Crony capitalism may be cannibalizing productive capitalism in the U.S.
bloomberg.com
bloomberg.com
In the olden days, the main force balancing this was taxation. Even if you look at it as a purely zero-sum game, any money paid by the very wealthy had to go somewhere, and that somewhere was the masses. This didn't sit right with the very wealthy and they rigged the system to such a degree that I've never seen an appreciable tax increase in my lifetime, even in the face of trillion dollar deficits and the loss of the middle class in the US. Mathematically, trickle-down economics has given us just exactly the system it was designed to. I mourn for the millions (billions) of people left out, but for whatever reason a lot of people don’t even see them.
Maybe the great problem of our time is ignorance..
In the agricultural age, if you fucked up a harvest, you and your family could starve.
Before agriculture, if you fucked up a hunt, your whole kin-clan could starve.
Nowadays, if you fuck up the housing market, and millions of people go bankrupt, nothing gets broken enough to turn a concern into a crisis, so we never fix anything, and nothing ever changes.
I think an intuitive grasp of this is why so many conservatives have a natural disdain for welfare. But I think their disdain for welfare at the individual level is misplaced. The isolation of the most powerful and largest scale systems from consequences at the macro level is a far larger problem than the isolation of individuals from consequences at the micro level. Welfare can indeed become addictive and lead to a "welfare class," but these are largely powerless and relatively poor people who may be somewhat of a burden on society but do little damage otherwise. The real danger is a rich powerful professional welfare class that makes big ugly mistakes and is isolated from the consequences of these by power and abundance.
The real active harm comes when you get a professional class that does very bad things. These can be mistakes, like the total collapse of the economy in 2008, or they can be intentional crimes. Either way if there are no consequences then no correction gets applied and the problem gets worse.
A large scale wealthy civilization can absorb a tremendous amount of official incompetence and misconduct.
[1] https://steveblank.com/secret-history/
Uber is going to fail. The F35 is going to fail. Throwing good money after bad will stave off that day of reckoning but then only make it a worse accounting.
It reminds me of the sci fi novels Dread Empire's Fall, in which the galactic civilization's ship fleet has never fought a battle in thousands of years, so nobody can actually know how to do it, and they don't know if a certain tactic, ship, etc is really a failure or not.
A different source ("Armies South, Armies North" by Alan Axelrod, also author of the more compellingly-named "Generals South, Generals North") provides more detail, including names: Winfield Scott, William Harney, David Twiggs, and John Wool. This and other sources also include Joseph Johnston, then quartermaster general of the US Army, as a fifth general. There were also two more brevetted generals: Albert Johnston (no relation to Joseph) and Newman Clarke.
Maj. Gen. Winfield Scott (the commanding general of the US Army) was 74 years old and indeed unable to ride a horse. However, all seven of the generals had seen combat. In particular, four served in the War of 1812, all served in the Mexican-American War, and all served in the Indian Wars. With the exception of Joseph Johnston, all of them even served in war as generals (at least brevet, but usually full).
If we were to engage in universal welfare, we'd remove a false feedback signal and allow ourselves to focus on what actually creates value rather than what pays rent, food, essential health care and education.
I don't think there is much debate that not giving people access to those things is bad. But we seem strangely averse to just making them part of the core of our society.
A high rate / corp tax rate that's proportional to an objective inequality measure?
Trouble is taxation is avoided but it is the only thing that really stings.
To borrow your example: In agricultural age, if you fucked up harvest your family starves. Today, if you fuck up the housing market, thousand of families end up in bankrupcy, and tens of thousands of small investors loose their savings... but you do not personally know any of them, so you wont even feel shame when you cash-in that million dollar yearly bonus.
There's historic precedent for that kind of divorce between actions and consequences, and it is not pretty. There's a certain French doctor you should google: his name's Josheph Guillotin.
I'm not sure what analogy you are going for. Guillotin did not invent the guillotine, and only advertised it as a more humane way of execution. He was opposed to the death penalty.
(This is, of course, a gross oversimplification of a complex historical topic. Please feel free to correct me.)
The actual inventor of the guillotine is one Antoine Louis [1].
A better example would be the decision to go to war in Iraq. The people who made that decision didn't have to send their own children and they could enact large tax cuts for themselves in addition at the same time. So they got their war but didn't feel any consequence.
Which is what I expected to hint the the mention of Guillotin: the French Revolution. That did not happend because of social injustice. No human society has ever been 100% fair, -and probably none will, ever,- and most people is able to accept that without making a fuss about it. The problem with the Ancien Regime back then, -which is the same problem with financial elites nowadays,- is that they have become increasingly detached from the realities of their decisions for the rank and file, even to the point of cluelessness.
then throw in we are bombarded every day continuously to buy this,buy that, go here, do that. We get told every day of wonderful stuff available for pennies or dollars a day. we have tv shows and advertisements implying status for owning certain products.
besides managing their money we fail to teach kids in school just how well marketing manipulates them into believing what is needed to have them spend money.
still regulation has become the go to tool to prevent competition and when that doesn't work the fear of exploitation of the poor or under privileged is brought to the foreground.
the simple fact is we have too much government for it to be effective for the regular person, it only serves those who can afford to operate on its level
And what's the solution? Deregulation? Wouldn't that just make consumers even more vulnerable to the predations of the powerful? In fact, it seems that powerful interests generally lobby for more regulation, not less, so I'm not really sure what your point is here.
And your statement about "too much government" is vague and abstract. How exactly is "too much government" contributing to wealth and power inequality. Historically, it has been government intervention that has acted as a counterweight to concentrated power.
