated and fully-competitive market, then maybe he did earn that $100B fair and square.
It's a lot harder to become a multi-billionaire if you can't monopolize something; Thiel's "competition is for losers" is worth noting.
> For example, at the limit, if Amazon is strictly 0.001% better than its competitor (eg they’re exactly identical otherwise, but Amazon’s goods each cost one cent less), then it might end up with 100% of the market share... I realize this example is unrealistic but hopefully it shows what I mean by “value added” vs. “value needed to attain/maintain a natural monopoly”.
I think the key thing here is that you can come along later and try to analyze whether Amazon is extracting rent; if it is, they are misusing their monopoly power. If it is not, perhaps they are simply using a natural monopoly to benefit the consumer (economy of scale being passed on as lower prices, say). But it's hard to detect ex ante.
Before proposing something completely novel like a Georgist Idea Value Tax, I'd be interested to consider a deep-dive comparison between the EU and US systems of antitrust, as they have quite different philosophies. How many billionaires get minted in the EU vs. US? How many of those are from arguably-monopolistic companies? Does the EU's strong antitrust regime mostly resolve the problem of anti-competitive rent-seeking that we're hypothesizing here with US companies? Is the "we got here first" rent that Scott originally described _just_ monopoly rent, or is there some other component?
And where is the European Amazon (or Tesla, or Google, or Facebook).
If you want policies that make it more difficult for founders to become billionaires, then every other Western country has them. If you think such policies don’t disincentivize innovation, where are the European tech giants?
> If you think such policies don’t disincentivize innovation, where are the European tech giants?
I agree with you that one thing to be weighed in this discussion is the value of innovation. (Another is the value of competition.) However I am not convinced that “number of tech giants” is the right metric.
You could have lots of small/medium sized companies each innovating heavily in their core areas, without having any gigantic companies.
To be clear I don’t think this is what we have right now, I agree the US tech companies are doing more innovation.
But they are also crowding out competition in their own way (it would be quite hard to start an innovative ad company or social network in the EU right now, for example).
Fair enough, but the difference in dynamism is obvious. The USA is currently about 50% wealthier than Western Europe in terms of GDP per capita, and the gap is growing (Data Source: Our World in Data). You (generic you, not you specifically) might think that Western Europe is rich enough, and the difference in wealth and growth is a price worth paying for a kinder, gentler society or whatever, but lets not pretend that the cost doesn't exist.
I think that is perhaps an oversimplification though; if you look at recent history, there are a number of points where DE, UK have surpassed the US on GDPPC. (And I think picking a couple "best EU countries" to aim for is more appropriate than some average across all Western European countries since there is a massive difference between, say, DE and IT).
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2021&locations=US-DE-GB-FR-SE-IT&start=1960
The recent clear divergence started in 2008 and is primarily due to the mis-placed austerity measures undertaken in Europe, combined with the painful unwinding of bad debts from the Eurozone core (DE) to the less-stable periphery (IT, GR, etc).
If you remove the post-2008 results I think there is a much less compelling story that the US is substantially "more dynamic" than DE, for example: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2008&locations=US-DE&start=1960&end=2008. Though I don't deny it's still substantially ahead for many stretches, I think picking a single point in time (now) as you have, over-emphasizes the difference in economic performance, and when you average over a longer period you'll get much less-pronounced differences.
And if you think the post-2008 results are an example of that dynamism, then I think we're talking about different things; I don't think the post-2008 results tell us anything about anti-trust, or innovation, or billionaires -- they more underscore the monetary vulnerability of the Eurozone countries.
This is an endlessly fascinating post. E.g., #3 is simultaneously obvious and deep. The idea that anyone could have invested and become fabulously rich is quite compelling. It's not a perfect argument for not regulating billionaires: surely, the warehouse worker with $30K has probably about $0 left for investing, not to mention the know-how, etc. But that seems to be a minor issue.
Re #7:
Numerical work (that makes intuitive sense) shows that to become enormously wealthy, you need a tremendous amount of luck, and *enough* ability to take advantage of it:
https://arxiv.org/abs/1802.07068v2
How much is enough? Probably not all that much. Is Bezos really one-in-a-million? Probably no more than top 1%. A few people in my college circle were reasonably competent tech people and were in the right place at the right time to be on the ground floor of something that blew up. I know much more talented people that do just fine but didn't hit that jackpot. So, take that for whatever anecdotes are worth.
As noted in the post, Bezos left a lucrative job at finance firm DE Shaw (which was recognized at the time - even if not at all today - as one of the 'places to be' for the very smartest technical people; so this is not just hindsight speaking). I know many people who went there about then and generally IMO they were often well and truly 1% brilliant (PhD's from the very top schools [the sort of people who had to think: do I take the DE Shaw offer, or the MIT tenure track position?], though I recognize this alone isn't enough to prove my 1%+ assertion. But it's the only objective statement I can make). So I'm guessing Bezos had that 1% or 0.1% intelligence AND something else rare besides. After all, not many of his DE Shaw colleagues would join him even after being urged to. And I think it's fairly well known that even at the start he had a definite long-term "vision" - of which selling books on-line was merely a logical first step. (Anyone who thinks that that selling books is what he did, but he 'lucked into' general on-line sales as the opportunity hit him in the face is just wrong.)
I don't know if that combination of intelligence, drive, vison, and willingness to sacrifice the near certainty of a good and quite rich life (by staying at DE Shaw, or using his intelligence in other traditional ways) is 1 in a million, but surely it's rarer than 1%. Though I'd guess that if it were actually quantifiable, it would be way way rarer than 1 in a million.
personally I think one-in-a-million is probably underselling it. But if it isn't, it's close. 1%? Have you _met_ people? 1% of people is like the cutoff for "people who regularly read books".
