Wealth: The Toxic Byproduct (2013)
meltingasphalt.com
meltingasphalt.com
You'd see a lot of strange behavior. Instead of consumption or even investment, excess money would be put towards speculation, trying to raise the dollar value of your holdings regardless of what you can buy (which you don't want anyway). Instead of circulating through the economy, money would pool at the people who already have their earthly wants satisfied and have no need to spend it. Instead of focusing their money on optimizing production, businesses would spend money on services or people that would help them convince others to buy their product. And instead of buying businesses for additional revenue, they would be more motivated to buy businesses that threaten to destroy the revenues they already have.
You might even get really crazy behavior, like people creating their own currencies that they then put lots of real money into, so that they can feel rich in their own little domain.
In short, it wouldn't look all that different from the world of today.
One of the examples of how broken this can be, is that of creating a company (with some paperwork and about $1,500 you can do this easily in California), then issuing yourself 5 billion shares in the company (also easy to do, just register them with the SEC), and then "sell" 20 of your shares to a friend of yours (who is a qualified investor :-)) for $20 to establish a "market value" for your shares. And Poof! you are now "worth" $4,999,999,980 by virtue of the "value" of the shares you still hold, you are a billionaire! And you only need to pay the $850/year to maintain your corporation's status.
So who wants to be a billionaire right? And what does that mean? You have a high "score" but you don't have any real wealth. You can't really sell a billion shares for a billion dollars. That isn't going to happen right?
So now people play this game in the crypto coin market, creating a coin nobody will actually use, giving them selves a bunch of it, and selling some to speculators to establish a story about what that coin is "worth." What does it mean really? Not a thing.
In the land of the blind, is the one eyed man king?
"Value" is dependent on time. You can't ignore the time-value of money.
Money is the most liquid of assets and that confers it with specific features not shared by other assets. Every investment is a trade-off between liquidity, risk and return. Money maximizes liquidity and lets you optimize for just risk and return. This makes capital allocation simple which in turn lets you diversify away virtually all of your investments' idiosyncratic risk, leaving you exposed only to systematic risk. That is why money is more valuable than what you can buy with it. Because it can create more value over time (higher return) better than any other asset (with lower risk) while having maximum liquidity.
> What if supply didn't create its own demand?
It doesn't. Say's Law[0] is far from being a foundational assumption of Economics. We've moved far beyond that since at least Keynes.
> What if people didn't try to make money to satisfy their own wants, but to one-up their neighbors in the pissing match of life?
What if one-upping my neighbor is what I want out of life?
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Your status in the tribe is highly dependent on your utility to the tribe, and that utility is highly-dependent on how well you work with other members of the tribe to achieve common goals. If you are more effective than your neighbor at advancing community goals, then you will have a higher social value than your neighbor.
When we were just tribes of 150-200 humans, our minds were able to store all of this social value tallying. You can intimately know everyone in your tribe. You know their credits and debits to the communal good. We have imaginations though, and can abstract some of this into stories and myths and other sorts of value systems, and so, maybe you don’t know Urgk personally, but he has a lot of cows, and you know how useful those are, so you immediately assign him some qualities in your mind.
This breaks down if you also don’t know how Urgk got these cows. Did he murder their owners and take them for his own? Did he execute some brilliant trades with tanned leather than eventually became a self-perpetuating cow-wealth machine and left the whole tribe better off? Hopefully, in your abstraction machine you’ve also codified some of the qualities of one type of Urgk and qualities of the other type of Urgk. He’s wearing a cross, and he treats his children well, so, even though you still don’t know him intimately, you at least can make some assumptions, and communicate with him directly to fill in the rest.
If you wanted people to respect you in your tribe (a VERY natural and good desire to have), then you might start trying to figure out how to build a cow-wealth feedback system too. You don’t know shit about tanning, but your weird son enjoys playing with sticks and has an idea to make everyone’s domicile a little more resilient to the weather with his weird hobby. People don’t really understand it, until they see it.
Or maybe you just decide to gain wealth by doing something that is not respectable, and yeah, you’ve got the money now, but it’s negated by the negative social value you’ve incurred, so you’re never truly respected and you never get the girl, ala Gatsby.
You’re comment is close to the mark. I’d go even further than you have and just say outright, ‘money is a store of social value’.
Indeed, since some 50% of wealth is now owned by about 1% of the population, it is clear that a vast percentage of wealth is now obtained through inheritance.
https://www.newsweek.com/hoarding-nickels-metal-prices-soar-...
This premise contradicts itself. Wanting to use your money to one-up people IS a want. You’re simply judging what some people might want. I’m not saying some people don’t want that, or that it’s not worth being judgemental about, but it entirely undermines your point.
If you're just interested in money as a score or means of signaling social status, you continue to have that money while deriving value from it. There are other systems that have this property - notably, productive assets (you can continue to derive income from land or capital without trading away that asset) and social status itself (bestowing some of your status on others near you actually raises your status, it doesn't give it away). But these systems function with very different dynamics than the classical competitive markets you'd study in Econ 101, or that TFA is describing. In particular, they're subject to positive feedback loops and winner-take-all results rather than equilibriums and stable prices that competitive markets produce.
However you want to argue about payment/wealth being a problem, ultimately, the idea that workers being compensated "too much" (when definitionally they aren't making as much as their labor's value creates) is the productive thing to focus on is very unhelpful.
Only if you think "most jobs" really means "Most jobs required unskilled labor in developed nations". China and the rest of Southeast Asia have enjoyed significant wage increase for decades.
