Adam Smith and Inequality (2014) | Hacker News Reader

Adam Smith and Inequality (2014)

blogs.lse.ac.uk

228 pointspaulpauper270 comments

One of my favourite passages from Adam Smith, I believe it was from the Wealth of Nations, though I don’t remember the chapter. When I was underemployed I took the time to read it (skimming the obsolete chapters on colonial administration: the American revolution is referenced as an ongoing disturbance)

>“We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate…Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people…” [In contrast, when workers combine,] “…the masters..never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen.”

I’m not well versed in Smith’s writings and I’m not good at parsing older English. What are your key takeaways or epiphanies from what was quoted?

The ownership class are able to organize and conspire with one another to pool and promote their own mutual interests, and no one notices or bats an eye. When workers try to organize in order to promote their mutual interests, the ownership class uses the power of the state to crush them. They enact laws that make such organization illegal and then enforce the laws harshly and without mercy.

A perfect summary.

It was written 100 years earlier than the Haymarket affair (1886) and 200 years before Thatcherism and the Miner’s strike (1979, 1984).

The UK coal industry was destroyed by the labor movement, so I don't see how you imagine the coal company shareholders won that. Had contract liberty not been destroyed by the UK socialist/labor movement in the decades prior, the coal companies could have fired the strikers, and survived. That would have been better overall for UK workers.

The disappearance of UK Coal, and much of the UK manufacturing sector, played no small part in the stagnation of UK wage growth since the 1970s.

When Adam Smith's maxim, that contract freedom not be infringed upon by government, was in force, in the late 1800s, unions could not single-handedly bankrupt industries, and wages, alongside industry, grew at their fastest rate in both US and UK history.

When workers organize, to lock down the market with the assistance of government intervention, they create exactly the same kind of corruption.

For example, thanks to the dominance of public sector unions, New York now has nearly 300,000 unionized public sector employees receiving over $100,000 a year:

https://www.forbes.com/sites/adamandrzejewski/2020/05/26/why...

NYS public school teachers with 35 years of experience receive a pension of $87,945 per year on average:

https://www.nydailynews.com/news/politics/pensions-retired-n...

When you amortize the average amount paid out in total in pension, over the work years, and add that to the other components of their annual compensation, this puts NYS public school teachers in the top 10% of income earners in the US.

It's also incredibly hard to fire New York state public school teachers:

https://www.the74million.org/article/investigation-nyc-tried...

Why this is so important was explained by Smith:

The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.

Without fear of dismissal, fraud and negligence multiplies, and thus we see growing inefficiency in the public sector, even as public sector unions direct an increasingly large share of economic output to their members:

https://ourworldindata.org/grapher/social-spending-oecd-long...

I'm not sure the points you've raised demonstrate that there are many New York teachers that should be fired that have not been. The link from the74million.com focuses more on teachers that were successfully let go.

New York city is also one of the most expensive states to live in so any financial comparison would need to be relative to cost of living.

Which is besides the point that perhaps teachers should be remunerated well.

>>I'm not sure the points you've raised demonstrate that there are many New York teachers that should be fired that have not been.

Only 75 public school teachers were fired in all of New York between 2015 and 2016, over a span of 16 months in total, coming to a rate of 56 teachers fired per year, for a work force of ~75,000 teachers. Now unless only super humans apply for teaching positions in New York, that points to an extreme lack of accountability for New York teachers.

In the real world, many people get hired for jobs they are not well suited for, or are not prepared to commit themselves to enough to do the job competently, and shortly thereafter, are let go.

>>New York city is also one of the most expensive states to live in so any financial comparison would need to be relative to cost of living.

Median income in New York is $67,000, and that's dragged up by the very high median income of the large bloc of public sector workers. So the public sector workers are the elite, even in relation to other New York residents. What's troubling is that the entire media is unionized too, so they share a common interest with the public sector unions in perpetrating the ideological narratives that keep unions in power.

New York City is dramatically different than New York as a whole. I'm not an expert in economics, but I imagine that would distort things.

With respect to the median income, I was referring to New York City, not New York the state.

Median household income is ~$64,000 in New York City:

https://www.census.gov/quickfacts/fact/table/newyorkcitynewy...

It means the system is asymmetric. The "masters" can collude to reduce wages, can ask for government assistance to weaken worker unions. But workers don't seem to have the same rights.

The fundamental problem with labor unions is that they're stuck on negotiating with capital as an employer when the real threat is capital's corruption of the political system.

Consider where the wages of labor go. The major expenses are housing, taxes, transportation and healthcare.

Housing is artificially scarce. Zoning prevents new construction in areas with high demand, benefiting capital (i.e. landlords) who get higher rents. People who can't afford the higher rents have to live further from the city, increasing their transportation expenses (more money for Big Oil). Workers pay taxes but instead of going to some kind of UBI or anything else that would benefit workers, or just letting workers keep more of their money, most of it goes to things like the F-35 and buying the votes of retirees in the important swing state of Florida by enacting benefits which are really handouts to Big Pharma. And healthcare regulations are passed to make healthcare more expensive, i.e. more profitable, because of regulatory capture.

There's nothing in there that a labor union can solve by negotiating employee compensation with Walmart or Amazon. Because the problem is artificial scarcity, corruption and waste. At scale, if you negotiated everyone a raise, prices would just go up. Because everyone is still bidding on artificially scarce housing and paying for wasteful government programs and suffering the effects of regulatory capture.

But even when unions do try to lobby for something, it's typically just things to increase their own institutional power (e.g. trying to get Uber drivers into a union which is once again only negotiating employee compensation) instead of doing anything about the real problems that are sucking workers dry.

> The fundamental problem with labor unions is that they're stuck on negotiating with capital as an employer when the real threat is capital's corruption of the political system

While in the US there has been much work by capital to undermine union political effectiveness to achieve that, it is not true, even in the US, that unions are stuck on negotiating with capital as an employer without engaging with capital’s political influence.

The cost of living stuff is a different issue.

If you’re operating a factory, you want housing, healthcare, etc to be cheap, so that you don’t have to pay your workers as much. If you’re a tiny group of people coming up with new ways to financialize housing, healthcare, etc. you want exactly the opposite.

I think of this division as something like “Industrial” vs “Financial” capital. Part of the reason the old labor movement isn’t relevant any more is that we don’t actually make stuff any more. “Industrial” capital is not at the seat of power any more.

The real problem with today’s unions is that the counterparty has changed. The people who are making houses expensive aren’t at the table negotiating with the unions; they have no employees! Unions are fighting the shrinking ghost of “Industrial” capital.

The reason for this shift is geographic. The stuff that actually gets made is made (under a yoke of hellish cruelty) at the periphery. There, housing is cheap! But the profits flow back here unevenly, to a tiny group of holders. And hence we are dominated by financial capital.

This is also the origin of the red/blue divide, roughly speaking: One is the local “Industrial” concentration and one is global “Financial” concentration. The third bloc, labor, were only really relevant when labor actually had a relationship (with the leverage inherent to that) with the dominant form capital. Now the two groups have predictably been crushed: the local concentration of capital and the union. They’re both sitting at the wrong table.

> capital's corruption of the political system

Capital is a measure of power. Capital's "corruption of the political system" is use of that power. I'm not sure it's coherent to conceive a world where Capital retains its power but not use it to shape the people and instruments that manage society.

Money in politics isn't a homogeneous threat in every country, so its power can very well be contained. So its power isn't an inevitability at all.

Employers collude to lower the wages they pay to employees. https://en.m.wikipedia.org/wiki/High-Tech_Employee_Antitrust...

> People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

-- Adam Smith

> Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many [...] Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all

-- Adam Smith

The whole point of his book is that if there are proper functioning markets is that these conversations are not actually effective. Compared to a system of mercantilism that he was opposing.

Sure, but "proper functioning markets" in this case means competitive markets, not laissez-faire as such, as modern libertarians like to imagine. That's kind of the problem of taking the words of someone writing at the time when governments were granting monopolies, and trying to apply them to the time when governments are busting them.

You vastly underestimate 'modern libertarians' probably because your exposure to them is based on angry twitter or whatever.

In reality during the last 200 years classical liberal tradition has thought more about markets and how they work then anybody else. Constitutional economics, institutional economics, law&economics, market process theory are partly built on Smith work and are explorations of the context of markets.

So I don't really know what you are referencing with 'Sure, but "proper functioning markets" in this case means competitive markets, not laissez-faire as such' as I don't know what definitions you for these words.

People like FA Hayek, Armen Alchian, Ronald Coase and many others have done a lot of work and all look back and build on Adam Smith. The idea of some people in this thread that modern libertarians only read the understand Adam Smith as 'invisible hand' is nonsense. 'Invisible hand' was adopted because it is a good shorthand for the idea of processes that are not centrally guided are very important.

There was also a lot of historical work done on English Common law and its evolution and how modern market relations evolved and actually functioned.

My exposure to them is based on having been one. And I know for a fact that most of them believe that whatever a laissez-faire - defined as completely unregulated - market produces, is inherently optimal. Some will argue that it will not have monopolies; but many will argue that when it does, that's because a monopoly is more efficient, and so it's a good thing overall.