I have no interest in debating Bezos in particular, I know nothing about him. I'll just point out on whatever scale of ability we're talking about, we're up in the exponential tail, the real differences between 1% and 0.1% and 0.001% get pretty small. Let's see, top 1% in IQ is 135, top 0.1% is about 146.
To quote the paper "People with a medium-high talent result to be, on average, more
successful than people with low or medium-low talent, but very often the most successful individual is a moderately gifted agent and only rarely the most talented one."
I might ask, have you _met_ rich people? Granted titans of tech in particular probably skew higher than a random billionaire.
I have met a few rich people; I used to work at Amazon and interacted with some of the VPs and SVPs there (although not Bezos himself. But I did perceive his influence on these people, I think). I personally believe these people are fantastically more competent than most people I have met in my life, including leaders at other jobs I've had since. It's not even close. Like: multipliers of 1000x in capability compared to an average leader at an average company.
But that's my personal opinion. It's not inconsistent with the idea that in most cases 'success' comes from some healthy mix of luck and talent.
I think that you're committing a fallacy in using the IQ numbers, by the way. IQ has already normalized people's real performance to be normal, so undoing it by definition recovers the 'actual distribution' in performance, whatever that is... without telling you a single thing about it. As above, my hunch is that the absolute changes in IQ (or other normalized measures of aptitude) translate to exponential increases in real-world efficacy.
I will try not to be too negative, but something about Scott's perspective just rubs me wrong.
I guess I just don’t see the harm in people getting rich by enriching the lives of billions of people. And yes, that is how I view what Bezos and team have done with building the greatest on$line shopping mall in the known history of the universe. This was a huge achievement and I am grateful they did it and wish them well for their much deserved fortune.
Bezos is a billionaire because he entered a structured market competition with some interesting ideas, and he navigated his way from a risky startup to a system that has made a difference in our lives. At each step of the way, on a daily basis, he risked his time, investment, effort and creativity to try to make the world better for us. Good for us, good for him, good for his employees (I know some of these).
We need more Bezos, and I am not concerned about trying to nickel and dime him to discover what the minimum amount would have been to get him to make something just as great. It’s like worrying about giving Einstein too much credit for his theories (sucking up excessive amounts of scarce scientific credit).
The problem with the world isn’t people like Bezos (or Einstein, or even Scott for that matter) getting ahead by improving the world in positive sum, win win terms. The problem is with all the people who are making themselves rich while making the world worse for others (zero summers?)
Thank you Jeff, keep the change.
>I’m not claiming I am sure Facebook is a natural monopoly. But surely we should be updating our chance of this a little for each year that goes by without it being replaced.
Facebook *has been' replaced. As far as I can tell, it hasn't been hip or cool for over 5 years now. First came snapchat, then instagram, and now tik tok (yes, I know facebook bought the first two, but there's no reason it had to go that way). There is also twitter. But as far as I can tell, facebook is more or less on the way to being dead.
-Facebook did not buy snapchat.
-Snapchat is losing vast sums of money.
-Facebook buying intagram IS relevant, because having enough money to buy out competition is precisely part of how monopolies are maintained. Zuckerberg literally said:
"One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”
- Facebook is far from dead - it was the 10th most profitable company in America last year and still had a revenue around 22 times greater than TikTok
Which is not to say facebook is a monopoly, but it doesn't really have to be 'cool' to maintain market dominance
My bad, I misremembered the "Facebook bought snapchat" story. But steelmanning myself, the general point stands - facebook is not a natural monopoly, and facebook has been replaced among what used to be an important demographic for it. It faces significant competition from outsiders like TikTok and Telegram, but also from non-outsiders like Apple, Twitter, Substack and Tinder. At the moment, facebook is still better at selling ads than the competition. If facebook survives, it will be because it manages to acquire the correct companies and integrate them in a way that makes sense - if it doesn't make the correct choices, it will die like myspace.
> Has any billionaire ever tried something like this, so people could see the results?
Are you *trying* to goad Elon Musk into doing this.
This all boils down to the unjust power of monopoly in the end. The way to prevent monopolies from devouring all surplus value is (as Georgists say) to tax away the economic rent to which the monopoly owner contributes nothing. Doing so is more straightforward (although still complicated) with natural resources where it is feasible to estimate the value of the economic rent (like land and spectrum), but it quickly gets more challenging when you try to apply it to other categories like online retailers and digital video game distributors.
The solution to this problem of estimating the value of economic rent is, once again, to let the market figure it out for you. This can be accomplished by imposing a Harberger tax, which requires the owner of a monopolized resource to self-assess its value and then pay taxes based on that self-assessed amount. The owner must also sell their monopoly rights to anyone who offers to pay this self-assessed price, which is how they are compelled to make accurate assessments. This system effectively does away with monopolies by transforming ownership into something more like a lease of a public good.
To me, this seems like an elegant solution that cuts right to the heart of the matter while resolving some of the implementation difficulties of other approaches, as well as making the concept of a rent obliteration tax cross-applicable to virtually any type of monopoly.
I'd recommend this paper for further reading on Harberger taxes
https://academic.oup.com/jla/article/9/1/51/3572441.
Rent seeking delenda est.
John Schilling's comment was excellent, and I think deserves some more attention.
Concentration of wealth in one insightful person certainly does seem to result in far more innovative leaps than when it is done by collections of peoples (i.e. corporations or govt).
Well, yeah. Any really big-leap innovative idea is going to seem like nonsense or insanity to most people -- that's what makes it a big leap. So if a committee responsive to majority opinion votes on it, which is what happens in a big company, or even more so the government, it will usually be dismissed as being too risky or "obviously" wrong according to common sense. The only way big leaps get done is when some obsessed individual believes in them. Big companies or government can only sponsor a series of small incremental innovations, the kind of stuff that is clearly a good idea to the average person as soon as he hears of it, small movements away from the status quo.