In fact, people who have been complaining about too much government became influential in public policy about the EXACT time a lot of these trends in wealth inequality started (the late 1970s).
Sorry to be so critical, but I think a major contributor to our problems is people who make blanket statements about that are vague and imprecise and do not articulate any real policy goals.
Another example is how LA Sanitation continued to charge myself and thousands of other apartment dwellers the monthly flat rate, despite our landlord hiring a private service, and the fact that the city collected our cans and the city trucks didn't collect trash. They refused to refund my money, citing a City Council Resolution on the matter. The city was eventually sued and this policy was repealed. If I refused to pay, since DWP does the billing for Sanitation, my electrical service would have been terminated.
Don't even get me started on CA's solution to Sacramento's refusal to curtail spending by passing a $.20/gallon gasoline tax. CA residents already pay more gas tax than most other states.
And last but certainly not least, CA Senate Bill 18/2017 which thankfully was crushed by activists. This "Children's Bill of Rights" did not increase safety nor the welfare of children in general. It did however insinuate the State of California as your child's new parent, whilst mandating a new level of services to be provided by the billionaire author of the bill, Jim Steyer (Common Sense Media). Funded by your tax dollars, of course.
How do you figure? Between 1936 and 1989, the tax rate for the top income bracket varied between 63% and 91%.
A progressive tax rate is one that increases as the taxable amount increases.
So, I could be missing something, but I don't see how your post addresses my response. Saying it's meaningless doesn't change the definition of a progressive tax rate.
China creates their own debt free money as needed. The U.S government must borrow it. You ever notice how economic pundits have been predicting an economic crash in China for the last 30 years that never seems to come? It's because the government just endlessly bails out the economy in a debt-free way that never sticks the taxpayers with the bill.
That's.... not how it works. USA consumers purchase lots of imports from China, which causes massive flows of capital from the USA to China. China uses these capital flows to purchase treasuries from the USA which (in part) funds the federal deficit.
At no point is China just "creating debt-free money".
The exact same thing happens in other countries with large trade surpluses. Part of the reason for the Greek crisis was that Germany exports a lot of goods to Greece. This capital flow drives down the price of money (the interest rate) in Frankfurt and drives up the price of money in Athens. The Germans, seeing that they could get 1% at home or 7% in Greece (in the early 00's) then used the capital flows to purchase securities in Greece, such as bonds, CDOs and CDSs.
I didn't say debt free dollars. Of course China can't create dollars. I meant debt-free RMB.
- I don't know how old you are but both Clinton and Obama significantly increased taxes on the rich. Federal tax receipts as a % of GDP are fairly constant going back to WW2.
Further, not being static does not mean it was ever meaningfully increased. The rate from 1982 was higher than either Clinton or Obama rates. And 1982 was below the rate from 1932 to 1981. Compare US GDP growth and a high top marginal rate seems to promote growth, though there are many ways to slice and dice these numbers.
2) I think we mostly agree here. There have definitely been meaningful changes both up and down (on the order of 20%) over the years depending on both economic and political changes. However, when you look over a 50 year timespan (everything post WW2 basically), you don't really see a meaningful longitudinal change. To me this refutes the OPs point about taxation being meaningfully different in the "olden days."
PS: IMO, a ~1 to 2% AMT on all wealth per year would be incredibly beneficial. But, there is currently about zero chances of that ever happening.
I can't seem to find a relevant graph on fred.stlouisfed.org though. :(
The tax burden has basically gone opposite of what you imply. For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. (http://www.ntu.org/foundation/page/who-pays-income-taxes) The "top marginal rate" means very little by itself. What matters is the effective rate which takes into account the credits/deductions that are allowed, the other lower tax rates, etc.
>...Compare US GDP growth and a high top marginal rate seems to promote growth,
Those high marginal rates of the 1950's did not bring in some giant windfall to the government or somehow promote growth of GDP. Most economists are opposed to very high marginal tax rates due to the inefficiencies they introduce - compensation being moved to non-salary, money wasted on CPAs, lawyers and lobbying congress for special deductions, dead weight losses for economic activity that isn't done, etc.
Further, the top marginal tax rate has little to do with the top 10% of all incomes.
PS: Yes, in theory they where a bad idea. However, in practice they seem to have been a net benefit. Either though reducing the rent seeking behavior of capital, or alternatively because the middle class's spending is mass producible. (You can scale iPhones, you can't scale 50,000+$ watches because they are not intended to be scaled.)
http://data.worldbank.org/indicator/SI.DST.10TH.10?locations... http://www.oecd.org/els/soc/growingunequalincomedistribution...
>...Further, the top marginal tax rate has little to do with the top 10% of all incomes.
As I have tried to explain in the previous comment, the top marginal rate means very little.
>...Yes, in theory they where a bad idea. However, in practice they seem to have been a net benefit.
In reality, they were a bad idea. It should be a hint that you don't see mainstream economists suggesting we return to them. Politicians find them a good talking point since everyone likes the idea of someone else paying more taxes, but you don't see economists suggesting it.
>...Either though reducing the rent seeking behavior of capital, or alternatively because the middle class's spending is mass producible. (You can scale iPhones, you can't scale 50,000+$ watches because they are not intended to be scaled.)
How exactly does a confiscatory rate reduce the rent seeking behavior of capital - that seems like a different issue. In reality, high rates encourage money to be spent in non-productive ways to influence congress to carve out special tax deductions/credits. Enough loopholes were in the old tax code that some politically well connected wealthy people sometimes paid no taxes - this is why the AMT was created.
So, yes you can get rather different looking charts from what I said. But, honestly I don't feel like getting into a debate about this stuff.