Collusion among capital and leverage using state lobbying power etc..

Don't skip the chapters ... just as Adam Smith is misunderstood, so is the American Revolution by those who have never bothered to examine it from the outside looking in.

Masters [capitalists/bosses] conspire together with each other. Whoever denies this is naive. They conspire together in lots of ways, but especially to keep wages down. They keep things quiet until they act on lowering the wages or whatever they're doing, and [somehow] do so in such a way that keeps the workers from communicating with each other about it. In contrast, when workers conspire [unionize] the masters will loudly beg for help from the state to keep the workers from achieving anything.

Capitalists will coordinate to pay labor less. When labor is diffuse, this goes unnoticed and unchallenged. When labor organizes, they can fight it.

It calls for unionization.

I don't read it as calling for unionization, but half-way through the section titled "Inequalities occasioned by the Policy of Europe," I think he argues that trade unions are inevitable.

> People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible, indeed, to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.

Search the text[1] for this and you'll see it goes on a bit more and is preceded by some historical context.

1. https://www.gutenberg.org/files/3300/3300-0.txt

That's from Wealth of Nations, Book I, Chapter VIII, pg.80.

I don't think it's necessary, but there are a lot of things that make it somewhat inevitable without a lot of pushback.

One of the worst is inherited fortunes. I think the world would be a much better place if extremely rich people couldn't leave a fortune to their kids. Those kinds of kids practically always end up being fail-sons or fail-daughters. Besides, if you remove the motivation of "leaving behind an empire for my kids" you probably remove the excuse for acquiring more wealth than you could possibly spend in a lifetime in the first place.

Also, this would really help with problem of "elites". If your family name didn't imply a lot of wealth, would colleges etc. be so eager to let in rich scions? IMO the number one problem america has is we have a ruling class of "elites" that know practically nothing, but think they're experts because they have degrees from nice schools and their families have money. Almost every disaster this country has had in the last 20 years have been from these various "elites", such as the economic collapse in 2008, the continued ridiculous wars since 9/11, etc. If we broke up these incestuous "elite" circles by not allowing this generational buildup of influence and wealth a lot of the inequality problems would go away also.

Actually I am fine with the super rich, they create special dynamics due to creating societies that don’t need any more money and their ego is driven completely differently. Usually the first generation sucks but later on you have “old money” and they tend to be respected and productive.

I think the harmful inequality in a population comes only at the first few steps of the Maslow’s pyramid, i.e. access to food and shelter.

There’s a day and night difference between the life’s of people who were given a house as a young adult and those who were not.

The difference of life quality of a person who has a fully paid property and a person who is super rich is not that much. The super rich one has more power, of course, but both of them will not feel the pressure to do the things that they don’t want to do. They both would have higher aspirations for stuff they want to do but don’t have means to do - just on different levels.

> I think the harmful inequality in a population comes only at the first few steps of the Maslow’s pyramid, i.e. access to food and shelter.

In a democracy, do you think it's ok that one person has an incredible amount more influence over society compared to others, not because of their ideas but because they can give more to politicians?

I think it’s OK as long as they don’t attempt to damage the democratic process.

I don’t think it’s inherently good or bad to have people with large monetary power. What it counts is what they do with it.

Money is just one kind of a power. Other people can have great charisma, fame, information, access or any other kind of a power that is disproportionately stronger and influential than the average person.

> they tend to be respected

Of course they do - they have money for PR.

> and productive

They're definitely not productive in proportion to their income.

To whom should rich people be able to leave their fortunes, if not to their children? Or should it just be seized by the government when they die?

One serious suggestion is a limited amount of gifts to be given over a lifetime tax free. Once youve used up that amount, the person/corporation recieving the money gets taxed on it.

This is in effect "the government taking all your money when you die" but in a form that might be less susceptible to propaganda.

Im sure there would ve interesting wotkaroubds as usual.

>Or should it just be seized by the government when they die?

Yes, pretty much.

We had a country that pretty much effectively ran on that principle. The Soviet Union.

That is not even remotely the principle the Soviet Union ran on. Stop using the USSR to mean “thing I don’t like”.

Not really, there's a difference between limiting inheritance (which is mostly unearned) vs limiting profiting on your own ingenuity.

Wait, don't you mean the United States?

Between 1941 and 1976 the estate tax was 77%. That period of history for many would be considered "the good old days."

> Or should it just be seized by the government when they die?

Probably. Use it to fund infrastructure and social programs. The person gets to enjoy the wealth they created in their lifetime, and then society gets to enjoy the wealth once they're gone.

Who is the ruling class of "elites"?

It's not a simple definition, but I'd start with:

- Ivy league pedigree

- Rich parents

- Generally in professions where "connections" matter most (finance, private equity, politics, etc.)

A simple litmus test is "would they be here without access to special connections". Would George W. Bush ever have been president without his family names? (Would he even have made it into his Ivy league school?) How many people in finance really worked their way up from the bottom?

This is a terrible idea. Who are you to stop other people from providing for their family?

Besides, rich people have options. Wouldn't they just move their families and their wealth to a country that's not going to rob them?

Countries with human rights, freedom, and capitalism attract capable and talented people. Countries that restrict freedoms and take away people's stuff motivate the most capable and talented people to escape, and are left with people who have no better options.

Countries can stop people from escaping by force, but is that a kind of place you'd like to live in?

> This is a terrible idea. Who are you to stop other people from providing for their family?

I said leave a fortune, not an inheritance. A trust that provides a safety net? Sure. A billion dollar football team? Nope.

> Besides, rich people have options. Wouldn't they just move their families and their wealth to a country that's not going to rob them?

Given how much the super wealthy pay in taxes, this is essentially already the case. IMO they should either have to pay the same as everyone else, or not be allowed to do business here.

> Countries with human rights, freedom, and capitalism attract capable and talented people. Countries that restrict freedoms and take away people's stuff motivate the most capable and talented people to escape, and are left with people who have no better options.

The point of capitalisms is you're motivated by self interest, but that self interest makes the world a better place for everyone. If you inherit 100 million when you're 20, what motivation do you have to do anything with your life?

> Countries can stop people from escaping by force, but is that a kind of place you'd like to live in?

If they want to leave, they can leave. If they want to keep their US citizenship, they can't hold on to empire's past the term of their life.

Some takeaways I've had in reading Smith ... decades after he was assigned reading in my intro economics uni courses:

"Adam Smith's Lost Legacy: Or why you should read Wealth of Nations, that it's not what you think, and how the "invisible hand" is entirely a 20th century propaganda disinformation campaign"

- I didn't seek out Smith anticipating agreement

- Smith isn't an advocate of laissez faire

- Smith speaks of the "free market" only once: criticising business practices

- Almost all discussion of "Adam Smith's Invisible Hand" is absolutely, completely, utterly false, and a modern 20th century fabrication

- The exceptionally curious nature of the common presentation of "Smith's Hand":

- Smith does make errors: barter, US colonial advice, university compensation

- Read him yourself. Free, online

https://old.reddit.com/r/dredmorbius/comments/4cyroa/adam_sm...

Adding to those ponts:

- Smith's exploration of pricing behaviours of various goods and services is both accessible and brilliant. Wages, commodities, stock (capital), rents, skilled labour (a five-point compensation formula), interest, assets (gold and silver), public goods, and taxes. Most of those are in the first part ("book") of Wealth of Nations, public expenditure is in the 5th part.

- His five-factor analysis of wages, again: agreeableness, ease of learning, regularity of trade, risk of success or failure, trust required by those employing the trade.

- Much on the relationship of workers and employers ("masters").

- Much sympathy for the plight of the poor, and the importance of seeing to the improvement of their circumstances.

- Much criticism of shareholder ("joint stock") corporations.

- Far more than you ever wanted to know about English monetary history.

- "Wealth, as Mr Hobbes says, is power." Yes, there are a few short sentences.

> Almost all discussion of "Adam Smith's Invisible Hand" is absolutely, completely, utterly false, and a modern 20th century fabrication

From memory, the words "Invisible Hand" was only ever mentioned once throughout Wealth of Nations. It was used in his other writings.

Correct.

It's also mentioned once in A Theory of Moral Sentiments, and in the posthumously published Essays on Philosophical Subjects, a book on astronomy. In both it's clear from context that the "invisible hand" is some unknown mechanism, and not an explanation, but a statement of ignorance. "The invisible hand of God" would be a more common contemporaneous phrase, in the sense of a Creator and Organiser of the Universe, though Smith as with Hume seems to have been largely non-Deistic.

From Moral Sentiments:

The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.

https://en.wikisource.org/wiki/The_Theory_of_Moral_Sentiment...

Gavin Kennedy's scholarship on the Invisible Hand question is the best I've found. See his paper here: (freely available PDF download):

https://econjwatch.org/articles/adam-smith-and-the-invisible...

https://econjwatch.org/File+download/252/2009-05-kennedy-wat...

Gavin Kennedy's blog also has futher discussion: http://adamsmithslostlegacy.blogspot.com/

(Kennedy himself died in 2019.)