Scott writes:
"Come on! It’s obviously a combination of talent and luck! We can debate the relative proportions of each, but it has to be this"
Fair enough, but... both are your rightful property. I haven't heard anyone seriously debate redistributing talents. Even if we had the technology to do so, I don't think people would agree that it could ever be good to diminish your artistry, for example, in order to give someone else extra artistry. Your talents are uncontroversially considered your rightful property. I'd argue that the same is true of your luck. And it derives from the same intuition that applies to talent - you didn't do anything to 'earn' your talents, and yet they are yours. I argue that if you are considered the rightful owner of your own body, which you didn't do anything to earn, then by extension you are the rightful owner of all your luck, good or bad.
I fail to see any principled way of distinguishing between luck that is your property and luck which is not. There are lots of 'aesthetic' judgements about this, with all sorts of people declaring that so-and-so didn't 'earn' such-and-such therefore their goods are rightfully communal property, but I find all such talk disgusting and gross, to state an aesthetic judgement of my own. I hear such talk exactly as if I were listening to people plan to chop off someone else's leg to eat.
Scott: you don't come out and say it, but implicit in your critique is the idea that it would be better to change to rules to make it much harder (impossible?) for founders to become multibillionaires, and that doing this won't cost much in dynamism. But of course, almost every other Western country does precisely this. So where are the European Apple, Google, Facebook, Amazon, Tesla?
The US is currently about 50% wealthier than Western Europe in terms of GDP per capita (data source: Our World in Data), and the gap is growing. You might think that becoming more like Western Europe is a Good Thing because it is a kinder gentler society, or because the sight of Bezos billions offends you, or whatever. You might be right. But lets not pretend that the cost in wealth and growth doesn't exist.
It's not a kinder gentler place because of any policies that prevent billionaires.
You could presumably construct a steel man where billionaires are prevented via punitive taxation and the taxes are plowed back into a welfare state.
Sure, but I think that's still too strong of a claim. Culture/genetics probably play a much larger role. Even just looking at white Europeans/Americans, there were probably substantial selection effects around the kind of people who immigrated to the states vs those who stayed in Europe.
You can use Canada as your counterfactual if you prefer. The selection effects are presumably similar, but the US is about 50% richer than Canada in terms of GDP per capita, and the difference is growing.
Western Europe is a bunch of pretty different countries. E.g. Sweden has considerably more USD billionaires per capita than the US does, and a somewhat lower GDP/capita.
The population of Sweden is less than that of e.g. Metro-LA. Comparing it to the entire US makes no sense. Western Europe is at least a similar sized place.
Why do you think the comparison makes no sense? How do you think the differences in population would spoil this per-capita comparison?
Because small polities have much greater variance (on all axes) than large ones. Averaging over all of Western Europe smooths such fluctuations.
A 10M sample size should be big enough. Getting 45 from a B(10M, 1/M) distribution (assuming that becoming a billionaire would be almost twice as hard as in the US) is an 11-sigma event.
>But of course, almost every other Western country does precisely this
How so?
Here's a question on this topic I have yet to have answered--how does the *mere fact that someone has more than X wealth* harm others?
Note I'm *not* talking about how they acquired that wealth. Or even what they do with the wealth. Both of those are separate topics with separate solutions. I'm talking about the mere state of being a billionaire (or whatever). How does that harm anyone?
Meet Bob the friendly dragon. Bob literally lies on a bed of gold...not because he went out and stole it from someone but because his presence magically converts any stone within Y feet into gold over time. What does he do? Well, he mostly sleeps for centuries at a time. When he's awake, he's a great neighbor (suitably shapeshifted into human form). Sure, a bit weird, but who isn't. How does Bob's existence harm anyone?
Or take Andrea the Hermit. She hates people to an extreme degree; she is disgusted by having to deal with people. So she lives in the deep mountains self-sufficiently. One day she comes across an old mine with a pirate's treasure worth 100 billion dollars. Has that find changed anything for anyone? Has the world become worse because wealth inequality is slightly higher?
Why does this matter? If power's the problem...fix the power disparity. And start with government, because it has the most of it (no billionaire can legally send goons into my house with guns to shoot my dog because they think I have some substance they like) and is the most free in using it. If the problem is how they acquired the wealth, *fix that*. As in, the specific steps that are the problem. Etc. Going after people based on wealth status doesn't fix any of that; it's a badly-aimed policy at best. And most of the ways people are suggesting involve *giving more power to an already bad actor with tons more wealth and power than the richest of individuals, one that has done precious little good with it.* Yes, I'm talking about the federal government. Have they done good? Sure. But mostly by avoiding negative actions and at most stopping bad actions by others, not by proactive "using the wealth and power for good" actions.
I'm not sure that's actually responsive.
1. I never said you can't use representative government. Just that you should target your efforts at the things that actually cause issues, and I can't see how *the state of being wealthy* causes issues. So if you want to fix the power disparity...aim at that.
2. Power =/= wealth. You can be wealthy without being powerful; you can be powerful without being wealthy. In fact, I'd say that your average government bureaucrat has more actual power than most of the top 10% by wealth individuals. They can directly and *completely unaccountably* cause changes to more people's lives.
3. Addressing power disparities by giving more power to the already most powerful entity (government) seems...backward. And that's what "us(ing) representative government" to "fix the power disparities" means. Furthermore, if the issue is that wealthy people are "buying government"...giving more power to government makes them *more* inviting of a target, not less. If you want to remove power from wealthy people (to the degree that they have it), giving more power to government is the worst possible way to do this, because it's actively counterproductive.