Developers are an exception to your "most jobs" definition because they are not unskilled labor – well, some require less skill, but those have also not enjoyed the same level of wage upside.
The U.S. and all other developing economies (think OECD members) are increasingly "service economies". The high paying jobs are those providing services that require significant skill.
Commoditized jobs have been outsourced to Asia following globalization.
The U.S. inequality debate is entirely myopic because it compares capital and labor upside in the U.S. without taking into account all the upside the rest of the world has enjoyed.
This is a feature of the system, not a bug. If these folks weren't barely making it, there'd be more free energy for rentiers to extract through various rent-seeking behavior, and since rentiers have significantly more political power, the system would get subtly worse for the everyman in whatever ways have the least-bad optics until they're barely making it again.
Like, this is why the SF Bay Area has the zoning-caused housing crisis: because it can afford to.
Most people who understand how this works will think "okay, so this is broken, but how can I profit from this?" rather than focus their energies on how the system can be fixed. The former is much easier to accomplish.
Taking that cynicism one step further: I don't think it is about ease or difficulty of either approach. Rather, those who understand the system also typically understand the human nature, particularly its lust for power, which prohibits any system from being truly fixed. Because any system is going to be gamed by someone to accumulate power for themselves (or their inner circles). So why not apply your insights for your own benefits?
Wow. A lot to unpack here. The author was doing just fine up until this paragraph.
What "other, better uses" does the author propose? Better yet, who defines what uses are better or worse? I'm sure those workers who chopped down the wood or built the yacht would much prefer I pay them than a different worker, even if I want to buy the yacht just to watch it burn.
The author fails to understand the fundamental principle of Utility[0]. It's intrinsically up to an individual to determine that which has utility for them.
> That's why wealth is toxic. As long as someone's money is tucked away in his bank account, we're safe. But the minute it starts to leak out, via consumption, we all become that much worse off.
What an outlandish claim. If consumption were to halt entirely, no money would exchange hands and we'd go back to fending for ourselves by foraging and hunting.
At some point, we have to stop listening to laymen. This is true of every field, but Economics for some reason seems to be the layman's favorite.
I'm not an Economist either, but at least I don't go around pontificating about things I know not to know.
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Says who? That is not an axiomatic truth. You'll need to provide evidence.
You can't eat cake that's gone bad because you've kept it in your cupboard too long. Even though we're using a metaphor here, literally - in the very definition of literal - if you don't eat your cake, it actually does become toxic, defeating the purpose of having it in the first place.
edit: btw, I think we're in agreement. I'm advocating for thoughtful consumption.
In other words, you have to produce in order to consume in order to produce in order to consume, and so on. The worst possible thing would be consumption sans production - that's cancer.
Can you think of examples where you would produce without consumption? I can't think of any. Even intellectual discoveries consume information. My answer to your question would be that it would be the most impossible thing someone could do to produce but never consume.
- Person A works X amount, and consumes typically.
- Person B works X amount, and consumes at subsistence.
Judging solely from the perspective of other people, which person is better to have?
Or, for another example, the sun produces without (economically-relevant, purchased) consumption.
What if someone were like the sun, and charged for sunlight, but never spent the money? They just left the money in the bank forever.
If your statement had been 'produces X amount', and not 'works X amount', then my answer definitely changes. Less consumption for the same amount of production is always better, because in aggregate it means more resources for consumption, and production goes up. Or maybe not? I'd be interested to think about a good counterpoint.
Even the sun consumes - it consumes hydrogen, helium, lots of stuff. And that stuff is localized to the sun. Perhaps we'll figure out a way to add fuel from somewhere else to the sun one day, but as of right now, the sun consumes an ultimately limited amount of stuff. We have a pretty decent understanding now of the relationship between the sun's consumption and production of resources.
If someone were like the sun, and charged for sunlight, then they would HAVE to spend the money on acquiring more hydrogen. If they left the money in the bank, then they wouldn't be able to produce the sunlight that earns them money.
Yes, this is what I meant, and what you get from interpreting it charitably.
>Even the sun consumes - it consumes hydrogen, helium, lots of stuff.
Which is why I, anticipating that remark, added the bit about "economically-relevant, purchased" -- it does not consume in the sense meant in economic discussions. It does not purchase goods on the market that then deprive someone else of having them. The sun is not an actor in the economy that has to buy hydrogen to fuse together, so economically it's just like someone who throws off good things for free.
I think what we're both touching on here, and what the article touches on as well, is the question of what happens when the accumulation of wealth becomes so great, that it's utility becomes almost incomprehensible. We know the sun consumes matter, but to speak of the markets 5 billion years from now is so incomprehensible, that the energy produced today might as well be 'free'. The discussion stops being an economic one and turns into a religious one.
To bring it back to the article, what I understand you to be saying is, what if the Congolese Trading Window had opened into the living room of someone who could throw off good things for 'free'. They won't purchase goods that deprive someone else of having them. So basically, a never-ending flow of rice comes out of this window. This person, or even just the window if there's no person attached, literally becomes a god. It's why the sun has been worshiped. It's why feudal lords had the honorific 'lord'. The disparity in wealth between a parent and child is so great that religions have used the terms 'mother' and 'father' to describe nature and deities. A King's Divine Right. The Emperor's Mandate of Heaven. We could find others I think.
In all of these cases, there is still consumption of resources to produce something, just that the scale at which this happens is beyond the realm of understanding for the end-user. We have a decent idea that the sun will be burning in however many billion years, but will markets exist? No clue, so yeah, it's 'free'. Before we knew these facts, it was grounds for worship, but now, we just know it as physics.