Economic inequality has collected a huge amount of capital into very few hands that ultimately don't seem to know how to apply it productively over the whole system.
These were world changing.
But now we're mostly done doing that and are now in the refinement stage on most technologies where we spend an enormous amount of effort to get, for example, 5% more fuel efficient airplanes. Physics is tough.
Maybe we'll have some sort of revolutionary breakthroughs in the future that lead to another era of rapid invention but until that happens we'll continue plodding along building a slightly more efficient world instead of a transformative one.
This is really just one hypothesis though. The real answer is that no one really knows for sure.
But I also somewhat discount that the rising difficulty level is really why more breakthroughs aren't happening, if that were the case one would see larger and larger accumulations of ventures committing capital and failing (or at least operating). I think the real reason is that not enough capital even tries to attack these problems because they're longer term and difficult to quantify the return. The irony is that I suspect that we get a smaller overall growth by routing capital to mostly knowable investment returns over a larger proportion going to "crazy" non-calculable investments. So, we end up waiting for the die-rolls to match up people like Elon Musk with sufficient fortunes for truly big advancements, and an economic system that mucks around with financial engineering instead of relentlessly and systematically advancing a wide range of real-world applied engineering on big problems.
By squeezing pennies out of lots of things, we miss the dollars that could make positive change.
Look at corporate IT as The gold standard of fail. We design complex systems to allow them to be sourced out (is ITIL/ITSM), and then are surprised when we have built a monstrosity that doesn't really work.
You see this type of thinking everywhere. I had an ancient popcorn popper called the "Whirly Pop" that I got in the 90s, which was basically an aluminum pan with a wood handle and metal gear for swirling popcorn on the stove. It recently broke and I bought a replacement -- a product inferior in every way with a plastic handle that will burn your hand, a plastic gear that will melt, and a metal pan and cover so thin that bent it while cleaning with a sponge.
This then results in the need for increased scale, increased productivity, and indeed, the need for innovation disappearing altogether.
I had a friend who ran a successful manufacturing company who was forced to shut down production... not because of competition or cost but because of the inability to get working capital. As the regional banks in our region got swallowed up, the local bankers who understood cyclical businesses went away.
1) we regulated that banks have access to capital (ie. we created the FED that will loan almost unlimited amounts to them. And of course we bailed out "too-big-to-fail")
2) we outlawed that banks loan money to anyone but the government, or very big companies. After all, since they always lost the money, we've imposed more and more rules about who they can lend to. (always lost it, I might add, by lending it to government or big companies when we're talking large amounts, but that is conveniently ignored of course).
Of course who they can lend it to means effectively not you or me.
As long as you don't have high capital gains tax or at least at the same level as income tax the wealth will keep flowing to the very rich. As richer you are the lesser tax you pay percentage wise on your wealth gain every year.What? The size of gov't has only increased over time. That's money being pulled out of the economy through taxes. If anything redistribution has drastically increased over time.
That money goes straight back into the economy.
My comment was taxation is higher now than it's ever been.
https://fred.stlouisfed.org/series/FYFRGDA188S
Let's see your data?
Wealthy people don't think outside the box enough, they just invest money with their friends who are probably already wealthy themselves. This widens the class gap and is bad for the economy.
So, for instance, software is protected by patents, oil and gas is protected by mineral rights, drugs are protected by patent law, entertainment is protected by IP rights, and so on.
In so far as there is competition, it often arises when the rent-seeking motivates people to disrupt the government protection by making it useless.
In software, people have lived with that since the beginning because it moves so fast. But even in slow moving fields like energy, we see new tech rendering the old protections less important.
I am not saying society has not paid a steep price for rent seeking behavior but that it has been part and parcel of all capitalism forever, and not unique to the American experience.
"First, let's assume the cow is a sphere".
It is worse than that, because at least physics is validated by experimental data.
Much of (macro in particular) Economics is a set of axioms that are seldom predictive.
In a previous age, these would be moral principles and social norms - now it's political beliefs.
With no basis in reality, we've brainwashed people to believe the bottom lines of the elite are to be protected. That's the outcome sought of our educational system.
It fascinates me how, on the one hand, we complain about how lazy people are. How much inducement the proles need. "Oh they're just lazy. Push em harder."
If we need to push people that hard, perhaps "economy of effort" is built into the species. It's a weird cognitive dissonance.
"They want something for nothing! But I want to maintain my elite status built upon your efforts!"
But that challenges the basis of elite power. If we all quit producing for them, they lose. So we're "induced to produce" under the constraints they define: no food, shelter, healthcare.
By some measures, all of which fail to account for the fact that relative deprivation is a substantial source of experienced disutility.
That really depends on the definition of »works«. If one is satisfied with the people doing the heavy lifting being a bit better off while a few overseeing everything are extremely better off, yes, then it works.
There are a other systems that we have at least some historical evidence to show will produce even better outcomes for the majority.
The problem is those are undermined almost as quickly as they are brought up. See post about brainwashing people to protect the bottom line.
People point to places like Venezuela and USSR as examples of socialism not working, for example. While ignoring that both those states were not managed by the working class (as classical socialism typically calls for), but elite masters, their bank rollers, and external forces pushing them to abandon their ways for western capitalism (economic sanctions, cutting off access to necessary trade).
Not only that, we fail to realize the continuing incentives for them to act in that way, even when acting as "researchers". Here is a highly relevant Propublica investigative piece on academic economists as consultants: https://www.propublica.org/article/these-professors-make-mor...
No one would argue that astronomy isn't a science. Traditional university macroeconomics is a different beast. Comparison with astrology is apt.