There are two other occurrences of "invisible" in Wealth of Nations, both occurring in discussion of warfare:

[T]he noise of firearms, the smoke, and the invisible death to which every man feels himself every moment exposed as soon as he comes within cannon-shot, and frequently a long time before the battle can be well said to be engaged, must render it very difficult to maintain any considerable degree of this regularity, order, and prompt obedience, even in the beginning of a modern battle. In an ancient battle there was no noise but what arose from the human voice; there was no smoke, there was no invisible cause of wounds or death. Every man, till some mortal weapon actually did approach him, saw clearly that no such weapon was near him.

https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_V/...

Thanks for the confirmation.

I've found that people who talk about Adam Smith and the Invisible Hand actually haven't read Wealth of Nations, and somehow miss what his main ideas were

... though then again, even Adam Smith himself seemed to be to miss the point of his writings given his occupation lol

I think a lot of modern capitalist thinking has been shaped more by Hayek, but ends up getting misattributed to Smith.

It was the Chicago School specifically which prompted much of the misunderstanding, though my read is that Smith was used by advocates for specific policies, many of which he would not have endorsed, since the 19th century.

The malconstruction of the "invisible hand" quote, which is drawn from a very carefully re-edited set of passages spanning hundreds of pages and multiple parts of the original book, comes from Jacob Viner, of the University of Chicago.

Popular use of "the invisible hand" expanded greatly after the publication of a set of essays by Hayek, Friedman, Stigler, and other Austrian School / Libertarian economists, by Regnery Press (now largely know as an alt-right / white-nationalist imprint) in the early 1960s. (Use indiated through Google's Ngram Viewer.)

Both points noted in my Reddit essay.

Smith's name itself was co-opted by the Libertarian "Adam Smith Institute", part of the Atlas Network of over 500 "think tank" institutions (the Cato Institute, Heratige Institute, Heartland Foundation, and Manhattan Institute are among the better-known American entities). Milton Friedman's Free To Choose (book and television series, now its own propaganda institute) is responsible for much of the misportrayal in the public mind. (The book and series were part of my own intro economic course, taught by, I later discovered, a rabidly libertarian professor.)

While we're at it, speaking of malconstructions and misappropriations, a reminder that the very term "libertarian" used to mean "left anarchist" until the Austrian School hijacked it.

(They used to call themselves "liberal", but when the meaning of that word shifted to describe stuff like New Deal, some decided that a rebranding is in order.)

Most of those discussions are not quantifiable, not following restrict logical, so they can easily dilute to playing word games.

For example: "Wages are not the simple product of supply and demand in Smith; bargaining asymmetries are key." -- "key"? How is this key? If bargaining asymmetries are the key, why not low skill workers get paid $1million and the management get paid $1k instead, since workers are out numbers and they can easily win the bargaining fight? Of course, supply and demand is the key, and bargaining is simply a side factor.

The whole article does not have a clear methodology, totally driven by the author's perdetemined conclusion, just picking arguments from here and there. Seem useless to me.

BTW, I always think left-wing academics should just go out, open businesses, pay workers twice their market wage. And boom, a big win-win! You win your ideology fight and workers get better pay.

The paragraph about "bargaining is key" is probably the weakest - the others are supported by quotes from Adam Smith. One can of course argue if these quotes are cherry-picked or reflect Adam Smiths' views.

I would classify the article as historical revisionism. The conclusion "The concern with the welfare of the laboring poor is palpable throughout the book." means that the author at least read the whole of Adam Smith's book, which is more than what most internet commenters accomplish.

I do wonder though if the author had read Smith's first book. I always felt that The Wealth of Nations held true only if you accepted The Theory of Moral Sentiments as true.

However if you believe that people's own selfishness is stronger than their empathy to their fellow humans, then The Wealth of Nations arguments are on very shaky ground.

Still as you say, most people just cherry pick one sentence fragement from the 1000+ pages of the book to justify "free markets".

> why not low skill workers get paid $1million and the management get paid $1k instead, since workers are out numbers and they can easily win the bargaining fight?

This is explained in the same paragraph. Adam's theory is that the wealthy business owners collude against the workers while at the same time lobbying for laws that make it illegal for workers to combine. He says that these conflicts frequently play out violently and rarely end well for the workers.

This is explained in in Wealth of Nations in Chapter 8, "On The Wages of Labour."

More generally, Smith seems not to have been read by many economists, or at least his theory is rather different from what is ascribed to him by textbooks.

This does not explain anything. What if "the wealthy business owners collude against the workers while at the same time lobbying for laws that make it illegal for workers to combine" did not happen, will the low skill workers get paid $1million and the management get paid $1k instead?

Your whole $1 million example was premised on your absurd claim that the workers have more bargaining power because there were more of them.

My comment exactly addressed that claim.

Now you seem to be asking if you eliminate bargaining power, would supply and demand dominate? I guess so? In the same sense that if you eliminate higher terms then sin(x) is just the identity function.

But why even ask the question? It's not relevant to the discussion of whether the terms you eliminated are key.

The economists have read Adam Smith and the Textbooks are likely correct, they just leave a lot of things out.

That does not explain why they frequently mischaracterize his theories.

Provide some evidence that the textbook makers mischaracterise his theories.

More likely you're conflating the issue with writers, ideologues, politicians, journalists, editorialists.

It’s not that complicated. The wage clearly has to be somewhere between the minimum wage in the country and 100% of the value (okay, perceived value) that the worker generates for the employer. Supply-vs-demand _can_ dictate where on the curve this labor is priced, but it doesn’t always- unions, networking, or even the ability to look like you can make the company more money go beyond that.

> The wage clearly has to be somewhere between the minimum wage in the country and 100% of the value (okay, perceived value) that the worker generates for the employer.

As long as companies can keep finding investors to bankroll them, workers can be paid more than the value they generate.

The workers still generate a perceived value which is what the investors are investing in even if the company cannot capitalize on that value fully in a given time.

Only because the investors believe that the workers they are paying are generating even more value than they are comfortable exchanging for it.

Adam Smith didn't live in Silicon Valley. That kind of thing didn't happen in his world.

Adam Smith literally hired James Watt, inventor of the eponymous Watt Steam Engine, and created a position for him, at the University of Glasgow. Literally bankrolled the guy who launched the Industrial Revolution.

And ... managed to scarcely mention his invention at all in Wealth of Nations. For a book that's considered to be the foundation of modern economics, he utterly misses the major factor driving growth through the 19th and much of the 20th century: coal-fired steam power. Even today, coal-fired steam (through turbines rather than pistons) drives much electrical generation.

https://en.wikipedia.org/wiki/James_Watt

So? Did James Watt generate more value than he cost?

Kirkcaldy. I grew up there. Not so different from Sunnyvale..

E.g. http://www.xnumber.com/xnumber/microprocessor_history.htm

Just think of them as generating entertainment value.

There is no steady state in which a worker can be paid more than the value he creates. As long as that state continues, value is being destroyed, and whoever is paying the worker will ultimately run out of willingness or, failing that, ability to pay.

Capitalism already fails to exist without leverage and with a fixed supply of money. The equilibrium you speak of is already fiction.

I'm sorry but this is upside down.

Pricing in Supply and Demand is decided by Bargaining Power, not the other way around.

The idea that workers 'outnumber' the capitalists does not give them power, it's the complete opposite.

I have no idea why you would think think they have some kind of power in that equation especially when there is probably a labour surplus.

If workers merged and formed a coherent Union, and acted as a single monolithic entity i.e. 'all labour in the colonies comes from a single Guild', then they'd possibly have more power, but this wouldn't really be possible obviously.

The entire treatise is essentially about the disproportionate power of concentrated wealth and that's what will ultimately drive wages.

That it's difficult to quantify doesn't make it false.

'Profit concentration' is literally a measure of value chain power: if you can collect a lot of profit, it's a sign that you have leverage over the other entities: workers, financiers, customers and suppliers.

Apple has incredible leverage over vendors, which is why even if you sell some really cool and awesome component to them for their iPhone you might not make Jack in profits, and may find yourself out of business a few years later.

Apple makes 100x more margin per device than Foxxcon, which illustrates the capital vs. labour dynamic quite well.

> Apple makes 100x more margin per device than Foxxcon

It's important to note that it's not necessarily labor-vs-capital. Capital-vs-capital also exhibits the same dynamics.

One might argue that Foxcon's business model is providing low margin manufacturing manpower; and that the real value-added is in an design and R&D of an always-connected device that fits into the pocket.

But there's a counterpoint - mobile connectivity requires radio networks. There's no a-priori reason why Apple should make 60% margins, while Nokia and Ericsson barely break even. Radio networks also require a lot of R&D, are designed in Western countries and their business model is not about exporting cheap labor.

The key difference is the power disparity. Nokia/Ericsson are facing powerful network operators, some of them close to an order of magnitude larger than the vendors themselves. The operators dictate the terms of the deal, the vendors have to adapt. With Apple - they're facing customers. Apple dictates the terms, customers have to adapt.

In fact, 6 out 7 largest corporations by market cap (the odd one out is Saudi Aramco) are all in the same position as Apple - power dynamics heavily tilted their way.

So I agree with a lot of that, but Apple is different than the Big Oil companies.

Market power is usually a function of competition - so mobile devices have a dynamic where in some ways (verticalized platforms), that's limited.