I still don't see how that's connected to my point. That's not *having wealth*, which is what I was talking about. It's *how they use that wealth*. And that's not really even related to *wealth at all*. I have no problem with reaching out to elected officials about matters of concern. But there's a difference, in my mind, between
----Case A, targeting people solely based on having wealth----
Citizen Bob: Hey Elected Andy, Richy Rich has tons of money and that bothers me. You should do something about it.
----Case B, targeting harmful *actions*----
Citizen Bob: Hey Elected Andy, Richy Rich is buying up all the widgets and stuffing them in a shed so no one else can have any. That harms me because I need widgets for my frobnification factory. You should do something about it.
Case A doesn't actually address the concern your raise. But that's the one I'm seeing in all of this--attacking billionaires *simply for having that much money*. And proclamations that no one should be allowed to have that much money, regardless of what they do with it or how they got it.
Case B is normal and natural. And focusing on the actual harms being produced also opens up things like targeting *other*, non-wealthy sources of harm. Such as government itself. Because here's the thing. If, say, the Gates Foundation is screwing up your local schools, they can only do so because the government (which runs those schools and has an effective monopoly in most places) lets them do so. And is, in fact, the one actually implementing those ideas. The Gates foundation merely is providing ideas, they're not in there setting the rules for teachers. The unions and administrations are doing that. So another thing might be stripping out some of that power out of government and, say, getting elected officials to implement effective school choice, which defangs the Gates Foundation more effectively than just playing whack-a-mole on the public school system.
Case A just gives more power to the people who already have more power than anyone else *and* already use it worse and more harmfully than anyone else, and increases the rewards to those who can capture that government power. And that's what I'm saying I've not seen any justification for. Not Case B at all.
Not that much of a tangent. In fact, that was kinda the point I was going for. We attack the *state* or the *legal, moral, useful* thing, instead of (heaven forfend) punishing the actual harmful action or actor. If I were more cynical, I'd say it's intentional, as many of the more gun-nut variety do about gun control. Some aspects probably are. Others are just the usual blindness and politician's syllogism, plus a bunch of activists who don't really want to see the problem solved because then they'd be out of a job.
I think it's worth pointing out that around three-quarters of Amazon's profit comes from AWS, not its retail business. This is at least relevant to discussions about its retail business making monopoly profits etc. Amazon would be much less profitable without it, and presumably AMZN would be less valuable accordingly, though probably not proportional to its drop in profitability.
Amazon was making around 100-200 million in profit when it founded AWS, so i assume its not strictly the case that it was able to initially create AWS due to having mountains of cash from its retail business, though I'm not sure to the extent that its continued growth depended on years of funding from elsewhere in the business.
I came looking for this comment. It seems slightly odd to focus on Amazon as a natural retail monopoly when most of its profit comes from AWS.
Related to comment 2: I think we can design a system where company shares "expire" after N years without losing much of the incentive to start new stuff, because the discount rates (cost of capital) we use are so high.
I wrote about this idea a few years ago:
https://www.analogmantra.com/blog/2017-06-18-why-dont-shares-expire/
*> Also, I wonder how long the Friendster/MySpace example should stay valid for. If Facebook reigns unchallenged for the next millennium [...]*
It's extremely unlikely that Facebook will reign unchallenged for the next two decades, let alone the millennium. A new company may take away Facebook's pole position in social media, or more likely, social media may decline in importance to some other sector that Facebook fails to make an inroad in.
Economic history amply confirms this. Most dominant companies today were not around a century ago. In late 90s/early 2000s Microsoft was supreme in the technology sphere, all other companies cowered before it. While it's still a big player it has lost that dominance long ago. We can see the same thing repeated earlier with IBM. Hence there's no reason to worry that this historical trend will be broken by Facebook.
There's also the Facebook-the-product vs Facebook/Meta-the-company question. It definitely feels like Facebook-the-product's best days are behind it. Meta-the-company is still doing great, though, to some extent on the back of Insta/Whatsapp/Whatever.
But that feels like much less of a "natural monopoly" and much more of a "traditional monopoly," with the company using market power to launch new different products/buy competitors/attack competitors than existing in a highly, highly defensible niche. And you could certainly see someone saying, "We need to apply more scrutiny towards Meta's acquisitions and other market tactics," without advancing any novel theories of surplus value.
Can we talk about "natural monopoly" in general. If I understand the hypothesis, I'm beginning to reject it.
I see the examples offered as the Post Office, or a public utility -- water, power, sewer, trash collection. It seems intuitively obvious that a monopoly grant or license to one provide maximizes utility of the invested resources. One truck makes deliveries on the street, not a half dozen competitors. One set of pipes provide potable water and another takes away black water, and we don't have confusion over dozens of trenches and pipe-types going different directions. Etc.
Yet now we DO have USPS, and FedEx and Amazon and UPS trucks rolling down the same streets on the same day. The newer competitors use better methods and ONLY deliver when there is a parcel that requires deliver, while the USPS truck rolls past every point on the route, willy nilly, maybe stopping for a red flag indicating (without prior notice) there is OUTGOING mail. Natural competition has just about killed the natural "monopoly" that federal (constitutional!) law granted USPS.
Internet Service Providers certainly want monopoly territories. The whole "net neutrality" thing was a promise by the ISP that, given a monopoly, service would be held constant. But the same streets have fiber and twisted pair and satellite ... What natural forces really justify a monopoly to any ISP?
The Bell System enjoyed a monopoly for most of a century. One wire per street, and any Bell device worked on any Bell wire. And cell phones and camera phones and text messages all were developed by Bell Labs and STAYED in the labs. When Carter/Reagan sustained efforts broke up Bell to baby bells and other players, the services we loosely lump together called "phone technologies" exploded. And yes we have confusion about CDMA and GSM and other junk. But what was the natural virtue of Bell's technical, interoperability, with monopoly?