"There is a story that has been going around about a physicist, a chemist, and an economist who were stranded on a desert island with no implements and a can of food. The physicist and the chemist each devised an ingenious mechanism for getting the can open; the economist merely said, 'Assume we have a can opener'!"[1]
Yanis Varoufakis, after the drama surrounding his (very) brief term as Greek's Minister of Finance describes[2] the problem simply and plainly: "Understanding economics well impedes an understanding the economy." His continued explanation why [ibid] might be the ultimate example of how easy it is to sell bullshit as long as you dress it up properly with the trappings of math/stat/logic.
This gets weird with software businesses as these companies tend to insulate from losses relatively well. This coupled with the fact that in some markets there is no way to generate additional value without a huge public investment happening upstream (utilities) is why a lot of VC goes so crazy for it. Keeping the cash flowing is the only way to avoid being taxed profusely – All you can do in some situations is raise rents and spend hastily, for better or for worse.
It's being narrowed, but it still exists. Until rather recently many courts would recognize "do well understood process X, but on a computer" as patentable.
http://blogs.gartner.com/doug-laney/patents-for-algorithms-h...
https://news.ycombinator.com/item?id=8310084
http://www.legalmatch.com/law-library/article/what-cant-be-p...
Looking at the stock market, there are few IPOs, and after IPO, being public only provides access to limited access vis issuance of new stock...
Some capital flows to VCs, but it seems the more capital flows to large VC funds, the more the criteria becomes look for a sure thing and filter more for large scale opportunities - all while small scale fundamental development receives poor access to the vast amount of capital sloshing around (and settling in places like unused real estate...).
To me it seems that investment in direct development of productive tech and/or process is competing against profitability of short term financial manipulation - and causing a drop in overall delivery of new productivity improvements to the general economy. But even further, the very financial industry isn't really creating or maintaining a channel for money to open opportunities to develop that kind of company - certainly not a large scale needed or possible today.
This is somewhat controversial to posit, but I believe the corruption in the financial industry is extraordinarily entrenched because of the Fed. Before you call me a lunatic, smart and good people from Aaron Schwartz to Sanders have said things like this: that it should be eliminated, or that it is nothing more than socialism for the rich while hurting the poor.
The most obvious problem with it is that it creates astronomical moral hazard by protecting and guaranteeing the big banks.
After the Fin Crisis Krugman was talking a lot about making banking boring again, and run like utility companies. You can still have VCs, hedge funds, or whatever you want--but it's not funded by and guaranteed with anything other than the money you put in it, and it's separated from vanilla banking, ie Glass Steagall.
But then we had Dodd Frank and sometime after Krugman never went back to talking about that again.
Unfortunately, the dogma about the Fed is so entrenched in mainstream economics--so much so that speaking against it is immediately written-off.
Nearly 1.5 centuries ago, all the banks were actually betting against Lincoln to lose his war. So he used the constitutionally-granted right to print the nation's own currency, and won the war with it. The point is, there's no reason we can't do this if we really wanted to (and if you care about poor and working class, and eliminating cronyism from the world, you should want to).
You're very close to being a lunatic and conspiracy theorist, sir.
"This is somewhat controversial to posit, but I believe the corruption in the financial industry is extraordinarily entrenched because of the Fed."
After TARP and bailouts it's not controversial at all.
Allowing banks to merge and become huge conglomerates, the elimination of Glass-Stegal (which eliminated the distinction between normal banks and investment banks), and lax regulation of derivatives / dark money are all very direct causes.
However while you may not agree the Fed is a problem, unfortunately the Fed and central banking has an aura of group think around it that is usually only available for religious groups. I mean the fundamental concept of the fed's mandate: price stability and employment targeting--yea they sound great, but at what point do you question the ability to create value out of thin air just by playing with money. It is by definition financial alchemy.
And yes, I'm already familiar with Keynes' arguments in his General Theory, which is the historical work that set the precedent for this.
Guaranteeing the big banks can't fail is how we keep the economy going. If a bank fails, everyone that is owed money by that bank fails too. Is that acceptable? Would you be fine with your employer going belly up because the bank they rely on can't pay out money?
Just to address the above poster: vanilla banking could still be guaranteed. By contrast, in essence the Fed is guaranteeing the banks' risky investments.
The US situation of those bailouts and "too big to fail" is certainly problematic, but most people pushing that line are really against fractional reserves, but those don't really seem to have the effects people attribute to them. (And if they do have that effect, it's the central bank that sets their fraction, so it's entirely a matter of policy, not structure.)
Central banks do have the power of controlling the amount of money in circulation on most countries, what does indirectly impact important interest rates. But the US is an exception here, as the Fed decided long ago to let fractional reserves run as low as the banks are deciding the fractions on practice, thus abiding from any control.
I believe the comment about socialism for the rich -- here is his NYT op-ed on the Fed: https://www.nytimes.com/2015/12/23/opinion/bernie-sanders-to...
As for VC companies controlling the cash, that's not the whole picture. Being dependent on "free cash" from VC's is a pretty poor way of conducting business. It isn't all about the money - it's the product. VCs don't want to invest in junk just because one person is ecstatic about their idea. They really do want more sure things. A TON of VCs were hurt back in the early 2000's because companies were producing NADA and IPO-ing all the time. A lot of trust was lost.
Part of that is large companies (with a handful of exceptions) perform optimization focused on accounting measurements and predictions to maximize their existing margins. This makes perfect logical measurable sense, except that over multiple decades of refined MBA practices, it makes almost all them good some local optimization, and increasingly bad at new ventures(or fundamentally changing their approach to existing ventures). Then to break out of that local optimization, some increased investment is required that large companies are punished for if/when their profit margin drops.