Apple also has systematic leverage from their Mac and other products and expertise.

Finally is the Brand and Marketing intangible. Nike doesn't have any 'real power' other than that, but they wield it well.

So those three things together, and scale, give them leverage.

The other immensely powerful players are the carriers. They have a kind of bought monopoly / oligarchy over airwaves - while they do pay into the public purse in the form of auctions, in reality, it's not a very competitive market.

They reap massive revenues from their position. That said - these companies are kind of older, they have unions, and they are not hyper efficient, and they don't post the same margins as Apple, and because there's limited growth in a market, it's not likely their stock will be highly leveraged.

The Carriers have immense power in some ways like Apple, but it's just that they don't have the apparent surpluses and glowing stock price due to the systematic power of their own entrenched bureaucracies.

Finally you have equipment vendors. They're an essential component, but the reality is the market is much smaller, there's no direct to consumer relationship, no recurring revenues, they have China nipping at their heels. So they are in a somewhat weaker position.

Also - the CCP has directed the Chinese Banking system to offer cheap loans for Huawei gear, a kind of Economic Dumping which is totally against free trade but it's like heroin to buying parties who can forgo huge cash outflows.

If carriers were dynamic and efficiently run without a lot of the legacy and went with fewer storefronts - and - somehow 'got good at marketing' - and - Apple wasn't quite as good at marketing and especially if they were like Android i.e. licenced their OS, then carriers would rival Apple for power.

Big Oils dominance comes from massive scale and systematic integration into the economy, geopolitical leverage (literally the US Armed Forces secure their supply chain), major geostrategic interventions (the state will represent Oil Companies or work with them), etc. etc.. If we were not facing Green Crisis then I suggest they would be much more powerful, as they were historically.

"If workers merged and formed a coherent Union, and acted as a single monolithic entity i.e. 'all labour in the colonies comes from a single Guild'", will they win a bargain to get paid $1million and the capitalist only get paid the minimum?

Think of the 'Super Guild' as just a corporation selling it's services aka labour, to other corporations.

The more powerful corporations will accumulate more of the profits that are available to be divided.

So each corporate participant will get back it's 'costs' i.e. the minimum requirement for equipment (and maybe include very base salaries) - after that, everything is up for negotiation.

The 'Super Guild' that had 'All of the Workers in the Colonies' would probably be able to negotiate so that the corporations it sold it's services to didn't make any profits at all.

So the 'Super Guild' would accumulate most of the profits, and then they'd have to figure out how to divide those profits among themselves.

There are actually is not remotely 'that much surplus' in these systems, and that if workers took 'all the profits' it wouldn't make them rich. Just somewhat better off. So if the 'Super Guild' distributed the profits fairly evenly, everyone would get a nice raise and that's that.

Since workers tend to spend most of their income, almost all of that surplus would end up back in the economy pretty quickly, and all businesses would grow. This is Henry Ford's realization: "I have to pay my workers enough to be able to afford my car!"

FYI you can see this in action with professional designations, like MD, RN. They keep wages 'artificially' high by limiting the number of those that can do the work. That said, even without their Guilds, because they do work that not many can do, they'd still command good wages.

The 'Bad Asymmetries' in the economy happen at either end: the unskilled labour pool, who's wages would be 'barely survival wages' (i.e. workers in favelas, no proper sanitation, no healthcare), and on the other end concentration of corporate and private wealth that gives immense advantage.

The former needs something like 'minimum wage' (we can do better than that) and the later needs smarter taxation, getting rid of loopholes, offshore, unfair lobbying etc..

> The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.

On wages specifically:

The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counterbalance a great one in others: first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and, fifthly, the probability or improbability of success in them.

-- Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Book 1, Chapter 10

https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...

> If bargaining asymmetries are the key, why not low skill workers get paid $1million and the management get paid $1k instead, since workers are out numbers and they can easily win the bargaining fight?

The answer here is twofold: First because the state exists and will enforce property rights, protecting scabbing and preventing sabotage with force, if not escalating to outright war as they did in the early 1900s (continuing into the 70s in Kentucky.) Second, a capitalist can live just fine with a closed factory whereas workers will not be able to survive without work.

In any case, I encourage people to actually read Adam Smith for themselves. You can not only refine the mental model you have of economics but also learn that the popular Adam Smith that is caricatured is not the one who wrote Wealth of Nations. Did you know, for example, that the "invisible hand" is mentioned only once in all of WON? On the other hand, actual market mechanics and state policy (some of which was later discovered to be wrong) were discussed in great detail. You can find a lot of fun quotes too:

"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce." [1]

1. From "CHAPTER VI. OF THE COMPONENT PART OF THE PRICE OF COMMODITIES." https://www.gutenberg.org/files/3300/3300-0.txt

Allowing scabbing is not protecting property rights, that’s protecting individual liberties.

The right to be exploited?

The right to enter into an agreement with someone to work temporarily in exchange for some income.

Interesting. Would you also say allowing shoplifting is not protecting property rights, that's protecting individual liberties?

Do you know what scabbing is? It’s allowing people to take a job at a company.

Do you know what shoplifting is? It's allowing people to take items at a store.

>>"As soon as the land of any country has all become private property, the landlords

He is referring specifically to land, which he rightly viewed apart from all other, more natural forms of private property.

In fact the only tax that I saw him advocate for raising is ground rents, which is exactly what geolibertarians advocate. Land taxes are also the only tax that economists believe cause zero economic inefficiency.

I'm not really sure where you got that idea...

"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state."

A land tax accomplishes that, with the activity "under the protection of the state" creating value that is captured by a tax on use of land under the jurisdiction of the state.

Income from overseas investments wouldn't be under the protection of the state where they reside, and appropriately, wouldn't be taxed by the state in which they reside.

On the subject of taxation, almost all of his admonishments were to tax less and less intrusively:

To subject every private family to the odious visits and examination of the tax-gatherers ... would be altogether inconsistent with liberty.

and

“[Governments are] ...without exception, the greatest spendthrifts in the society.”

and

“The agents of [government] regard the wealth of their master as inexhaustible; are careless at what price they buy … at what price they sell.”

and

“Those unproductive hands [in the government] … may consume so great a share … that all the frugality and good conduct of individuals may not be able to compensate … this violent and forced encroachment [of taxation].”

and

Now many such things may be done without intitling the people to rise in arms. A gross, flagrant, and palpable abuse no doubt will do it, as if they should be required to pay a tax equal to half or third of their substance.

and

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.

and

There is no art which one government sooner learns of another than that of draining money from the pockets of the people.

and

“The profusion of government … [has] retarded the natural progress.”

and

The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

His preference for ground rents:

Both ground- rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them.

Adam Smith was not an idealist. Your quotes don't conflict with the fact that he also proposed revenue taxation, whether he meant progressive revenue taxation or not is still controversial though.

He did not propose revenue taxation.. Such an abomination didn't even exist at that time. The only tax he expressed a favorable view of is a land tax, which is at the opposite end of the spectrum from income taxation with respect to invasiveness and violation of private property rights.

Him supporting revenue taxation would totally conflict with a sentiment like this which he expressed:

To subject every private family to the odious visits and examination of the tax-gatherers ... would be altogether inconsistent with liberty.

The visits are now replaced with the onerous requirement to keep records of all private financial transactions one engages in all year, and produce them on demand if the taxing authority should request them, and to detail to the taxing authority all the income one has earned from any private trade, even barter, and hand over a sizeable share of the value received in the totality of that trade.

I'm not sure how you're reading this quote as anything other than that: "that is, in proportion to the revenue which they respectively enjoy under the protection of the state." "

There are plenty of ways that a tax can raise an amount from individuals that is proportional to the revenue which they enjoy under the protection of the state besides an income tax. Basically any tax on any broadly consumed commodity will do that, because its consumption will be proportional to overall-consumption, and by extension, revenue.

An income tax did not exist in Smith's time, and had it been proposed in that period, it's extremely unlikely he would have favored it given 1. his admonishments against expansive government that intrudes upon the private lives of citizens, and 2. the need for an expansive tax enforcement apparatus, that invades the inner sanctums of the private lives of citizens, to enforce an income tax.

> protecting scabbing

"Scab" is the union slur for poor unemployed people.

From my understanding (mainly from Billy Elliott, TBH), a "scab" is a worker who continues working even when the union has called a strike.

It's normally a non union member who is hired to do the job striking union member won't do.

Ahh, that makes sense! Maybe keep the inflammatory language out of your original comment, though. A lot of people browsing these forums and may not be familiar with local slang terms/jargon like that, and your original comment sounded like a definition.

>>protecting scabbing

"Scabbing" is a pejorative term, that has been used to dehumanize replacement workers and incite assault and murder against them.

Well you certainly played some great word games of your own there.

>BTW, I always think left-wing academics should just go out, open businesses, pay workers twice their market wage. And boom, a big win-win! You win your ideology fight and workers get better pay.

wtf are you talking about left-wing, there's no dialectical materialism or class struggle.

What a bizarre comment. That is literally the exact opposite of how it works - absent collective action, a larger pool of workers weakens the bargaining position, it doesn't strengthen it.