You asked if I thought if to produce without consuming was the worst possible thing, and then mentioned that the need to consume was missing the core insight. What is your answer to your question?
Probably anything which constitutes a true necessity, such as food, clean water, shelter, sanitary conditions, etc.
Except that they don't quite work without the window, which removes the needs of a single participant from the society to be optimized. A general conclusion like "wealth is toxic" cannot be made without explaining why the window is still in place.
I don't think it's spending that hurts society. What hurts is if a single person spends so much above average that it notably drains the number of workers still available to serve the needs of everyone else in that society.
While that could be true, we currently aren't really dealing with a shortage of doctors because there are too many people building yachts. If anything there are too many unskilled workers because our educational system has largely failed to adapt in the last 100 years.
What the workers do or don't appreciate has nothing to do with the author's argument. A squad of mercenaries might appreciate you paying them to murder someone.
The utility of money to a single individual decreases as the individual acquires more money, i.e. utility of money is higher for poor people and lower for rich people. This notion applies directly to the things purchased by that money. The aggregate utility (benefit to humanity) of a yacht that a single individual purchases is therefore far lower than the aggregate utility of a bunch of smaller things that are purchased by a bunch of less wealthy individuals.
And then what follows from that is by purchasing yachts, you are promoting an industry that lowers aggregate utility. It can be argued that if you're going to "feel bad" about money, this spending is what is the potentially unethical part, which was the author's point.
The author is saying that accumulating wealth is just, assuming you were payed fairly, showing a debt society has taken on to you. Society hasn’t had to produce something in return yet. And it’s how you spend that debt that can cause problems, not that the debt exists. You can spend it in ways that direct people to create utility that you share with society or in ways that lock that utility up.
This is something I've been thinking about a lot recently. Surely when comparing inequality in societies, what we really care about is consumption. Singling out billionaires as an example of how unequal our society, I feel, is disingenuous. How much more does Bill Gates really consume than your 'average Joe'? Sure, he presumably eats good food, wears better clothing and has a big house, but his personal consumption levels are probably no more than an order of magnitude greater than ours.
What separates him then from us, considering he has a paper net worth many orders of magnitude greater than us? Well, mainly that wealth grants him an outsize influence on the economy. By virtue of his wealth and participation in the stock market he has access to some very big 'levers'. He can dictate what a large portion of the workforce choose to pursue as 'productive economic output'. He is, by means of increasing his net worth, incentivised to make prudent decisions in this regard. High performing participants in the stock market gain more influence in it. This is an optimising feedback loop for the economy and is less fair (but more effective) than simply giving everyone an equal say in the matter.
Is this a problem? Maybe. But does it really make our society more unequal? I would argue 'not as much as you might think'.
This assumes decisions which drive up the share price of Microsoft and/or the personal satisfaction of Bill Gates tends to yield better economic performance than decisions which represent what the public want. There's good reason to believe there are many situations where this isn't the case (the Gates Foundation's projects to help humanity are a thing, but so are battles for monopoly power). Wealth also tends to be much more heritable than entrepreneurial vision...
Bill Gates being one man with the power of governments and institutions is the inequality we are all talking about.
So to tie it all together - if we believe in the American democratic project we are running, I deserve the same amount of domestic political power as any other civilian, not necessarily the same wealth. However, if wealth acts as a power multiplier (as we just discussed), than, naturally, wealth inequality results in democratic inequality and needs to be acknowledged in order for democracy to work.
Unrelated to my point, but in response to your question: Wealth (especially the wealth Bill Gates has acquired) comes from creating value for shareholders, not society. Do not conflate those two things.
The Gates foundation directs a large amount of resources not to "prudent economic decisions" (eg, it looses money), but to non economic priorities he set.
I have no particular complaints about the Gates foundation specifically, but in an idealized democracy, this scale of resource utilization would be subject to more democratic oversight (eg. Compare the CDC fighting malaria with appropriations from an elected congress to the Gates foundation doing so with appropriations from Bill Gates).
In practice, there is a lot of overhead to the democratic proceds, so we want more private charity then is ideal. And you are correct that there seems to be a limit on how much resources people consume before they start helping others (even if the way they help does not match the priorites of the general public)
This is true, and although certainly not a bad thing, is perhaps a sub-optimal allocation of economic output. There is perhaps an argument for having individuals with enough power to do this as a means of making decisions that are sub-optimal in the here and now, but over long enough spans of time turn out to be optimum. Another example would be investing in renewable energies.
A lot. Just consider his preventative health care. I would bet it runs in the millions per year. Then consider the education and opportunities that he and his children got. And then consider that normal people cannot have those same things precisely because Bill Gates and his ilk lobby against any measures that might put some of the country's wealth towards those goals.
Can you elaborate?
The median home price in Seattle is ~$700k, and Gate's house cost $127 million, so his consumption is probably much closer to two orders of magnitude greater.
It gets worse. They not only get more influence in the stock market, but their access to wealth gives them outsized influence in stuff that has nothing to do with the stock market and where the logic of finance capitalism can actually be destructive to the central mission of the activity.
This happens in government, the arts, the academy, sport, charity, etc. The dominance of business-people in the business sphere allows them to dominate all other spheres despite being manifestly unqualified due to the fact that politics, education, art, etc. operate on different value systems than businesses do.
For one, you could simply hand the pile of cash out to the first person who comes by your window.
Or you might hand small amounts of cash to a bunch of different people.
Both of these seem like nice things to do. But then you wonder: what if the cash in your living room is counterfeit? More to the point — does it even matter?