The NYC subway system was built by three competing firms, and only merged into a city-run monopoly "public utility" style service for political reasons. (Save the nickle fare!) Right...
Anyhow, I'm not sure the historical evidence supports the economic theoretical construct of "natural" monopolies in general.
> if your startup fails, they lose their investment, you keep your salary, and you probably go and found another startup or get a good management position somewhere else
My anecdote:
I work at a private equity firm, which means we are focused on cash flows, rather than growth that a VC firm might pursue.
One of our stakeholders pushed me to interview an ex-startup founder because he had ‘lots of good ideas’. On his resume he had founded four different start ups, each receiving more funding than the last and each ending in bankruptcy. His last startup was very high profile in the region and managed to lose 100m USD.
After that he worked as a ‘Chief Growth Officer’ at an already existing startup and was fired within nine months.
I interviewed him and felt he was full of bravado, but didn’t have much business sense and wouldn’t fit well with the tight cost controls of a PE firm.
So I objected to his hiring, making the point that he has never made money for any company that he worked for and his primary skill seems to be in raising capital which we were not hiring for.
I was overruled, but we still didn’t hire him because he asked for an outrageous salary.
At the time I thought it was crazy how someone can ‘fail up’ so well, and also that I could probably take some cues for boosting my own career.
Your analysis of Amazon's stock value is definitely wrong. Amazon's stock has split four times in history. In June 2022 it was a 20-for-1 split, so that 100$ is actually 2000$. Then there were three in the early days (pre 2000): a 2-1, 3-1, and another 2-1. So that 2000$ is actually 16000$. So that 10c initial stock is now worth 16k, a 160,000x increase.
I don't know much about stocks / finance, I just know about this because I used to work there and knew people who had been around near the initial split.
Another thing I heard is that in the early 2000s, I guess the dot-com crash era, there was a time where the stock was performing really badly and a lot of people folded on their investments. I think something like a buy-back program to keep employees from getting disgruntled and quitting? But people who _didn't_ fold ended up making bank because, as we all know, the company did really well later. I heard about it from someone whose opinion was: "if I hadn't caved I'd be retired by now".
> They were pretty smart about it: chose a district with no incumbent, found a really amazing candidate with an incredible personal backstory, pulled out all the stops
I think it's a really generous read of the outcome if you think "failing miserably" counts as "being smart about it". I read it as: they _thought_ they were being smart about it, but they were clueless, hence they failed. "Ineffective" altruism would be the word for it.
Everyone is arguing about Bezos or Musk or Gates (fair enough, as they were/are in the top spot for "richest in the world"), but what is the economic/ethical argument for their ex-wives MacKenzie Scott or Melinda Gates being billionaires in the Forbes 400?
And what about media billionaires? Tiger Woods is a bit on the border with a net worth of 800 Million to a cool billion. But Oprah has comfortably over 2 billion. We are discussing here the innovative surplus of Amazon or having the capital to build rockets, but what is the argument that playing Golf is worth so much? Or having a talk show? Is having the prime time spot on television also similar to an "oil resource" which should be taxted by a Georgist LVT?
I also looked up the richest film actors and Jerry Seinfeld is a billionaire through his decade old sitcom (but it is the slightly poorer Larry David who still puts out good comedy, while the retired Seinfeld drinks coffee). Also Tyler Perry is listed a billionaire through a string of African-American comedy movies (I am a bit puzzled by Perry, I am not an American and never heard of him).
Look, maybe being married to Bezos or Gates is *really hard*.
You joke, but a marriage is an economic partnership, and a successful man almost always owes a great deal of that success to his wife (or occasionally vice versa).
To be more specific, a married person who is successful in their career (above average) is doing so with the active support of their spouse, who could wreck the career via will or incompetence. A single person can succeed on their own, and while they don't have to persuade/get lucky with a spouse choice, they have significantly fewer resources to bring to bear in the career.
A married person without spouse buy-in is extremely unlikely to succeed spectacularly, if at all, at a career.
Answering that would require them to admit generational wealth exists, and they clearly aren't willing to make an "it's unfair but it's better than the other options" argument.
Yes, of course Bezos had substantial luck.
But what are the policy consequences of that? Estate taxes are a general way to tax luck.
You are arguing for antitrust. Did he luck into first-mover advantage? It's hard to be sure about Amazon. I'm skeptical about most monopoly claims and all government antitrust actions (give me a single virtuous example!). What happened to the 8000 better managers? How many of them entered the same market later? No, surely none of them even started a business. You could ask Bezos where he was lucky. He says that his biggest luck was raising money right before the dot com crash. I'm skeptical of trying to reduce volatility, but there are lots of things you could do to make it easier to start companies and raise money. In particular, build housing in the Bay Area to drive down the cost of programmers. (Of course Amazon is in Seattle, but the salaries it pays seem to be driven by the national market. Also, build housing in Seattle.)
It is an unexpected delight to be on the subway and find your comment responded to by Scott Alexander.
To answer some of the objections raised - no it would not totally collapse the price of Amazon if Jeff sold all of his stock, but crucially, some percentage of the value of Amazon represents the premium investors are willing to pay for a company managed and owned by Jeff Bezos. We could calculate the dollar value of Jeff management from a hypothetical price after his liquidation, and I suspect it would be more than one billion dollars! Even if his attention is worth only 1% of Amazon’s value that’s >10bn right there.
But I think there’s a larger point here that wealth in the contemporary sense is control over a network of production or distribution. I was just reading Brett Deveraux’s series on Crusader Kings 3 and was struck by way the game models personal control of the apparatus of government as analogous.
> I knew I was missing something when I wrote this post, and I think this is it. This is a good match for the Georgist idea that landlords should keep the portion of their profit that comes from hard work (eg construction, maintenance, attracting customers, etc) but not from land rent.