So local optimizations are explored to a endpoint, and capital starts chasing higher returns - we get rentier behivior, or capital flows into bubble assets that pop up or get chased around the world in various categories - all while produtivity and growth slowly flatlines... or at least misses its potential.
This has been recognized for a while w.r.t large companies, and so the generally accepted approach is for many of them to acquire new companies to get new capability. So we get to VCs. They don't want to invest in junk, but when VCs apply quantitative filters to because they want a sure thing investment - but moving the same quantitive model to uncertain ventures just moves that some of same 'large company' problem to an earlier stage. I'm not saying to get rid of VCs, they perform a reasonable function now, but something feels off.
I'll leave off a whole discussion of where new companies can come from outside of VCs, but there are some factors holding that back (and others helping), but in general it think that's in decline and that our larger markets depended on that creation more than they realize.
So to me, it feels like the overall financial system is missing opportunities - and that part is possibly hinted at in data, at least at the gross productivity growth falloff of the economy.
Over the next 6 months, it slowly dawned on me that those who survive and thrive are those willing to screw other people over for their own benefit without as much as blinking an eye, as long as it suits them.
"This is the way of the world", I thought to myself.
Over the next decade, I focused, and worked my ass off. On my way up, I encountered countless more rich, successful and morally bankrupt individuals, and the higher I go, the more sophisticated the moral bankruptcy gets.
To be fair, it's not the fault of a lot of these individuals. Some of them genuinely do not comprehend the consequences of their actions - it just doesn't cross their mind. Instead, the fault lies with a system that not only enables but promotes this kind of behavior to the very top, without an effective counter-balancing weight on the other end. And we are the custodians of the system, we are the ones who shape it on a daily basis, by the actions that we take, the investments that we make, and the kind of relationships that we build.
Many of of us in the middle and at the bottom are just as complicit. We go to work for companies we know make the world a worse place, we work under horrible people and hand them part of the value we create every week.
Those in the middle and below do not have as much power as those on the top as an individual, but as a collective we have much more power. We can sit down and choose not to work, we can choose not to contribute to certain companies or to certain individuals.
We can say "NO!" But most do not because money. The same reason those at the top do immoral/awful things are the same reasons those in the middle and below do immoral/awful things (those at the top just have a bigger impact).
And some of those in the middle that just accept the status quo because "I've got a mortgage! I've gotta eat! I made these crappy kids and now I have to do awful things so they can eat!" will go on to be those at the top who continue the same behavior.
How it works: Regulations that are supposed to protect the public end up being a cudgel with which to beat down small companies that can't afford to deal with an onslaught of often unjustified demands for regulatory compliance. When the only companies who can afford to comply are the big ones, it squeezes out new market entrants. This decreases competition. It's bad for all but a handful of people.
How it should work: Generally (not always), there should be a direct relationship between company size and the amount of regulations which apply (i.e. more regulations as you get bigger, fewer if you're small).
We need a heavy injection of honesty into our regulatory agencies. Restoring balance to the system would unleash a wave of economic growth.
When I was shilling for Senator Sanders in 2015 and 2016, I often said that I was equally excited for both his policies and the fact that he would make a lot of good appointments, which would clean a lot of crap out the rent-seeking regulatory system, which would be great for the economy.
Unfortunately, we're going to have to wait. But I hope this gets on more people's radars as one of the reasons why the middle class has been shrinking and real incomes going down for four straight decades.
It doesn't matter if insurance is private or public if the costs of healthcare are too high. I don't see why there is no compromise. It's very bad for the future of this country.
If you're going to go from the jobs angle - let me pose a question:
Today - in 2017 - not 100 years ago, not 40 years ago, but today - now.
Does unregulated innovation create more, better jobs then it destroys?
Do you draw a distinction between regulatory 'innovation' (Miscategorizing employees, breaking laws to increase your margins, skirting training or safety requirements, introducing conflicts of interest), and actual innovation (We can make more, or better stuff)?
Do you think they are equally valuable?
What is the ratio in market cap between these two kinds of innovations?
If you want to read about rent seeking, read Peter Theil's "Zero to One". It's a manual on rent-seeking. It's all about how to create a monopoly.
Changing Government policy to reduce rent-seeking is very tough politically. Successful rent-seekers are the biggest political contributors. They pay to not have their income stream cut off.
[1] https://hbr.org/2017/06/is-america-encouraging-the-wrong-kin... [2] https://www.bls.gov/emp/ep_table_201.htm
The corporations aren't blameless here.
[1] http://billmoyers.com/content/the-powell-memo-a-call-to-arms...
More tax, of course, will worsen this problem as government spending on large companies only is exactly the problem.
>"Because it’s just a transfer from one person to another, rent doesn’t necessarily make an economy less efficient -- it’s just often unfair. "
I would argue that "rent" does make the market more inefficient. The more rent these companies can extract from consumers the larger their lobbying budget and the more campaign donations they can make at all level of government.
Political lobbying is the biggest and most effective tool used by crony capitalists.
Can you elaborate on this? I am curious to hear why those two things - a free market and AI are mutually exclusive.
But your point about further concentrating power and enabling further regulatory capture, and hence, more rents, is an important one.
Most of the jobs that pay well are zero-sum games. Finance, tech, law. Even medicine and pharmaceuticals are becoming zero-sum games (e.g companies boosting drug prices because it's easier than inventing new ones).
People have become cynical and distrustful towards each other and the system. We have lost touch with our old values.
I'm surprised that society can continue to function under these conditions.
In this zero-sum economy, we are all enemies of each other.
Are you serious? Do you know how much mankind has accomplished since 1917?