Wherever the money came from, if you dump it through the window, you'll be helping a few people, but at the same time causing inflation that will hurt everyone else.
What you do with the money affects the distribution of wealth & goods within the society. What is a good distribution? You need a moral/ethical framework to decide. I won't make an assumption on which one we go with, but lets say we go with one.
Not spending or donating the money is making the choice that the distribution of wealth as it currently exists is the most optimal. Is this just? Depends on your moral/ethical framework.
Saying that earning is good and spending is bad is overly simplistic. You need an objective function on the distribution of wealth. Earning money in a way that warps the distribution away from the ideal can then be considered bad (and thus should be 'corrected' via taxation and other methods) and spending money in a way that warps the distribution toward the ideal can be considered good and should be rewarded (via tax credits etcetera).
Once you've spent the money, though, other people will have it, and they have the power to spend it on their wishes. If you assume that people who did the work for you are basically good, this is a good thing. There's nothing wrong with a paycheck.
Maybe the problem isn't the money, it's the work? Are you creating bullshit jobs by spending your money on bullshit? But how do you evaluate that? What's honest work anyway? There are jobs are unpleasant and/or dangerous, but still jobs people are happy to have. Office work is comfortable, considering, and yet can be considered "soul-crushing" under some conditions. Maybe the yacht builders enjoy the work and live well?
This is all second-guessing other people's decisions at a distance. It's complicated enough that it's tempting to allow the market to hide all these issues under layers of abstraction. You usually don't get to review labor conditions anyway.
There are some attempts at breaking the abstractions by adding other abstractions, so we see labels like "fair trade" and so on. This supposedly lets you know what's going on at the other end of the supply chain. It's all fuzzy and reputation-based, though, which provides opportunities for cheating.
Maybe cut through the layers of abstraction? Directly hiring people makes you the boss and you get to decide what kind of boss you're going to be. But it's by no means certain you'll be a better boss than average, particularly if you're inexperienced.
In theory, yes, but then you can't diversify as much as you can by just consuming goods and services provided by different companies and workers.
As an example of what I mean, the idea of consumption being a net-negative destructive action goes against the economic concept of velocity of money and how that drives economic engines. On the other hand, I can understand because the net value is perhaps negative of a grossly consumptive action like buying a yacht, simply because of the natural resources consumed to produce it. Economics rarely accounts for the externalities.
The example of the yacht is rather contrived as well. They talk about how all of the craftsmen and lumber workers had to chop down, dry, age, cut and polish the wood to make the yacht, however, it's somehow evil for us to buy it?
This seems rather ridiculous when you consider that the money used to buy that yacht paid the salaries and income of all the craftsmen and laborers that built it for you, compensating them for the value they provide to society. If there was nobody willing to consume or buy products, how would anyone make income?
This article seems to understand capitalism superficially, then demonstrates the authors know little about capitalism in the final paragraphs.
I don't know what the author's intention was, but my assumption when I read that was their economic world view is one in which people should focus inwardly, striving for sustainability over specialization. It's conceivable to have economic exchange without luxury goods, because that labor can instead be directed into other activities.
That said, I had many of the same questions myself. I think specialization in society has been historically important to the betterment of humanity in many ways. As has the ability of markets to enable businesses to invest labor ahead of sales, so whether or not someone purchases something (with the exception of custom projects like a yacht) rarely has any impact on whether or not it will actually be made. Just ask Atari.
The point he is making is that they are compensated but no net value is returned to society as a result of their labor and resource expenditure. The yacht "disappears" in your private marina where it will rot away providing you with a purely private satisfaction, whereby the same labor could create houses, a public parc or some other widely shared goods, whilst still compensating the workers the same and having the same overall economic effects.
Symbolic, money wealth, thus becomes a force that diverts social physical resources away from social needs and towards private needs of wealthy individuals, making everybody else worse off compared to an alternate more egalitarian social arrangement.
I would interpret it that as long as billionaires don't sink their fortunes into megalomaniac wasteful personal consumption, like say building pyramids, the results of capitalism and inequality are not very different from a more egalitarian society, the vast majority of resources are still employed to make most people better off. What's unequal is just the representation of wealth, who owns what and who works for whom.
For example, if Warren Buffet would start to liquidate his symbolic wealth to build a giant Warren Buffet statue, this would have a net negative effect on the wealth of the average citizen. Yes, it would provide jobs, but it would also extract available capital from the market that could be invested to create other jobs, so over all it's a wash. No saleable products are generated and a massive amount of resources is required, bidding the prices of these up without putting anything back. The consumption of everybody else would diminish to accommodate for the higher prices and lower overall quantity of products now available. Society has "decided" to shift production from cars and houses towards a giant statue that nobody really needs.
I also disagree that the Warren Buffet statue would have a negative effect on the wealth of the average citizen. Warren Buffet would be taking capital that is locked up inside assets and spending it to build something, directly contributing significant income to the middle class (laborers) in the economy. This would have a positive beneficial effect on the economy in general.
Imagine a wealthy billionaire with all of his assets locked up in gold bars in a swiss vault. Outside of a few hired guards that protect the gold, nobody benefits. If he liquidated that gold and used the proceeds to build statues, quite a lot of people would benefit from the income generated.
If a billionaire is entombed in a safe with his symbols of wealth forever, it's as if his symbolic wealth ceases to exist. Effectively, the symbols of everybody else become more valuable to reflect the total quantity of products and services available. It's just like burning money, no wealth is destroyed, just redistributed to everybody else who holds the same currency.
Intrinsic value is not created by spending money, it's created by people doing work for that money. The right question to ask is "whom are they creating value for", not "how many papers did they get for it".