What in the world? That's not the idea of Georgism, it's the idea of communism. (The "Labor Theory of Value".) [1]
Georgism doesn't care whether you are doing or ever have done any work. It doesn't care whether the work was easy or hard. It cares deeply about whether part of your property was naturally occurring (usually defined inconsistently) and about the fine details of ownership structure (more concentrated is better).
[1] Well, in one direction. According to the labor theory of value, you should be paid if you do some work, regardless of whether anyone wanted the work done.
I think you are misunderstanding what people mean by the power of "money in politics" (at least you are misunderstanding what I mean by the concept). You are only looking at the surface flow of money but not at the political character of capital itself. The power of billionaires/business leaders/capitalists does not stem from the amount of money they pour into political campaigns. In fact, they don't have to pour any amount of money into political initiatives and still wield enormous political power. Here is what I mean:
Capitalism describes a specific relation between capital and labor. The vast majority of people have to sell their labor, i.e. find employment, in order to stay alive, or at least to manage their livelihoods. So becoming and staying employed is the most fundamental material interest of individuals, thus on aggregate, employment is pretty much the most fundamental political interest within capitalism. This sounds very vague but it's straightforward if one looks at the implications at the most basic local level of politics:
Most local political districts have a handful of outsized employers. The business decisions of even a single of these employers can have significant effects on employment in the district. Usually the main economic interests of those employers are mostly aligned and at some level they are loosely organized within some political employers association. If they coordinate their business decisions, they can easily manipulate the district's employment rate by two-digit figures, thus lifting up or sinking down the economic fortune of the entire district.
Thus it is first law of local politics never to piss of the district's major employers. Small shifts in capital allocation can have enormous effects on employment on a local level and can therefore bury any local politician. This is so obvious to any local politician that the omnipresent threat of "relocating operations elsewhere" does not even have to be voiced openly by the big employers. In capitalism, this Sword of Damocles, of induced unemployment as retaliation by large business interests, hangs over the head of local politicians everywhere and affects each and every local economic policy. The long-term success of any local politician thus depends on their ability to please local employers and positively affect their capital allocation (to the detriment of other, less-forthcoming districts...).
Needless to say, this dynamic does not stop at the local level - the local level is merely the level at which these dynamics are most clearly visible. At higher levels the "employment power" of single employers decreases, but this is easily compensated by higher-level coordination, political association and natural class interest. Even at the national level, the global capital allocation of corporations and industries has an enormous impact on the quality and quantity of employment. Therefore, organized capital interests naturally wield enormous political power, simply by determining the allocation of capital and employment. So via employment alone, capital/business/billionaires/the rich (whatever you want to call it) reward and punish economic policies all the way from the local to the global level.
The "money in politics" is not (only) the >money< business >spends< on political campaigns, but rather the >capital< business >allocates< to incentivise policies. Therefore, capital itself is always "political money", because its allocation always has significant political effects. So the reason you see so little "money in politics" is because you are looking at the political effects of >money changing hands<, rather than at the political effects of >capital changing places<.
Maybe a perfect illustration of this is, once again, Amazon. A couple of years ago Amazon announced it would set up a new headquarter somewhere in the US. I don't think the announcement and accompanying media campaign cost a lot of money, nor did Amazon have to spend a single cent on political campaigns (afaik). Yet, local politicians all over the country jumped up, willing to sell their souls and to throw any imaginable local regulation over board, simply to attract a tiny fraction of Amazon's vast capital. On paper, Amazon had to spend zero >money on politics<, but in effect, Amazon dictated (local) politics pretty much for free - i.e. paying via capital allocation, rather than via money transfers.
I got stopped right here:
"Most local political districts have a handful of outsized employers."
That seems extremely dubious. In all my life I have seen that situation clearly only once, when I lived in a small college town and the university was the dominant employer, and even then local politics were not friendly to the university because the university couldn't move. So far as I can see, this assertion would only apply in very small towns where there is a single employer of any size, and very unusual situations involving one of only a handful of gargantuan US employers (Boeing, GM, XOM, Amazon). There's no way that adds up to "most" political districts.
Anyway, every political district but one in which I've lived has had numerous employers, a spectrum from very small to modest, and no one of them could dictate even the slightest terms to local politicians. That said, most local politicians *were* reasonably sensitive to the situations and needs of local business. Not because they were being blackmailed out of their natural inclinations, but because their natural inclinations were to support local business -- because they were elected by local voters who liked their jobs and employers, and prioritized economic well-being over most other concerns.
My experience is that it's only large-scale politics, where the issues become more symbolic and totemic, in which companies get turned into cartoons. People are more likely to start thinking of Amazon, Boeing, GM, et cetera as a simple devil or angel character in a morality play when they don't work for it, and their interactions are more limited and occasional. That makes it much easier for a complex messy organization of complex messy human beings to morph into some simple Wile E. Coyote or Bugs Bunny character in the Manichean good-v-evil struggle one sees in the world that requires a political solution.
Even if what you're saying is true, this has almost nothing to do with billionaires and everything to do with private companies. If you confiscated all wealth above $1 billion dollars from individuals, there's no obvious reason why the dynamics you described would cease to exist (assuming they exist right now).
I want to dispute that Amazon is a "natural monopoly". I assume the claim meant the online retail, because it is obviously false for streaming and cloud computing.
Per [0], Amazon has about 38% market share in the US online retail market, the next biggest player is Walmart at 6%. While it is certainly hard to compete with amazon head on in their core market (e.g. consumer products, books, computer peripherals), a lot of much smaller retailers can stay in the online market by filling a variety of niches.