As a westerner, I am much worse off than my parents were and so my perception of life is very cynical. The lifestyle that I had in my childhood and the idea of life which my parents projected onto me was so much better than today's reality. It's quite a depressing feeling.
OK, let's assume you're 30 and your parents were ~30 when they had you. That means your parents spent their 15-30's during the 1970's. What were the 1970's like in the US (yes, I'm assuming you're American)?
Absolute crap.
Post-Vietnam with everyone wondering whether or not the US was done as a superpower. A humiliating withdrawal from a war that killed 50,000 Americans. Stagflation, with inflation in the teens and unemployment 3x what it is today. Want to buy a house? Sign on the dotted line for a 17% mortgage. Oil embargoes/energy crisis and line ups for gasoline. "General Malaise". Serious crime problems in cities and a decaying inner city. Race riots in recent memory. Watergate scandal and a disgraced President who relinquishes office.
I think it's silly to think our parents had it better.
As the competition heats up and providers become more efficient, I actually expect prices to go down even further.
If you look at operational costs per se, and licensing fees in a scenario like that, you're missing a huge proportion of the most threatening costs. Consider hospitals, for example, and recent problems with ransoming electronic health system data.
What concerns me with SaaS is that the biggest costs are very catastrophic or serious risks (like lock-in dependencies, or hacking due to monocultures--by the way, is that a formal, modeled concept in computer security, like it is in agriculture? The vulnerability of a market to "infection" due to monocultures?) that are maybe high probability over a very long-term period, but very low over a short-term period, and hidden.
You could move all new correspondence to a new (eg: on premises) system - but you'd have to keep paying to retain the same access to your business history.
Take any of the many business/crm-apps, where there's no clear migration path (you'd want both history and business process rules) - and it's easy to see how SaaS might easily facilitate "rent extraction"?
As others have mentioned the problem isn't unique to SaaS - but with an on premise solution, you might be able to move some terabytes of data by simply moving some physical drives - or at least have local access via you SAN. With a cloud provider, many businesses would struggle to get at the data at a higher rate than 100mbps even with the help of the SaaS provider.
And there's often no option to keep access to "old" system/data without paying rent, unlike some on premise solution (keep the old system, on it's own network segment, ticking along for historical records (or: in a VM).
SaaS is indicative of greater concentration and the possibility of oligopoly, though. I think it's only a matter of time before the cloud platforms begin coordinating price rises beyond the value they provide.
If they try to regulate on-premise software then it's time to break the glass.
Look at Oracle.
And that's not a problem specific to SAAS.
Good luck getting 1-10 Gpbs data transfer from most public SaaS to your own datacenter without having to pay over and above your current fee for Internet access (eg: have a look at what it costs to get just a TB data out of S3 -- on any budget (or prime) dedicated provider, 10-50 TB of data would be included - per month.
However, as a software developer, calling it rent-extraction glosses over architectural differences and value derived from not having servers tucked away in an office closet. Flexibility and capacity on the server-end, as well as huge benefits of software distribution over web-browser reducing support costs. I derive a ton of value in never having to drive to a data-center and paying EC2 by hours-used seems reasonable since there is actually a server (albeit virtual) running for my money.
However, it's certainly rent-extraction when the only thing thats going on via the Internet is a licensing check.
Adobe Photoshop switched to the cloud model, so graphic designers now pay 30-$70/month for the entirety of their career. Yeah it's always an up to date version, but before the shift to a SaaS model, it was some $600 but it would keep working for years if you couldn't scrape together the cash for the latest version.
That always remember me, how, when you argue with a communist, frequently those examples that you bring to the conversation are never "real communism".
This is the classic, maybe the reason given to justify patents. The implication being that no one would bother innovating if patents didn't grant them rent for a time.
But I wonder if the reality is merely that different people, and different kinds of people, would innovate in a patent-free world.
Patents started out as a 20 year protection on mechanical mechanisms or chemical processes as long as what was protected was publicly documented in full. Thus once the patent had run out, anyone could replicate it from the patent document.
But then the chemical process side used to argue for a quasi-software patent in court, because the patent described a computer monitored mixing process. And thus the ball got rolling.
Thing is though that 20 years is a very long time when we are talking software. By the time the RSA patent ran out, the algorithm described was largely obsolete.
On top of that we have gotten a mass of patents that are so generic in terminology, that even if they describe something mechanical they can potentially be applied to something done in software.
Not that patents have not been a problem even before computers. Serious refinements of the steam engine for example didn't happen until after the initial patent ran out.
Similarly Smith and Weston sat on their refinements for the Colt revolver until the patent ran out.
1) Patents are not an American invention. England had them before, and the Romans before that.
2) I'll assume you implied U.S. patents. The Founders regarded patents so highly that they wrote them into the U.S. Constitution. It was written generically and not limited or fixed to only "mechanical or chemical" but rather "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries".
> Thing is though that 20 years is a very long time when we are talking software. By the time the RSA patent ran out, the algorithm described was largely obsolete.
RSA patent expired nearly 20 years ago yet RSA is still used today. For example, the public key used to secure https://news.ycombinator.com is RSA.
> Not that patents have not been a problem even before computers. Serious refinements of the steam engine for example didn't happen until after the initial patent ran out. > > Similarly Smith and Weston sat on their refinements for the Colt revolver until the patent ran out.
The myth is that patents block innovation. The reality is that blocking someone from doing something incentives them to find another way to do it. Afterall, if all you want to do is copy then how is that "blocking innovation"?
1. There are plenty of US Government (i.e. tax payer funded) programs to help people get "normal" ideas off the ground. From grants, to loans, the money is there. It's hard to imagine someone destined for success being stopped by not being able to raise $10k. $10k in credit card debt is nothing for the average american.