? I mean with collective action, not absent.

Collective action is a complicated thing, and it didn't exist until the dawn of the last century. Remember non land-owning males just got the right to vote about then, along with women shortly thereafter.

'Labour Day' which just happened, is a day to celebrate the rights achieved by Labour in this regard.

But even with proper Unions, in most situations, they're not going to be able to compel salaries higher than owners and management - the underlying economic reality of the fact that there are 10 workers to replace every Union worker is a powerful pressure on the fairly artificial nature of Unions.

From even the most remotely classically liberal perspective, the idea that 'A factory hires 10 employees, and now those sole 10 employees get to determine the operating terms of the business' is a pretty unnatural construct.

Unions have waned at least in part because of much better worker protections and minimum wage, which seems to have solved a great deal of the issues, but of course tension remains and I think the way we do minimum wage (so as to put a floor on the lack of negotiating power of unskilled individuals) is probably not nearly as intelligent as it could be.

Employee hours are more elastic than wages. My employer can go weeks or months without me; I cannot go months without wages.

It’s also, obviously easy to divide and conquer employees. Uber demonstrated that you can pay workers less then they are spending!

> Employee hours are more elastic than wages. My employer can go weeks or months without me; I cannot go months without wages.

This is obviously not true as a general statement. A business which has to pay the mortgage on its factory can't just shut down and make nothing or the bank will foreclose.

Meanwhile if Uber doesn't pay as much as you're willing to accept, you can go work somewhere else, or take a loan and go to college. It's extremely rare for one company to be anyone's only alternative to starvation.

> A business which has to pay the mortgage on its factory can't just shut down and make nothing or the bank will foreclose.

I believe here we might have the case of that old maxim "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.

> Meanwhile if Uber doesn't pay as much as you're willing to accept, you can go work somewhere else, or take a loan and go to college. It's extremely rare for one company to be anyone's only alternative to starvation.

The discussion revolves precisely around the fact companies collude, bringing the wages down to absolute minimal levels, i.e. it's not about Uber or any other single company - the problem is systemic.

This is ridiculous, if a driver is not making money they will stop driving.

Not at all. I used to run a IT field services division of a big company. There’s a reason why these last mile services use contractors and third party vehicles!

A car isn’t just gas - it’s maintenance, depreciation, etc. For normal use, operating a car costs about $0.60/mile. Livery use like an Uber is a little higher due to maintenance needs.

When you work out what a driver actually gets paid, in many scenarios the driver is making very little, and in some they are losing money. Driving Uber is really monetizing automotive depreciation, while working for free. It’s a big accounting grift designed to run until the local competitors are out of business.

> For normal use, operating a car costs about $0.60/mile.

This is when amortizing the full cost of the car. Depreciation due to age, insurance and the whole lot. But these are sunk costs for someone who already needs a car for unrelated reasons. Any of those people are rational to consider only the incremental cost from the additional miles and fuel.

And that number is also assuming the typical car owned by people in general, not the typical car used for ride sharing. The most common "car" in the US is a Ford F-150. The most common Uber is a Toyota Prius. Because people aren't as dumb as they're made out to be.

Only about 25-30% of per-mile costs are fuel.

Depreciation is the biggest component, and that is driven by mileage. My recollection is that the GAO/IRS rates are based on midsize sedans.

Three years ago, the average Uber driver made about $0.80/mile according to survey data. You can argue that the costs vary from $0.50/mile and $0.70/mile, but either way the driver is pretty fucked and is selling their asset’s value as well as time. Rental car companies price dynamically based on fleet depreciation in near real-time… there’s a reason why Uber didn’t buy 10,000 Priuses.

The car is a sunk cost, but the mileage and wear and tear erodes the value of the asset.

Not so.

They can be saddled with debt on a depreciating vehicle, meaning that although their overall income may be negative when accounting for the debt, the alternative is even worse.

I’m often surprised how long folks can go without understanding the real floor in living conditions a lot of Americans are faced with. I think it’s an empathy gap, but I don’t know how to fix it.

Maybe folks need to volunteer in shelters more often. Understand how much closer they are to poverty than they are to Bezos.

I do think volunteering would help. My work at a food bank has completely disabused me of the idea that people on welfare are just lazy or taking advantage of the system.

Adam Smith also believed in a society where rich people would endow institutions for everyone to enjoy. Now that we believe that is solely the rule of the state, that assumption is gone.

Philanthropy is still a thing and still expected, at least in these parts: https://www.montana.edu/news/21412/a-day-of-new-beginnings-m...

If I ever struck it rich I'd build the biggest, best cat shelter you've ever seen.

So... better than Tierhem Berlin?

https://tao-stiftung.org/projects/animal-shelters-in-berlin/...

Good luck then! :)

That is very impressive!!

Except most of the rich indulge in philanthropy as a form of further self enrichment rather than selflessness.

This is a philosophical debate not a practical one. If you donate $100M to fight malaria in Africa no one really cares if you doing it because you are “objectively good” or because it’s expected of you due to your status or you simply want to one up one of your billionaire friends.

(Unless the charity they found is really just a fraudulent tax dodge for funneling money)

Or as a way to misdirect away from your less favorable activities; past and present. Just look at Bill Gates, Zuckerberg and others.

Most people don't do anything from their selflessness, that includes people elected as representatives or employed by any given state (despite whatever they may signal to the contrary if one looks at their actions).

Do you come from part of the world where politicians and government workers are working because of selflessness or is this a vacuous comment not intending to communicate anything worthwhile?

um…no?

He actually did. He called for a very high inheritance tax and believed that the the rich should spend their wealth for the good of everyone (and society should inventivize that by allowing wealthy people to feel good about sticking their names on things).

I don't think that's the part of your assertion the commenter was disagreeing with...

Where I live, the only philanthropic organizations normal people interact with are universities, museums, hospitals, and maybe arts organizations. The government runs libraries, schools, orphanages, parks, other museums and hospitals, and playgrounds. These all used to be nonprofit philanthropic activities.

Philanthropic organizations have been forced into corners trying to solve very hard problems (like eradicating diseases and global warming) rather than helping people day to day.

You can go through a decent life never directly benefitting from a billionaire's money, but you can't do it without a helpful government institution.

That's sort of the tacit agreement here in America. Countless hospital wings, university buildings, etc., are the result of private donors who made it big and felt like giving back. Again, if I got rich, I'd give so much and wouldn't need a name on it. I just genuinely believe in the agreement.

He did NOT call for a high inheritance tax!

http://adamsmithslostlegacy.blogspot.com/2007/10/disengenuou...

>>believed that the the rich should spend their wealth for the good of everyone

He believed the rich did this without any intention, while pursuing their own interests:

[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.

He even wrote:

I have never known much good done by those who affected to trade for the public good

And this is despite his belief that altruism was a moral good:

To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature.

His reasoning was that self-interested market activity benefited society because the free market kept actors responsible:

The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.

Always funny how people argue these things as if we're discussing kinematics or some other natural law.

The economy is 100% contrived and what we declare it to be. Even "The Invisible Hand" operates within the parameters we define.

Approaching this discussion through the lens of Adam Smith itself loads it with a set of fairly narrow restrictions and assumptions that limit what we define as possible. In truth, there are very few actual constants.

If we want rich economies without inequality, we can have them.

>The economy is 100% contrived and what we declare it to be.

The economy is an system that emerges from human behaviour. We can partially regulate it, but can't control it fully.

>The economy is an system that emerges from human behaviour

Thanks for your reply.

An economy doesn't simply "emerge" organically from behavior. This is most simply evidenced by the fact that we've devised a variety of economic systems.

I meant "emerges" in the sense of "displays properties of emergence".

There are limits on what an economic system can and can't look like, as it's an emergent property of individual human behaviour, which is itself limited by (immutable) human biology.

You can't, for example, have an economic system where farmers simultaneously have all of their output seized by the state and also work hard to optimise their operations and greatly exceed expectations.

>There are limits on what an economic system can and can't look like

There really aren't. Part of why people believe this goes to my point: that there is a certain set of preconceived ideas about what an economy must be, as if based on something natural or immutable.

For instance, your farming example assumes a very narrowly defined economic structure of incentives, etc. that simply begs the question.

So, North American slavery might be a counterexample to your farmers. All of the slaves' output was seized, yet they worked with an industry well beyond what any modern economic optimization incentive could evoke.

There may be a temptation to dismiss this example for obvious reasons, but the point is that was very much part of an economic system that was decided upon; along with incentives to include survival and avoiding brutality.

Incentives in other systems include social status and other non-monetary remuneration.

Again, it's all manufactured.

Okay, if it’s completely manufactured, with no constraints that are outside of our control, please describe a completely utopic economy where every human is satisfied with every aspect of it. What, it’s really difficult? Those are the constraints.

>if it's completely manufactured, with no constraints that are outside of our control...

I'm not asserting that there are no constraints as in suggesting there are, say, unlimited natural resources.

I'm guessing you weren't interpreting my statement so pedantically, but then I don't see how my assertion is even controversial otherwise. That is, of course I am referring to how we choose to distribute those natural resources, and of course there are no natural constraints on that choice which would be outside of our control.