While you might be able to order an arduino or raspi from amazon, chances are you would be overpaying and that they the sensors you want are not available, so you are better off ordering from a specialized hobbyist electronics online shop. The same is true for model airplanes, diving masks (because Amazon will obviously not let you enter the desired refractivity per eye), any car components more exotic than motor oil and so on.
If you know what model of something you want, it is expensive and comes in a single box without tons of options (like a power drill or a mobile phone), amazon is an option.
From the perspective of the customer, I do not see any vendor lock-in like Microsoft Windows or Office had back in the day. A customer computer literate enough to create an Amazon account is also able to create an account at basically any other online retailer within minutes.
[0] https://www.statista.com/statistics/274255/market-share-of-the-leading-retailers-in-us-e-commerce/
On (8) the answer is the Bezos has access to a significant portion of his wealth without selling any stock; in fact there is a whole sub-industry within investment banking which caters to rich founders of listed companies. Bezos (or equivalent) pledges stock as collateral and then borrows to fund his or her lifestyle. The interest on the debt is covered either by salary or dividends, which is seen as low risk by the lender since the founder typically controls the company and hence has significant ability to influence pay/ dividend payout. In addition to avoiding the potential inadvertent signaling effects of selling shares, it is also very tax effective as no capital gain is realized. I guess (based on my job, where I have been involved in assessing these structures) that more than 80% of listed company founders have something like this in place.
Now I see that Robert Stadler already pointed this out earlier in the comments
Even if you assume Bezos could liquidate his stock without losing much value beyond CGT (I strongly disagree), its almost certainly the case that if the government attempted to confiscate Bezos wealth through some sort of wealth tax, then this would cease to be the case. If they straight up confiscated (large amounts of) Bezos' and other billionaries stock holdings, then obviously the share market would crash.
But even if they forced Bezos et al to liquidate their holdings to pay a wealth tax bill, I think something similar would happen, and there would be a sell off in companies that have large individual shareholders in anticipation of large sales, and no other rich individuals would scoop up a bunch of "cheap" shares because they would be worried about being made to sell them themselves.
Amazon does not have a value of $1.2 trillion because they own a big pile of resources objectively worth $1.2 trillion. They're worth that much becuase that's what people are willing to pay for the company. If the government taxes this value, they're taking value away from shareholders. They're gaining control of some objective economic resources of Amazon. Which is fine, but you have to understand that a wealth tax is a tax on shareholders, and the more value the government attempts to extract from them, the less they're going to be interested in being shareholders and the less valuable the company is going to be. It has to be this way. Taken to its extreme, this would mean the government takes control of Amazon and would not be able to get any value from trying to sell it - it would have to try and extract value from Amazon's actual assets (minus the humancapital that would almost certainly leave the company). Not that I expect the government to try and do this, the point is the principle it highlights and why wealth taxes aren't going to be able to generate nearly as much as many of their proponents have convinced themselves.
The fact that there (supposedly) may be entrepreneurs who do it for the love of it rather than the incentive of becoming very wealthy seems completely irrelevant. We make one policy for *everyone*, and the aggregate effect of that one policy is all that matters. If a strong wealth tax leads to less entrepreneurship overall, the fact that some entrepreneurs may continue on working doesn't matter.
Matt Pencer points in the right direction, but despite recognizing this at the surface level, Scott completely misses the implication. It is a cute observation that ‘a truck driver with some extra cash’ *could* have invested in Amazon much the same as Bezos, but it dodges the point entirely to say “for Bezos to profit off Amazon is fairer”.
The whole point of Bezos being wealthier for investing well is that Capital Allocation Is An Important Job, and you want to give that job to people who are demonstrably more efficient at it. That's it, that's the whole argument.
Capital allocation, or, more explicitly, the decisions an economy makes on what products, services, and structure to prioritize, given the limited resources available to distribute to them, is critical infrastructure on which literally everything else rests. If a truck driver noticed Amazon was the best investment they could make far before anybody else realized that, and invested therein, they wouldn't be rich because ‘noticing Amazon would make a lot of money is the most outstanding act of moral strength and human integrity, for which the economy must shower you with as much wealth as it can muster’. It's because making good decisions tends to be predictive of making other good decisions, so probably this person should be in charge of more capital allocation.
Equally, the problem with taking money from Bezos, on the understanding that Amazon's market position is in large part because of its status as a natural monopoly, such that Bezos keeps his 0.001% share of his value add, and the rest is distributed to the hypothetical runners-up, is not that it's ‘less fair’ or somesuch, it's that now your capital allocation is being handled by people less competent and decisive than Bezos, who will make worse decision than Bezos, and in the process will burn prospective value. Even if you can share this capital allocation 50-50 between Bezos and a runner up whose decisions are only 2% worse, you've still burnt 1% of your capital for no good reason.
‘But!’ I hear the crowds scream, ‘you pretend not to hear the concern! Being rich actually does correlate with having more money to spend!’—and it's true: debate to whatever degree if their wealth is paper wealth, but Bezos and Musk and Gates are all still very, very rich!
But!, I rebound in turn, there is a very good mechanism for dealing with this problem exactly in proportion to the degree with which it is a problem, and it is called Consumption Spending Tends Not To Be Very Profitable. If Bezos spends X% of his wealth on private luxury goods, well, would you look at that, his returns are now X% worse, and all of a sudden (exponential functions being what they are) is no longer responsible for nearly as much capital as before! If someone was X/2% less efficient than Bezos at capital allocation, but had no such wasteful personal spending, now they are better to be in charge, and that's what happens. If someone was 2X% less efficient, well maybe Bezos' personal spending shouldn't be that big a deal-breaker.
It is of course still reasonable to be concerned about the degree of disproportionality in consumption spending possible here, and maybe you want to tax this difference down even at the cost of some less-effective but better-distributed capital allocation, but the solution here is not to mess with allocation of production! Just tax luxury goods! That's it! This directly allows governments to shape expressed consumer demand without fucking with the mechanisms to correctly allocate resources towards satisfying that demand.