I think it's fair to say that some consumptive activities are value positive, some are value neutral, and some are value negative for society as a whole. A yacht may in fact be value negative, but it doesn't mean every action where a person who holds some wealth purchases a thing to consume it is value negative.
The economist isn't really concerned with whether consumption is good or bad, but takes it as a given that people want to consume. When the hypothetical protagonist in the story buys himself a yacht, he's satisfying his own desires by redirecting the productive efforts of many Kongolese towards his own end. You can layer a value system on top of this, and argue either that it's immoral for one person to be able to direct the energies of thousands of other people for his personal efforts, or argue that it's moral because he previously delivered more value to the Kongolese through his grain speculation than he is consuming through the building of his yacht. But those moral judgments are separate from the fact that under the monetary system in this thought experiment, he has both the ability and incentive to direct resources in this manner.
In short, I think that the assumptions and historical background of economics (descending from political economy) have produced a way of viewing the world which is not value-neutral at all. The existence of heterodox economics (which should not be dismissed as "value" spins on "regular economics") would seem to show that the bare set of assumptions that orthodox economics makes are neither givens nor small in number. Marx, Sraffa, the neo-Ricardians and the Post-Keynesians questioned them. So I think that if science can be admitted to be ideological, we're in for a big treat when it comes to economics.
1. If everyone is a net saver you get paradox of thrift [0].
2. For every buyer there is a seller. Being a net seller depends on somebody being a net buyer... it is strange to say "i am moral by depending on somebody being immoral"
3. As others pointed out, distribution of wealth is a critical component as it grants influence multipliers to people. It is easy to pigeon hole majority into having no money (and thus no spending choice) by hoarding all of the money (especially when the "service" you offer is arbitrage, which doesn't increase net real commodities).
4. Rather than thinking about producers/consumers, it is probably more useful to think in terms of utility [1]. Spending money can increase overall utility (most clearly -- direct investment in a utility increasing business). The growth in overall utility can actually increase total production (which the author equates with "good") despite his argument totally missing this.
[0] - https://en.wikipedia.org/wiki/Paradox_of_thrift [1] - https://en.wikipedia.org/wiki/Utility
To the question: are coders worth it? The answer in my opinion is yes. Software engineering in general is a type of labor that is conducive to generating large profits.
Building robust software systems has large fixed cost, but once the system is out in the wild it has close to zero marginal cost. The cost of distributing one more app through the app store is pretty low (give or take App store fees). A share of the "profits" will go to the developers, and such developers are highly paid relative to other professions.
If you want to do good with your money: spend it. A high level overview by Ray Dialo really helped me understand the boom/bust cycle and how money flows through the economy [0]. Look at China, for years the economy was growing at almost 10% -- driven by the consumption of the new middle class. Now growth is slowing to about 6% and everyone is freaking out, this is because due to higher personal debts China is reducing it's spending. Your spending is someone else income, and a certain % of income is paid out to workers which results in higher wages.
I'd say smart (saving, investing) and "ethical" (to your personal beliefs) consumption, along w/ charity, is the best way to morally utilize your wealth. Support the arts by going to a show, support teachers by raising funds for school supplies, renovate your home, support a farmers market. Wealth intrinsically is neutral. It's all up to you.
Essentially, become a bank that makes only business loans. Perhaps charge interest, perhaps not. I'd recycle loan payments to make new loans to new entrepreneurs. I'd meet periodically with the borrowers to learn what is working for them and what is not so that I can select better candidates over time, hopefully before I run out of francs...
My problem with it was that most of the businesses were of the retail type (selling clothes on the streets). I’m not an economist but that seems to me to not have much potential for lifting many out of poverty.
It’s a very common refrain to describe how many hours are wasted each day acquiring some necessity like food, water or shelter (I roughly include clothes under shelter).
Opening a clothing shop in the central market of the largest town wouldn’t move the needle.
Opening it in your village or the nearest crossroads could alter many lives.
"The solution societies find, as they get more specialized, is to make the trade into a two-step process. Instead of trading violins directly for potatoes, you trade violins for, say, silver, which you can then trade again for anything else you need. The intermediate stuff-- the medium of exchange-- can be anything that's rare and portable. Historically metals have been the most common, but recently we've been using a medium of exchange, called the dollar, that doesn't physically exist. It works as a medium of exchange, however, because its rarity is guaranteed by the U.S. Government."
The "two-step process" part reminds me of pointers, strangely. The metaphor doesn't make much sense though. A dollar points to wealth? Dereferencing a dollar obtains the wealth it points to?
violing <> dollar dollar <> potato
However, that would be the worst thing I could do for society, because I would be removing that resource (whether it has intrinsic value or not, it is still a resource) from society.
In order for me to earn money, someone else has to spend it. I don't see what labeling one of the sides of that transaction as good and and one as bad accomplishes.
> Don't get me wrong — this is far from the full picture. There are a ton of second-order corrections we need to make. We'd want to inquire how the money was earned, for example. If it's earned in free, honest, competitive transactions, it's going to be a better measure of value-added than if it's earned coercively, dishonestly, or in stifled markets. If it's earned in positive-sum games (like farming), it's going to be a better measure of value than if it's earned in zero- or negative-sum games (like spamming).
> On the spending side, we need to account for whether the goods we're consuming are rivalrous or non-rivalrous, as well as all the externalities from consumption, both positive and negative. If no one consumed anything above basic subsistence, we'd have a lot less economic growth, fewer innovations, and inferior technology (including medical technology).