>please describe a completely utopic economy where every human is satisfied with every aspect of it

That's not the standard here. It's possible that such a thing doesn't exist AND my assertion is true. Why do you think your "challenge" is dispositive?

In addition, for the record... even if there were unlimited natural resources, there would still be constraints. Order on the social graph and any other ranking system would be the constraints.

Even if you crack all the way down to mathematics, there are always constraints while remaining consistent. I guess this is my root problem with your statement. Anyone who ever states anything is 100% unconstrained is missing something.

Maybe if you're God and are creating a reality from scratch, in some mystic worldview, I could grant that there are no constraints.

Again, I think you're taking my words too literally.

The main point is that we have a much greater degree of flexibility than typical discussions allow.

> how we choose to distribute those natural resources

Even this is subject to the limits/constraints of human coordination. I think there is a lot of play there, to be fair. But saying it's 100% unconstrained how we coordinate our decision-making is not accurate.

Memes, propaganda, democracy, dictatorships, republics, governance structures, these are all attempts to carve out coordination given the constraints. But there are constraints.

Then there's the enforcing of whatever we decide on. Add more constraints.

>I am referring to how we choose to distribute those natural resources, and of course there are no natural constraints on that choice that is outside of our control.

How about you run an experiment? Spend every single dollar of income that comes into the house on yourself, and give nothing to your wife.

I think you'll learn very quickly that resource allocation in real world groups has constraints.

>Spend every single dollar of income that comes into the house on yourself...I think you'll learn very quickly that resource allocation in real world groups has constraints.

Ha! I take your point, but I think you're having trouble breaking out of the current economic frame. Even that example assumes that my wife would be deprived of resources.

But, to your larger point, I'm not asserting that we can just rip up the current economic system and no one will care. I'm saying that these debates frequently take a form that suggests that there are other factors that prohibit change, beyond the fact that people will care.

>I think you're having trouble breaking out of the current economic frame.

Honestly, no. I'm mostly just reacting to the things you're saying under the assumption that you seem to be advocating Maoist principles.

>you seem to be advocating Maoist principles

I've actually tried to avoid advocating specific principles (although I'll allow that some may have leaked through).

But, FWIW, I don't think the choices are between unfettered, laissez-faire capitalism and full-blown Maoism. IMO that common framing is part of the notion of immutable laws and fixed, mutually exclusive systems, etc.

In practical terms: I'm a capitalist. But, I also believe we need moderating forces to tame inequality; some level of which is untenable to the point of actually being anti-capitalist.

>In practical terms: I'm a capitalist. But, I also believe we need moderating forces to tame inequality; some level of which is untenable to the point of actually being anti-capitalist.

So we basically believe the same thing, and have just been arguing semantics. Why does this keep happening!? :P

I guess what threw me off was the idea of economic systems being arbitrary and unconstrained in terms of allocation. This is basically the foundation of Maoism, and the rest follows pretty easily. (If the current method for distributing wealth is just arbitrary, we should immediately redistribute all wealth in order to maximise the common good).

>Why does this keep happening!? :P

I'm sure it's me. :)

>foundation of Maoism

I can see how you'd think that's the path I was going down, especially given the topic of the original article. But, that next step to full Maoism is a doozy!

My original point was actually more meta: kind of an observation on the way these discussions are approached versus an argument for a specific model.

But, yes, I later revealed my belief that there is a degree of inequality that is untenable and actually anti-capitalism. I believe we should address this and that we actually have in the past (e.g. labor unions), while stopping well short of anything resembling communism.

So, I think these decisions are much more related to political will, the power of specific interest groups, etc. Hence, they are simply choices.

However, instead of addressing them as choices, we are instead rather disingenuously led into these discussions as if we are powerless against the immutable force of nature that is the economy. This approach obviously benefits the status quo.

So that's the whole of it in one place. I'm sure it's much clearer now.

>there is a certain set of preconceived ideas about what an economy must be, as if based on something natural or immutable.

Because it is. Human biological impulses are the basis of all economic activity, and they are natural and immutable. Yes, they're malleable to a point, but only to a point.

Until we start either genetically/pharmacalogically engineering the human mind or replacing all humans with AIs, you simply can't have an economy where, say, socially isolated meth heads are a dominant political and economic elite.

>So, North American slavery might be a counterexample to your farmers. All of the slaves' output was seized, yet they worked with an industry well beyond what any modern economic optimization incentive could evoke.

Really? How many of the slaves developed new agricultural technology, reduced waste through novel management techniques or selectively bred new forms of plants and animals in order to make their masters' farms more productive? The only one I've heard of was Edmond Albius, and from all accounts he had a very unusual relationship with his master (more master-apprentice than master-slave).

>Human biological impulses are the basis of all economic activity, and they are natural and immutable.

I think you may be missing my point here. For instance, what people need to subsist (food, shelter, water, etc.) is immutable. However, what is mutable is how we choose to distribute the resources that satisfy those subsistence "impulses".

>socially isolated meth heads are a dominant political and economic elite.

This essentially reduces my assertion to one of "nothing means anything". Of course, that's not what I'm arguing.

>How many of the slaves developed new agricultural technology...

You said farmers wouldn't seek to optimize if the state seized all of their output (i.e. removed their incentive). I countered that they absolutely would if forced to do so with the threat of death or brutality (i.e. this certainly motivated slaves).

My point was that we choose the incentives. Your farmer example is just the product of such a mutable choice. In general, you're emphasizing the value of an "optimized economy" per our current economic system. So, again, your argument begs the question.

But, the benefits of productivity optimizations generally accrue disproportionately to profit-takers, because that's what we've selected. Irrespective of your opinion of that decision, the point is that we could've equally as well optimized for general welfare, lesser productivity, and a more even distribution.

Would some be upset about a sudden shift to such an economy? Of course, because they will be relative net-losers. But that doesn't represent some immutable law which precludes it.

>You said farmers wouldn't seek to optimize if the state seized all of their output (i.e. removed their incentive). I countered that they absolutely would if forced to do so with the threat of death or brutality (i.e. this certainly motivated slaves).

I didn't argue that they wouldn't. I argued that they didn't. This is not a hypothetical; history has shown that people use different, more globally optimal strategies when they have a personal stake in the outcome. Slaves worked hard, but they did not invent tractors. Salesmen sell significantly less if they don't get a commission.

>Irrespective of your opinion of that decision, the point is that we could've equally as well optimized for general welfare, lesser productivity, and a more even distribution.

I don't think we can equally as well optimise for arbitrary variables. Sure, we can tilt the balance one way or another in favour of total wealth vs. inequality, but if people can't compete for status by providing (economically) valuable goods and services to society, they will compete in other ways.

>history has shown that people use different, more globally optimal strategies when they have a personal stake in the outcome

Seems the goalposts are moving a bit. I'll just reiterate that your notion of "globally optimal" (and the desirability you appear to assign) seems to rest on the current economic design. That is, globally optimal in what way? Produces the greatest net output? Because GDP tends to correlate well with some factors we might consider socially desirable, but poorly with others. But...

>I don't think we can equally as well optimise for arbitrary variables

>Slaves worked hard, but they did not invent tractors

...this discussion is getting mired in the weeds a bit. My initial point was simply that economic systems are not the product of immutable, natural forces. We chose the model we have, and we can choose others. You're countering by effectively saying those choices have consequences, primarily along the lines of productivity impacts, incentives, etc. But, I've not suggested that there would not be consequences. In fact, the point is that there would be, and this is why we're we are—not because of some physics.

So, your arguments are effectively an acknowledgment that we can make changes and optimize for different variables. I think that's being confused with a discussion about the desirability of such changes--which I've tried not to engage in.

Time to learn about Stalin and communism. People who were forced to work destroyed machines for example, you shoot them and lose both labor and assets. So succesful economy has some natural constraints based on human motivation. I think capitalism works good on pricing these motivations although there's too much economy capture by financial class (as they define rules). Once home ownership is fixed I supect there might be some rebalancing of power.

>Time to learn about Stalin and communism

I'm not sure why people assume naivete when others raise the possibility of different economic models or take any issue with current modes of resource distribution.

I actually find it naive that they seem to believe that there are exactly and only two possible economic paradigms, prescribed by natural law and existing at polar extremes.

In this view, our only options are somehow unfettered laissez-faire capitalism or rank communism.

> Inequality as the necessary trade-off for a more prosperous economy

Is this really what people got from Wealth of Nations? From what I felt was that his writing was trying to lift everyone out of serfdom by reducing inequality!

Adam Smith was not the libertarian thinker that 21st century conservatives seem to think he was.

He was an economist genuinely interested in understanding society's emerging mechanisms. Wealth of Nations is his most famous book because it is the one that contains the most actionable piece of models, but he also wrote a book (The Theory of Moral Sentiments) where he explores all the things we do out of generosity and selflessness. Unfortunately, he did not manage to infer a really useful model for these so it is less known.

No matter what Adam Smith thought - inequality (of incomes etc) is inevitable part of any decent economical system.

It's good people realize what Adam Smith actually wrote, but this is somewhat naive thinking — if we, say, assume the rich value their status more than their wealth in absolute terms, the antagonism comes right back.