(Side note: I'm surprised this wasn't all already said, given at least some of y'all must read Yudkowsky, and he makes it pretty clear how to reason about allocation from mechanistic principles.)
> The whole point of Bezos being wealthier for investing well is that Capital Allocation Is An Important Job, and you want to give that job to people who are demonstrably more efficient at it. That's it, that's the whole argument.
This argument assumes that "more profitable = more beneficial to society".
We're talking about Amazon, Tesla, SpaceX... I think it's pretty much beyond dispute that these products have massively increased societal wealth.
You can tell Amazon directly provides massive amounts of value by the fact huge quantities of people, yourself presumably included, voluntarily trade money for its services, and that its services have involved a step-change improvement in the accessibility of goods. AWS is critical to enormously many businesses, and therein acts as a huge indirect source of value. Tesla has made a step change improvement in the progress of electrification, which directly produces massive positive externalities, plus it has changed for the better the course of a massive industry within which people regularly sink large fractions of their wealth, so improvements here disproportionately advantage consumers. Even putting aside the massive improvement in space accessibility that SpaceX has brought, even putting aside that SpaceX has singlehandedly reinvigorated an industry for which society had been consistently willing to pay many billions of taxpayer money yearly on, even putting aside that SpaceX was directly responsible for ULA moving off Russian dependence... SpaceX literally has a massive negative price to almost all consumers, and the degree of this negative price is primarily limited only by government corruption. (Did you know the government used to pay ULA $1B/year just to exist? They did, and you can thank SpaceX directly that's now off the taxpayer bill.)
So yes, if you want to make some point about rich companies not providing commensurate value, I think you need better examples.
(Note that I am for monopoly rent taxes against Amazon, just not against Bezos, and certainly such taxes should be to a very carefully limited degree because the last thing you want to do is destroy the industry.)
"We're talking about Amazon, Tesla, SpaceX... "
No, we're talking about billionaires. Bezos and Musk are not the sole billionaires in the world.
"You can tell Amazon directly provides massive amounts of value by the fact huge quantities of people, yourself presumably included, voluntarily trade money for its services"
Again, more profitable =/= more beneficial to society.
I don't get this luck VS talent dichotomy at all. What is talent, if not luck?
Several of the comments focus on the unique capacities of a billionaire. True, but can we define that?
All of us engage in exchanges of value every day. You can easily argue that a billionaire like Bezos created far more value than others. But his wealth is far more a function of his ability to take more from his exchanges than it was about the value he created. Most of us don't want to spend our lives relentlessly trying to take more than we put in. Only certain circles even tolerate this. Most of us don't want to swim in those waters
Has Facebook been replaced? It seems that the fashion today is to say that nobody uses Facebook any more and Meta is dying and it's all about Tiktok or something now.
I'll grant viable (sorry STS) re-use of launch vehicles as a hurdle that only a singularly-focused company with a vast amount of capital can cross but how different would a world without (or with a much smaller) Tesla be? Legacy automotive manufacturers are quickly catching up on the electric sports/luxury car market and while they were spurred into action to compete against ol' Musky, I can't see that pushing them to innovate more than a few years faster than the alternative. "What if we made an electric car but for cool people?" is not the kind of thought that only a visionary can have.
My Muskless AltHist would probably look like Daimler AG taking their electric car knowhow from Smart and putting it inside a Mercedes, with other luxury brands followng closely behind.
An interesting topic to opine upon would be which billionaires are most and least replaceable.
For example, I'm personally highly impressed with Jeff Bezos, not because his original idea was so genius, but because he's stayed focused on executing his master plan for about 30 years now, making a lot of good decisions along the way. And he made a second fortune in the interim off of The Cloud, which he used to finance his original idea. So I'd put Bezos on the Less Replaceable end.
This debate sort of assumes that we can tweak the amount billionaires keep as a free parameter to see what happens, essentially assuming a world where property rights mean something very different. I view this as essentially theft, so I'm uninterested in policy debates that assume we're willing to do this at large scale.
Bill Gates's big break came when IBM chose DOS as its PC operating system and then let him own the rights, thinking the real profit would be in hardware. If Gates had not been the beneficiary of this, some other OS owner would have been and the end result would have been the same, just with a different monopolist. The monopoly was created by IBM's misreading the trends and, in a sense, it landed in Gates's lap.
"Do we have a way to test the "if x inventor wouldn't have existed, some other inventor would have done the same thing a little bit later" argument for validity?"
The BBC series Connections w/ James Burke made a pretty compelling argument in 1978 that all progress was less 'great man changes everything in otherwise impossible ways' and more 'accumulation of possibility over time' - e.g. When the conditions are right an idea will emerge regardless of if Inventor X or Y was alive to do it.
https://en.wikipedia.org/wiki/Connections_(British_documentary)
I think most of the arguments about billionaires here is about their ability to pull the ropes sideways to accelerate something when otherwise the current state of the world and the political and economic and social systems within it would delay the idea... if you had a Gates or a Bezos or a Muck with equivalent to modern day power arguing with the Church that the universe was no centered around the Earth (as opposed to poor Galileo) would the idea and the related impacts have propagated faster or slower?
Something I forgot on this was Elon's argument on taxing/appropriating his wealth. He said all his money is tied up in productive investment and he spends little on consumption, bringing up the comparison of East and West Germany where the west was 5x richer than the east
He used the phrase "capital allocation", with the claim being that people who successfully accumulate capital are fairly de facto the most effective in productively allocating it. If the government taxes capital accumulation heavily not only does it raise the question of incentives and capital flight but of whether the government will apply those resources at a relative loss