I'm sorry, but the author makes a terribly weak argument and than hand-waves any criticism away preemptively. That's not how this should work. That "ton of second-order corrections" would immediately destroy his argument.
Now if you were hoarding the money by putting it in banks and various other investment vehicles -- then you are doing a great deal of good for society -- as the resource is not actually being removed.
I hear this argument lot, but just because you are not using your money does not mean somebody else is not using your money while you are not using it. The only case that might be true is if you were a real life Scrooge McDuck, but then you probably killed yourself the first time you tried to dive into your vault of coins.
When ever you store money in a bank, it gives the bank the ability to make loans using that very money to other people who then can start other businesses which intern then generate more exchanges of cash with other people.
So again, unless you are actually storing raw cash under your bed -- the fact that you are not spending it is not a ill effect on the economy as a while. I also postulate nobody has a bed big enough to store enough raw cash that the economy would ever notice.
In short I am calling BS on the idea that you can actually remove money from circulation -- other than actually destroying it that is.
Maybe I am still missing the point, but just because you have a bunch of money does not mean you need to make boat building jobs. The bank can easily loan the money out to any of the Congolese people who can show that boat building is a good business. And you who have made a bunch of money off speculation can be part of that by simply hording your money into a bank.
The original article - what we're actually discussing - chooses the example of buying and selling with cash through a window, and worries that actually putting the cash into circulation at all might create inflation. The example is carefully constructed to avoid anything being done with the money except buy and sell goods, and the act of withdrawing the grain from circulation is likewise celebrated as value creation. It's pure internet-Austrianism.
As for the real world, the ability of real world banks operating in a fractional reserve system to lend to boatbuilders is not constrained in any meaningful sense at the margin by speculators' willingness to deposit with them, whereas boatbuilders' willingness to pay staff and suppliers is entirely dependent on whether people who have accumulated wealth buy boats. So the causality works the same way: consumption, deferred or otherwise, is the necessary element for growth. And if people who've made a bunch of money off speculation want to really improve the world, they'll want their money invested somewhere more actively than a bank or spent.
I think the author would say that the pile of money under your mattress is not a resource, but rather just a pile of tokens that represent an ability to acquire resources in the future. If the author's view is correct then keeping it tucked away under your mattress has no net positive or negative effect: it just sits there. The exchanging of valuable resources that produced the tokens happened sometime in the past.
The point isn't that trade is actually bad, the point is that you've become an actor, moral or not, in the congolese economy. The attempt to find a single number that makes you good, and not bad, is simply Calvinism minus the theology. You can find out how good you for the world around your accounting statement as effectively as Anubis could find out by putting your heart on a scale.
I don't admire the guy for failing to adequately state the value he's bringing to the table.
More to the point: most of society is by his estimation engaging in trivial bullshit. Faux intellectual software developers like to self-flagellate. Sure. We work on stupid stuff. But what do they think toy makers, the entire entertainment and financial industries, fashion, much of the auto industry, and even the majority of the housing industry are busy doing? They're all selling products that people don't need and probably won't make them much happier or better off. Don't like it? Go be a hermit. The story of the twentieth century was the pursuit of largely pointless (from a well-being perspective) excellence. That will probably remain the case for the rest of human history, since we already have almost everything we need for well-being built in, and the small remaining set is really cheap and no longer economically significant.
(I guess this is ultimately the point of the article . . . sort of . . . but I'm so over the trope in the first section that I just had to react to it.)
It seems more like a personal cry that they don’t find the work fulfilling, but it’s far and away from earning something for nothing.
If we didn't have plumbers, our infrastructure would collapse very quickly. Without sanitary waste disposal, disease would run rampant
"Imagine a particular bag of grain that you bought at T1 for 200 francs, and then sold a month later, at T2, for 800 francs."
What about at 1600 francs? What about at 16000? The original argument was about morals, not math or some kind of utopian economy where every transaction is fair.
This thought experiment is mistaken in almost every direction -- first of all it's not zero-sum to double every bank account given the unequal distribution of account balances. Second, and even worse for the point being made, it's wildly untrue to imagine that food is in such short supply that we need to double it. The problem with food is primarily one of distribution! This is where I gave up attempting to see his argument through. There's nothing to be gained by "reasoning" from such poor premises.
Slightly more technical translation of the above: this essay is a great illustration of the vacuity of the revealed preference theory of value, important in economics but widely shredded in every other discipline just because it entails silly consequences like whenever someone pays you to do something that indicates that you did something genuinely valuable for them, an idea that reduces the notion of "valuable" to nothing but observed behavior.
if i extract 100 tons of carbon from the earth in the form of petroleum, then sell it to make a profit of $100, that profit does not take any externality into account. i could be making it such that $101 dollars of future economic activity is prevented by virtue of the extraction process or subsequent combustion and ruination of the environment. the petroleum "provided value" -- positive short-term value, but with a stiff cost of net negative value in the future. the fact that i subsequently use those $100 that i made to consume some product isn't relevant. society would have been better off if i hadn't made the money in the first place.
this stuff isn't hard.
Let's imagine you are providing future options to Congolese farmers, but you know you can poison the water supply and cause specific crops to fail. In this situation you, you sell the Congolese farmer a contract stating that he will sell his crop for a specific price while you know the constrained supply will increase the price to absurd levels.
Know you just got a bunch of money and yes you provided "value" to the farmer but at the cost of everyone else.
On first read I thought that this was incorrect, but on pondering a bit more, I think it's sound -- the observation is that in effect you're creating new Congolese money, and you've not actually produced any value to add into the economy, you've just increased the numerator in the <currency/value> equation.