2. Success breeds success. If you're rich, you may already have your own skin in the game, or you may have proven yourself capable of using capital effectively.
You've obviously never tried this. It would be a full-time job for a year to even have a shot at these supposed grants. The money is absolutely not there the way you claim.
The younger you are the less credit history you have which makes getting loans almost impossible unless you already have collateral to pledge against the loan.
Oh and $10k is often not nearly enough capital to start a business since you need to pay your own bills while you bootstrap the business. We get away with it in tech often because we have the luxury of working after-hours as a side-project to start with. A customer-facing business can't do that.
How bad do you want to start a business?
How long do you think startup founders work before having something that is worthy for seed funding?
Just as anti-trust laws are necessary, there will be drives for measures to encourage and even force companies to put their cash piles to use. Cash is the life of an economy, it needs to flow and flow.
You Hit the nail right on the head. I believe, this is the root of all the problems mentioned in this thread.
For example. When insurance companies jack-up rates or impose customer "unfriendly" terms, they are not acting within the "free market." They are exploiting "crony'esque" rules that limit competition by restricting insurance companies from competing across state-lines.
Opportunists are the ones who thrive when things are rigged. They can't survive on their own.
But yes, many capitalists (and non-capitalists alike) "buy" regulatory advantages.
Some leverage their dollars (buying) Some leverage their numbers (voting)
These groups enable eachother. Motives range from "defense" (virtuous) to "offense" (sinister).
You will find no practical solution to this problem other than starving the beast (decentralizing power away from government).
All this will lead to is dictatorship by the wealthy. I much prefer our current system, as flawed as it is, to corporate fascism.
Current system:
1) Big companies pay minimal or negative taxes. Small companies are taxed at the individual rate (and increasing). If Company A pays 0% at top bracket, and Company B pays 50%, Company B is unlikely to out-compete Company A.
Read: our tax system creates "monopolies."
2) Our current system allows big companies to write or shape gov regulations, making compliance only possible for the largest companies. Prohibiting health ins cos from selling across state lines is an example.
Read: overreaching laws and regulations create "monopolies."
3) Our current system provides a safety net to large companies, who have leveraged #1 and #2 above in order to become "systemic." This gives them a greater tolerance for risk, "counterbalancing" regulations notwithstanding.
Read: death spiral
Want to fight "corporate fascism?"
Shrink a "corporate fascist's" source of power.
Their power comes not from creating superior products or services, and delivering these at a superior price. It comes from their ability to manipulate corrupt or dumb politicians, bureaucrats, and voters.
Again, you will find no practical solution to this problem other than starving the beast.
2. Restated, monopolies earn more short term profits than companies in a competitive market.
3. stock investors look to maximize short term profits.
4. stock investors are offering a premium for monopolistic companies.
5. The stock market is rewarding this behavior without government intervention.
"starving the beast" will just feed another beast.
2. Over long-term, probably true. In short-term, not true. Often monopolies are formed and initially sustained by keeping prices aggressively low.
3. If you said stock investors look to maximize profits, i'd agree. Short-term? Not necessarily. Value investors like Warren Buffet are not motivated by short-term profits.
4. Stock investors offer a premium for profitable companies who can protect themselves against "threats." Government protection is one such way, I guess. Building sustainable competitive advantage is another (merit-based).
5. Your thesis rests on a premise that the government doesn't intervene in the stock market? Really? Have you heard of quantitative easing?
If you don't like the fact that big companies have a lot of power, I suggest you spend time thinking about why they have so much power, before you randomly proscribe solutions.
stock investors are offering a premium for monopolistic companies and rational companies management will combine companies to eventually become a monopoly to maximize profits and stockholder value.
My basic argument is the only reason companies don't more aggressively try to become monopolies is because government regulation(anti-trust laws) deter it.
Am I arguing for more corporate welfare absolutely not. Am I arguing for more regulation generally no. more effective regulation yes. More enforcement of current regulation yes. Both of which require more qualified effective people, which usually involves investment.
For having such a good understanding of market economic your solution is a little half baked.
The problem with this country everyone wants more or less taxes when the focus should be on more effective, transparent use of the countries funds.
There are somethings you can't just throw money at and it will fix it. Well, that's true in the negative as well.
It's a sincere question. I can't think of a single example.
Controlling supply or distribution, network effects are natural ways to get to a monopoly.
"but monopolies are also created through natural means and that still doesn't change my general premise"
I'm just looking for an example of a single monopoly that fits your statement.
is a "rent seeker" ?
Citation needed.
Smart, hard-working people who consistently exercise good judgement, prefer merit-based systems.
They do better in merit-based systems than systems that reward those who are born lucky, who have access, or who cheat and lie.
Is a citation really needed?
Yes the rational choice model is well-established to be false.
They may act in their perceived self-interest, but rational self-interest involves a lot more than that.
Citation? I hear this a lot, and it seems to stem from a misunderstanding of the word "rational" in this context, which I believe is supposed to mean "perceived" - how else would you objectively define rational?
Is it rational for a thirsting person to prefer gatorade to water (it is for them, if that's the choice they want to make)? Do you have more perfect information to justify your opinion on the matter as more "rational"?
“Rationality” refers specifically to this mathematical optimization.
Free markets lead to regulatory capture over time.
See: "Fortune 500 firms in 1955 vs. 2014; 88% are gone." If the largest companies were truly monopolies...
http://www.aei.org/publication/fortune-500-firms-in-1955-vs-...