See https://delong.typepad.com/kalecki43.pdf, this isn't the first time we've realized we know how to do a Capitalism that is seemingly better for everyone, and then fail to do it.

In other news, Adam Smith taught the Water-Diamond "paradox" was real.

However, this is a twisted statement: There is no trade-off in the sense that "OMG, let's create more inequality so we get richer!"

Instead, given that people are not the same, and luck as well as effort both play a role in outcomes, there will always be some inequality in outcomes. However, in any system designed to ensure that everyone has the same rewards (by taking from those with good outcomes and giving to those with bad), effort and investment will be disincentivized. Do it starkly enough and both the pie will shrink faster than armchair socialists can ever imagine and some people will still be more equal than others.

>Do it starkly enough and both the pie will shrink...

How stark is too stark and what's the downside of not doing it starkly enough?

it’s impossible to have equality when people are selfish and unequal. When labor unites behind labor leaders, the labor leaders end up in a stronger position than the labor followers. Also, Witness the existence of labor unions in the government sector, and the preferrrd position of party members in China. Also evolution requires selfishness (survival of the fittest) and unequality (random differences).

>>Moreover, employers enjoy a bargaining advantage over workers and can coerce them to accept worse terms, because they need individual workers less than individual workers need employment.

Where does Smith argue this? What's striking in Smith's writings is how strongly he opposed high taxes on any group, including the rich, and any sort of infringement on contract liberty. With respect to the latter, in every prescription in the Wealth of Nations where he mentions regulations, he argues that such restrictions are immoral, irrespective of the intention behind them.

As for Smith's claim that abnormally high profits are a pathology stemming from curtailments of market freedom, it has been validated by economic analyses that show profit margins correlated with the degree of regulatory restrictions in an industry. Occupations that provide a pay premium, above what is expected from the skills and education level of the worker, are also concentrated in highly regulated sectors:

https://www.brookings.edu/research/make-elites-compete-why-t...

This same trend in seen in housing, with increases in regulatory restrictions in property development contributing to income inequality:

https://obamawhitehouse.archives.gov/sites/whitehouse.gov/fi...

What I've witnessed in the cryptocurrency market is the same: token sales once gave access to lucrative early stage investment opportunities, like Ethereum which launched with a permissionless crowdsale open to anyone in the world with BTC.

This study confirms that:

https://link.springer.com/article/10.1007/s11408-020-00366-0

"The average ICO has almost 4700 contributors. The median contributor invests a relatively small amount. The ICO market appears to have successfully given access to the financing of innovation to a new class of investors, which is a long-standing public policy issue"

In 2017, the SEC effectively shut down programmatic token sales, bases on its ideological tenet that centralized regulatory gatkeeping provides "investor protection", and since then, the huge opportunities have been fully monopolized by venture capital firms. Some have seen 1000X returns on investment by being alone in funding pre-launch projects.

The most valuable smart contract platforms launched since 2017 almost all have token distributions where at least a third or half of tokens went to a small group of venture capitalists who were able to bid on the first release of tokens without any competition from ordinary retail investors:

https://i.ibb.co/sHNb5gL/E-Js-Ln9-Vc-AI5-F14.png

> What's striking in Smith's writings is how strongly he opposed high taxes on any group

Where is this? I see Smith lay out 4 general maxims, not of which mention the level of taxation.

1. proportionality (everyone pays relative to their income)

2. Non-arbitrariness (everyone knows what they have to pay based on establish rules)

3. Timeliness (people are taxed then it is easiet for them to pay)

4. Efficiency (you don't have to spend to much administering taxes and the taxes don't prevent economic activity)

I also see specifx examples where Smith advocates for the benefit of specific higher taxes to discourage inefficient economic behavior (in this example, high lease renewal fees:)

>> By rendering the tax upon such fines a good deal heavier than upon the ordinary rent, this hurtful practice might be discouraged, to the no small advantage of all the different parties concerned, of the landlord, of the tenant, of the sovereign, and of the whole community.

Indeed, there seems to be a strong theme throughout Smith's discussion of taxes that they aren't wholey good or bad, but should be judged primarily bu the degree to which they suppport the above maxims.

If you have sections to cite where Smith condemns high taxes, I would be curious to see them.

Edit: One particular case where Smith argues against high taxes is on commodities, but that is explicitly justfied because Smith views that particular type of tax as violating maxim 4:

>> High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more moderate taxes.

On the subject of taxation, almost all of his admonishments were to tax less and less intrusively:

To subject every private family to the odious visits and examination of the tax-gatherers ... would be altogether inconsistent with liberty.

and

“[Governments are] ...without exception, the greatest spendthrifts in the society.”

and

“The agents of [government] regard the wealth of their master as inexhaustible; are careless at what price they buy … at what price they sell.”

and

There is no art which one government sooner learns of another than that of draining money from the pockets of the people.

and

“The profusion of government … [has] retarded the natural progress.”

and

His preference for ground rents:

> Occupations that provide a pay premium, above what is expected from the skills and education level of the worker, are also concentrated in highly regulated sectors:

Baseball is an obvious counterexample. Median player salary is $1.15M, which is actually down from previous years. [0] The profession requires incredible talent, as anyone who has seen an outfielder throw from deep left to home plate would agree. In addition to talent, players also have a strong union.

[0] https://www.espn.com/mlb/story/_/id/31270164/average-mlb-sal...

Everyone who is even remotely interested in economics should read "Debt: The First 5000 Years by David Graeber"

Nobody has ever succeeded in having a rich economy without inequality, though many countries have tried it.

For just one example, SpaceX would not exist without inequality. Nor that supercomputer in your pocket.

On the contrary, GINI vs per capita GDP show a negative correlation (really, more of an L shape with the US as an outlier). The US is the only country with a GINI over .4 and a per-capita GDP over $35k.

https://www.businessinsider.com/goldman-sachs-chart-shows-us...

Much of Western Europe has similar GDP per-capita and much less inequality.

Further, the more inequality exists (>GINI), the less social mobility there seems to be:

* https://en.wikipedia.org/wiki/Great_Gatsby_curve

Other countries aren't smart enough to run up a massive and increasing trade deficit, year after year, forever and ever, amen.

I've never understood the fixation some people have on the trade deficit. Why is a large trade deficit a concern to you? Does that influence the Gini coefficient in the US?

Apologies if I misunderstood your comment.

A large trade deficit arguably has a large impact on the Gini coefficient. A continuous and growing trade deficit is funded with currency expansion, which inflates asset prices. In other words: the rich get richer.

It’s building the economy for communist slave labor nations that seek to grow their military worldwide.

Sounds wonderful if you like communism.

To me, as someone who doesn’t, that sounds bad.

Therefore we should be trying to end the trade deficit ASAP.

USA cannot end the trade deficit. USA is a parasite on the world economy: it prints dollars and buys everything it needs with a pieces of paper (or zeros and ones in some bank computer).

Unlike almost all other countries in the world, where they have to work hard with their hands and brains to get something. USA printed more trillions only in the last year, that China - country that provides all the world, including US, with clothes, electronics and just about everything else - managed to save in the last 20 years.

This position is incredibly profitable for the USA, but it needs the largest military power to maintain status quo, because all the other countries understand they're being ripped off. And this military power immediately kills anyone who renounce use of dollar for trade (see Iraq, Libya).

If USA will end trade deficit somehow, it would mean that it would be on par with other countries, and population of USA would have to reduce its consumption of goods and resources by 15-20x. It will be the end of USA, most probably civil war and collapse.

> Much of Western Europe has similar GDP per-capita and much less inequality.

And also no SpaceX.

EDIT: We used to make the computer in your pocket, but now that too is in the US and China.

SpaceX wasn't built from scratch. They had some ex-NASA talent and depend on publicly owned launch facilities.

IMO on the whole they're also not a great example of sustainable progress. (Unless I'm overestimating their carbon footprint.)

> […] and depend on publicly owned launch facilities.

And were awarded public contracts early on:

* https://www.nasa.gov/exploration/news/COTS_selection.html

SpaceX also takes in billions in subsidies from the US government.

> SpaceX wasn't built from scratch.

How is that a relevant point at all to what the parent said?

The US produced it. The US produced NASA. Why shouldn't SpaceX benefit from NASA and vice versa.

SpaceX is doing taxpayers a tremendous service by having replaced the disaster that was the Space Shuttle and its $500m launch costs. To say nothing of SpaceX hopefully getting us back to the moon and then on to Mars. Left to NASA (and or the prior launch monopoly), how long would that have taken and how much would it have cost? See: SLS. They're better off working together, contributing what they're good at, resulting in a better overall outcome.

Western Europe's economic dynamism is overall shockingly bad. And their stagnation in terms of innovation and new wealth creation is similarly bad. In terms of old wealth vs new wealth it's the worst among major economic regions - they're still turning over the same old family fortunes decade after decade. The old dynastic wealth is strangling Western Europe.

There is a price to be paid for the approach that Western Europe follows. Across the long-term they're falling further and further behind the US and China in strength, both economic and military. Europe risks becoming a colony split between two superpowers. Both Merkel and Macron are fully aware of that, they see the power gulf. If the US were politically wise, it'd be subtle with how it handles Europe, keep them asleep at the wheel (Trump's belligerence nearly spooked them into action by reminding them of their weak positioning).