(Taking the example further, if there's 100 CDF in circulation, and you add 100 CDF to the economy, then you'd have to reindex and make everything cost 2x. The only reason this isn't obvious is because it takes time/transactions for this price signal to equilibrate through the economy, and so it's impossible to measure on the scale that the example considers. Perhaps this is more obvious if we reconsider the thought experiment with X=(Congolese GDP).)
On the other hand, if you were to hand over some USD from your pocket, those have "inherent value" from a Congolese person's perspective, in that they are fungible with goods on the international market and don't remove value from someone else's currency.
Anyone with actual Economics theory know if my intuition here is correct or what model describes it?
In practice, on a national level it's unlikely any individual is going to drive up the general price level because the actual quantity of currency in circulation is driven by the banking system (which ha policies specifically designed to keep the supply and demand for money in balance). And an tourist handing out currency willy nilly is going to have a big impact on prices in a small village regardless of what currency they pay in, because there's not much choice or competition there.
In terms of theory, the basic intuition is described by the Quantity Theory of Money and the reasons why prices/wages tend to rise slower than wages is covered by (New) Keynesian economics; covering when, how and why the extra spend might lead to more growth or more inflation is pretty much the entire first year of undergrad macroeconomics (particularly with the USD added in as well; that introduces the dynamic of how a fall in the value of the Congoese Franc affects imports and exports and resulting effects on local production)
This depends entirely on how you distribute the money. If you give each Congolese person an amount of money scaled by how much they currently have then, yes, you're just changing the currency scale uniformly and no one's relative wealth is affected.
But if you give everyone a fixed amount of money, then even though the total value of the Congolese economy is the same, you have reduced economic disparity between its members.
We are social animals, and our standing within the tribe is most certainly a resource to be extracted and utilized. How you utilize it is a different discussion, but influence and respect are undeniably parts of our software as human beings. Money is not a token we trade for things that have intrinsic value. We would have traded for these things before money was a thing, under a system of social credit. Everyone knows who's dependable and who sucks in the tribe, since you see and work with them everyday. Now that we're bigger than 200 tribe members, we need an abstraction to determine this: money.
The author comes to this conclusion about 4/5 of the way down:
>The money you've earned represents value you've contributed to society.
I agree with the author throughout most of the article until this thought:
>The point is, money spent on consumption is toxic — value-destroying.
It's like, yeah, if I eat my cake then of course I can't have it too, but I needed the calories, and the tribe is better off that I had the energy and means to be productive. The whole of section V is just weird to me. It would be like saying 'metabolism is toxic'. I mean, I guess it can be? There are waste products, and there's also energy. It's just a nonsensical conclusion that we get to in an otherwise well-written article.
>But as long as we're soul-searching, let's not forget to examine our spending habits as well.
Yeah, 100% agree. Thought-provoking read overall.
Most, but by no means all. Some are outright fraudulent, because I'm lying about what I'm selling. Some are coerced, because I've used my economic, social or political power to rig the deal in my favour. Some have unpriced externalities - you need oil, I have a shale oil field, we're both better off but some other sucker ends up with flammable tap water.
If we aspire to be ethical capitalists, we need to think about transactions in a more nuanced way than simply "free markets best markets" or "production good, consumption bad". We need to seriously examine whether the transactions we're entering into are genuine win-win scenarios.
An important missing point with author: Money you get tend to represent the value you deliver, not always. In many cases value you delivere is way way off than money you get. For example, lottery winner and a CEO who bankrupts the company while getting golden parachute. This is the reason why the web dev in authors referenced post is wondering if he is being overpaid for drawing boxes on web page.
This is right now becoming universal questions for lot of people who live off of passive income or are in exec roles with as much as 1000X compensation. Economy and markets are not perfect. In aggregate and over a long term things might balance out.
In the buying-an-iPhone-is-consumption-and-bad spending example, if the iPhone is also used to increase the reach or efficiency of production, does that cancel it out? I like the yacht example better.
Satisfying someone else's need is good, therefore having your need satisfied by someone else must be bad.
But the real world is not this way at all. Transactions are not zero-sum. It is entirely possible to satisfy someone else's need and have it not cost you as much as it benefits them. Once you realize this, the entire chain of logic falls down.
The wood etc. that goes into a yacht could be put to better uses, but the water, fertilizer and land that goes into a sack of grain could find no possible better use?
There is no axiom that reconciles these contradictions better than the obvious one: Transactions, and wealth, have no inherent morality. Make any claim beyond that, and you are going to have to resort to the hand-wavy fallaciousness of a disclaimer-ridden argument.
This is immediately troubling and betrays a naive understanding of currency and human behavior.
This article essentially writes off and lumps together all kinds of toxic behavior we see in private markets.
The system is an abstraction of money in -> goods out. It doesn't specify anything about amounts and it places restrictions on goods vary sparingly.
If you were to place restrictions on goods out some kind of ideology then where do you stop the restrictions?
No yachts, they're wasteful!
No luxury cars, they're wasteful!
You don't need a bigger TV, the one you have already works. Don't be wasteful!
You don't need luxury food. Regular food will do.
I mean... you just end up with some god-awful Marxist hell hole of a system that doesn't work very well.
No thanks. I'll let the occasional person who has earned just buy their wasteful yacht because in aggregate, over time that seems to accrue the highest benefit to me no matter who I am.