The problem with the "two types" thinking is that it is always in a person's a person's best interest to get something for free. Ironically, this rhetoric is often used by capitalists, fearful that leftism might become effective, by claiming their opponents are the ones who want free stuff. There are lots of ways to get things for free. For instance, you can steal your workers time and fail to compensate them (common in fast food), you can coerce a government into cooperation ("We'll move to India if you don't give us the tax breaks") or you can campaign to get your friends into the government.
The fallacy of libertarianism is a belief that capitalists don't want a state mechanism with the power to tax and regulate. That is exactly what capitalists want. They're given state protection via a police or military force, state welfare through tax write-offs and incentives, power and influence in crafting legislation that fits your worldview, and less turbulent markets due to stifling of demand. The alternative is Hobbes' "short, nasty, brutish" life - duking it out eternally trying to achieve efficiency instead of excess, competing endlessly, only to profit in the slightest.
It's often said that "it's in our nature to be competitive" but it's also in our nature to be cooperative, and corporations display this fact amazingly well- they use collective influence and power in numbers to achieve ends that small businesses never could. Until people outside of that system learn to cooperate well enough to bargain for their own interests (e.g. Labor movements), it's going to be smooth sailing for the "crony" capitalists.
I have a hard time imagining tech entreprenuers are the "wrong kind."
They may disrupt by circumventing the law, but I don't buy the argument that they're not producing something of value in return.
Imagine you created an app that allowed Gay and Lesbian couples plan their wedding, and you operated in states that haven't legalized same-sex marriage.
Are you stealing from the commons?
Just because a law exists on the books, doesn't mean it's a just law.
I'd contend the opposite seems more likely; we've deregulated a lot of stuff, including, perhaps significantly, getting really lax on antitrust legislation. Consolidation and subsequent rent-seeking is the typical result of unregulated market economies.
Compare that to scam-preneurs behind startups like Theranos or uBeam, or vc-hustle-preneurs behind is-this-satire startups like Juicero, June, etc.
https://skeptics.stackexchange.com/questions/22335/are-there...
I think the biggest mistake of the last 30 years was putting any kind of trust in the ruling class to do anything but enrich their own.
As Harvard's Roberto Unger often says, "Finance has become a bad master, instead of a good servant."
And focusing on the financial industry might make you feel good because it's easy to say "wall street..." and everyone joins in on the bitch fest. It's a ton of conjecture and hypothesizing as to why business is failing, but to make it sound like one industry is just banking cash while providing nothing, is a disservice to all the people that work in that industry.
When I read "the wrong kind of entrepreneurs flourish in America" it surprises me to not see: "the wrong kind of entrepreneurs flourishes in America". I understand that "kind" should be the subject of the sentence, not the entrepreneurs. I have seen this construct several times (e.g. "this type of errors are very common", etc) and I'm wondering if it's correct, or simply one of these errors that are so common that they become the de facto rule.
A related thing I've noticed is that in British English, they refer to companies as plural. For example: "Google are going to acquire company X", whereas in American English, you usually see: "Google is going to acquire company X."
It would be better to say "entrepreneurs of the wrong kind flourish in America" - but that might sound odd or overly formal to everyday speakers.
It's similar to the rule about ending your sentence in a preposition. It's incorrect, but it also sounds more natural in many instances.
Basic system theory 101 says if you work with and optimize a proxy instead of the true metric then you will always deviate from your true and intended path. Money is only a proxy for value and some people did not get the memo. You need some second and third order correction terms if you use proxies.
It's fine to have a moral code. It's fine to be a capitalist. Just don't expect capitalism to always fit in a moral code.
I think the article's main unspoken gripe is about bad actors (folks acting in a non-altruistic way) in human society in general.
Until you remove all money and related influence from politics, it will only continue.
If they are generating profits, then they are doing something valuable. Are they sucking cash out of the government? Maybe, but it's valuable to somebody. You want to fix it? Don't try to fix the entrepreneurs, fix the goddamn government.
Most of these Comcast-type rent-seekers are complete and total assholes, I agree, but I'm not about to hold my breath waiting for them to stop going where the money is.
The point is whether it grows useful economic activity, or whether it actively slows useful economic activity.
Did you read the article, because that's its point. Last sentence:
Let's hope legislators can put aside the rancor of this hyperpartisan age and work to end the favoritism that gives well-connected businesses an unwarranted advantage.
"So what do we make here, Frank?"
"What d'you mean? We make money."
"Right, yes, but what do we actually create?"
"We create wealth."
"Okay, but like, what do we produce, what do we manufacture, what do we design?"
"Manufacture? Leave that to the c&$%^s, we produce profit!"
Incidentally, starting to order parts a few hundred at a time from places like Taobao for various projects, I'm noticing that there are a lot of companies who just do that and slap a 500% markup on Amazon. Want a 6-pack of $0.15 mini-breadboards or a few dozen $0.05 jumper wires? Sure, $5.99 with prime shipping. What a steal!
Bulk ordering has always been an accepted way to pay less in unit costs, but it helps move the risk from the manufacturer/wholesaler to the buyer. If you want to take the inventory risk, then you charge the customers for doing so, and the wholesaler cuts you a deal for reducing their risk in a concomitant way.
Also, remember that most of that "markup" is for shipping, Amazon fees, and taxes. You can't ship those items for less than $2 even with Amazon FBA (remember, with Prime its the seller whos paying for shipping, not magic Amazon elves). The Taobao guy paid $0.18 to ship the same from China (there's a long story about how that happened too).
After paying all that, the guy selling that stuff for $6 probably made $0.40 on the deal. A steal indeed.
Edit: But you're right, of course. I do still buy those packs when I want them soon.