This guy's a psychology and computer linguistics major. That's great, and I'm sure he's got plenty of great ideas, but we computer science people have a bit of an issue with buying our own hype. Society greatly values our skills, many people consider us to be exceptionally bright, so we end up believing ourselves to be general-purpose geniuses much like aging physicists do: http://www.smbc-comics.com/comic/2012-03-21
We are not general-purpose geniuses. A little knowledge is a dangerous thing. Intellectual arrogance has caused many an engineer to meddle in things we don't properly understand and it occasionally causes catastrophes, or more often it merely spreads misinformation because most laymen put great value on our thoughts and view tech people as some kind of oracle.
In the article he lampshades sophistry early on, but that doesn't magically save it from being sophistry. It is absolutely sophistry, a transparent attempt to assuage some kind of guilt and justify a moral quandary through inventive story telling and evidence-free faux truthseeking.
He also calls out late in the article the fact that this thought experiment he's made only covers a single currency and a single commodity, which is an unreasonably simplistic model. The parable doesn't consider bad faith, market manipulation, monopoly, corruption, unsustainable expectations of growth, asymmetrical information, pricing inefficiency, and all sorts of other issues that crop in real life and can't simply be ignored. With a little charisma and eloquence it's pretty easy to make a self-consistent mental model by weaving a fictional story and it feels like truth, but in reality there are unanticipated complications and external interactions that screw things up and totally throw off your conclusions.
For instance, in real life there wouldn't be just one guy speculatively buying Congolese grain through a magic portal. There would be lots of speculators in wealthy nations, fueled by riches extracted from all over--including the Congo. What about when their speculative hoarding is actually the force which creates the shortage? Are we being such benevolent, wealthy overlords if we cause a famine, drive up costs, then sell the same product back to them at exorbitant prices through these rent-seeking practices? And speaking about rent, that's when multiple commodities come into play. What happens when our speculative buying-up of resources causes scarcity and makes them spend all their money on food and miss rent? Rent, by the way, which is also being artificially driven up by speculation and is not in line with natural supply / demand-based pricing. Because it's not just being sold as housing, an intrinsically valuable use; it's also being hoarded in order to speculatively extract wealth. People buying houses not because they need shelter, but because they simply expect somebody else to buy it at a higher price later on. Price does not magically match intrinsic value 1:1 at all times, which is an assumption his parable is dependent on. And money being an abstraction does not mean that extracting enormous dollar amounts from a local economy and hoarding it does not hurt that local economy. The amount of money you charge people for goods and services does not directly translate to how much value you've blessed their lives with. Consider our healthcare system. We pay far, far more than any other country, and that wealth is hoarded en masse by insurance companies--essentially speculative, unnecessary middle-men who only add to the cost of utterly essential services which must be bought at any cost--yet the intrinsic value of our healthcare is far lower. We have a very low life expectancy for a first-world country, let alone a superpower: https://ourworldindata.org/the-link-between-life-expectancy-...
That money sitting in a bank is not proof of our intrinsic value going up. It doesn't always work out that way in reality. So we aren't off the hook yet in our own affairs.
Economics is hard. Ethics is hard. We can't handwave it using fairy tales with magic doors. I'm no economist, so I don't want to claim any expertise either. Take all I have just said with an enormous punch of salt, as if you're boiling pasta. I only go into these diatribes to point out when others undeservedly claim authority on a subject. People need to know to view this with appropriate skepticism. People shouldn't make authoritative think-pieces about subjects like this just because their job exposes them to a good amount of math and logical problem-solving, thus causing us to assume we can apply that to anything without significant subject-specific study and actual gathering of observational evidence. Even expert economists do very poorly at predicting and properly understanding the way this all works. This subject defies translation into a simple analogy, and balks at being explained to somebody as if they are five. People who try to do that are usually fooling you and themselves as well.
This would be incorrect if it turned out that there just wasn't enough money out there to provide sufficient liquidity. This is the reason bitcoin is nearly infinitely subdivisible and the nominal reason why stocks are split.
The value of money in general is the convenience value of not having to barter. If the currency has deflated to the point where nobody can use even your smallest denominations, then people will devise an alternative means of exchange that is more down to earth. So it can easily be a not zero-sum action to double the account numbers. It can be worth more than food can in an illiquid environment, because while the demand for food is fixed to the number of people in the world at any given time and that it spoils, money does not spoil and injecting more of it into an economy is a tried and tested stimulus technique. Just doubling the food doesn't necessarily mean that the people that need it are going to get it, something foreign aid organizations are intensely familiar with.
> Imagine if, after years of speculating in the Congolese grain market and accumulating millions of francs, you decide to cash out with one final act of buying a yacht through your window (then nailing it shut). Nevermind the logistics of passing a yacht into your living room. The point is it's an incredibly selfish act, and almost perfectly cancels out all the good you did through speculation.
Not at all, you're doing the equivalent of Pharaoh building his pyramid tomb, or more prosaically, retiring and spending the rest of your life making bad art. If Pharaoh didn't build his tomb, then Egyptians will think he's weak. The tomb is a symbol of Egypt's wealth and prominence, as is the yacht, and the bourgeois retirement. If you don't exercise the perks of your station, then you're basically saying that you're doing it all for nothing.
Capitalist society works precisely because everyone has a selfish motive, it wouldn't work at all if people didn't. The author thinking that money is intrinsically worthless is the same mistake as thinking that yachts are worthless. Symbols, of paper or of success, are important motivators. They have intrinsic value as symbols. If you fail to understand this then you're missing an important piece about how markets reflect human nature.
There are areas of the economy where the symbol value of goods far exceeds the utility value of them. Numismatics, fashion, and art pop to mind immediately. These markets can be understood, but not if you don't think symbols can have value.