Here are the economic engines - the economic might - of Europe:

Germany GDP: 2021 $4.3t (2021 IMF estimates) | 2008 $3.7t ($4.8t inflation adjusted)

UK GDP: 2021 $3.1t | 2008 $2.9t ($3.7t adjusted)

France GDP: 2021 $2.9t | 2008 $2.9t ($3.7t adjusted)

Italy GDP: 2021 $2.1t | 2008 $2.4t ($3.1t adjusted)

Russia GDP: 2021 $1.7t | 2008 $1.7t ($2.2t adjusted)

Spain GDP: 2021 $1.4t | 2008 $1.6t ($2.1t adjusted)

Netherlands GDP: 2021 $1t | 2008 $950b ($1.2t adjusted)

Poland GDP: 2021 $650b | 2008 $533b ($689b adjusted)

Sweden GDP: 2021 $622b | 2008 $517b ($669b adjusted)

Belgium GDP: 2021 $580b | $515b ($666b adjusted)

US GDP: 2021 $22.6t | 2008 $14.7t ($19t adjusted)

China GDP: 2021 $16.6t | 2008 $4.6t ($5.9t adjusted)

Notice anything interesting?

Greece and Italy have seen zero net economic growth in roughly 30 years. Germany and France have seen zero net economic growth in 26 years.

Wait a minute, that is surely impossible? Germany is an economic juggernaut, everyone says so. Germany GDP 1995: $2.6t. That's $4.5t in today's dollar, their GDP estimate for 2021 is $4.3t. France's GDP was $1.6t in 1995, which is $2.9t in today's dollar, their GDP estimate for 2021 is $2.9t.

For Germany, their economy has net contracted over 26 years. Germany and France are already so far deep into their economic malaise they've nearly lost a full generation to it.

The UK was at $3.1t in 2007. That's $4.1t in today's dollar. Their 2021 estimate is $3.1t. They're down a trillion dollars. They've added nearly 10% to their population in that time. That's a lot less economy per person. What does that process do to social costs and services over time, as well as the burden per capita?

Spain's economy is 7% larger than it was in 1990, while their population has expanded by 20% in that time.

Sweden's GDP in 1990: $261b; $560b in today's dollar. Their 2021 estimate is $625b. That's three decades to grow 12% (their population increased by ~20% in that time). Finland was $141b in 1990; $302b in today's dollar. Their 2021 estimate is $300b, so zero economic growth in a generation.

Austria's GDP in 1995: $241b; $437b in today's dollar. Their 2021 estimate is $481b. Roughly 10% growth over 26 years. Their population expanded by 10-11% in that time.

Belgium's GDP in 1995: $288b; $523b in today's dollar. Their 2021 estimate is $578b. Roughly 10% growth over 26 years. Their population has expanded by 14% in that time.

Since 2008 the US has added economy equal to: Germany + France + Netherlands. China's outcome speaks for itself. Europe is at risk of losing an entire generation to zero or negative economic growth, while social costs keep increasing. That's obviously an unsustainable, looming disaster. It's tilting Europe into a position of subservience (and that includes Russia in regards to China).

But growth isn't everything? Sure, if the cost of living stays comparable and social costs don't climb, which hasn't been the case over the last three decades as populations have continued to age in affluent nations.

> SpaceX wasn't built from scratch

Neither was the government space program.

Besides, NASA has consistently been completely unable at making launches cost-effective. NASA failed at making reusable rockets. NASA simply retreated.

Compare the arcs of NASA's space shuttle with what SpaceX is accomplishing.

I think it's prima facie clear that inequality itself isn't a prime driver of "innovation," whatever that means. Was Haiti circa 1780 (one of the most unequal societies to have ever existed) particularly innovative? Is the United States of 2021 more innovative than the United States of 1970? Is Saudi Arabia more innovative than Germany? Perhaps it's true that SpaceX couldn't exist somewhere else, but I'm not sure it has much to do with inequality.

The driver is economic freedom, which produces both inequality and prosperity.

Trying to force equality means you've got to hammer people down, and that means take away the freedom.

Tyranny, such as Haiti, also produce inequality, but without the prosperity.

I'm not really sure what "economic freedom" means - and I'd be able to respond better if you defined it.

Haiti wasn't a tyranny. In fact, it was a prime example of proprietarian capitalism run totally amok - a regime in which the state did not restrict individuals from, say, owning other humans and reaping large profits on them.

Free markets are when people are free to trade with whoever they want to, at the price they both freely agree to.

It does not include the right to harm others or enslave them. Enslaving people obviously prevents them from having the right to trade freely.

> Haiti wasn't a tyranny

Owning other people is tyrannical.

> Free markets are when people are free to trade with whoever they want to, at the price they both freely agree to.

Except the numerous exceptions where that isn't true. I can't engage in insider trading. I can't get a child to give me his lunch money in exchange for a lollipop. I can't deal heroin. The point being that markets aren't absolutely free, they're free within the limits of what we deem to be culturally and politically acceptable. If you look at the logic surrounding the end of slavery in 19th century Europe, much of the debate was about the property rights of slaveholders and how they ought to be compensated for their lost property.

> Compare the arcs of NASA's space shuttle with what SpaceX is accomplishing.

The private sector also comes in flavors like ULA, Lockheed Martin, or Boeing. Given that NASA was prevented from continuing their successful approach in favor of building what Congress wanted to steer money to major private companies, any explanation which focuses on the sector alone is guaranteed to be wrong. What matters is how the incentives are structured: giving money to a contractor to keep people employed in certain areas won’t yield successful launch systems the way paying for successful launches will.

(And, no, it’s not as simple as saying the root cause is government: those companies spend enormous amounts of money trying to influence the government so the relationship again is not that simple.)

You're pointing out that politics was a big factor in NASA's shortcomings. Of course, that's one of the reasons why socialism fails. One can't build a prosperous economy via jobs programs.

> their successful approach

NASA successfully landed on the moon, which was a great accomplishment. What they did not do successfully was do it in a sustainable, cost-effective manner. Which is why NASA's budget was cut. An economy simply cannot consist of operations that are all losing money.

I don't really think SpaceX's existence is a reasonable measurement of the merits of economic inequality.

An opinion without any sort of rationale doesn't mean much.

Comparing Apollo to SpaceX would be fun too. NASA, like other government projects (Manhattan Project for example) are unbelievable when run like a startup. But after their objective is complete they have a tendency to become a bureaucracy and ossify. We aren’t good at scaling things down or reimagining them after the huge funding phase is over. They tend to become an expensive liability that accomplishes things but becomes ineffective overall, ultimately decaying into a retirement home. It’s hardly their own fault as the funding is cut and there’s no vision or will left as the remaining lifers fight over scraps.

Sure, compare away. How much did Apollo cost? I read some people that it took 400,000 people. The Apollo program had more or less a blank check, as did the Manhatten project. Both were completely unsustainable.

The space shuttle was unsustainable, too. Partly because the winged craft design was the result of politics rather than economic sense.

SpaceX, however, looks to be very much sustainable, and profitable. SpaceX has rebooted the entire space industry in the US.

> Both were completely unsustainable.

They were sustainable in the sense that they kickstarted something the private market wasn't interested in doing at the time, and then made that knowledge available in a way that the private market could leverage and commercialize.

Same as the Internet. Companies didn't build the Internet, it got kickstarted outside of the market by the government and by researchers/universities, and then it was (partially) handed over to the market so it could be optimized.

In general, we don't try to get the government to be hyper-efficient. We try to get the government to fill in gaps that the market is unwilling to address, and to occasionally step in and regulate/subsidize the market when it goes off the rails. One of the biggest purposes of Capitalism is to use the market as an optimizer when possible.

But you're kind of jumping all over the place in these threads. I don't understand what this current debate you're having over government efficiency has to do with either inequality or Adam Smith. The original article's argument was that Capitalism does not require maximizing inequality, and that seeking to minimize inequality is not fundamentally incompatible with a Capitalist system. The debate over Socialism vs Capitalism has very little to do with that argument, the article doesn't even mention Socialism.

> Companies didn't build the Internet

Companies built numerous networks, like Bix, Compuserve, Timenet, MCIMail, Prodigy, the RBBS system, etc.

The early internet also ran over the existing phone lines. Dedicated lines came later. That's why we used modems and dialup.

> The early internet also ran over the existing phone lines

Highly regulated phone lines, and a market that exploded in innovation when the government stepped in and forced Bell Systems to allow 3rd-party devices and license their patents royalty-free. And the fact that other networks existed doesn't change anything about the fact that the modern Internet we have was largely built by researchers and government projects.

But you're still missing the point.

Who CARES who built the Internet? What does that have to do with whether or not Capitalism requires extreme levels of wealth inequality to function well? You keep on arguing about government vs companies, and that has nothing to do with the original article. You're still debating about Socialism on an article about Capitalism.

The "highly regulated phone lines" occurred after an explosion of innovation created them.

You can't have capitalism without wealth inequality. Larger levels of such inequality allows larger endeavors to be undertaken. Everybody equal under socialism doesn't produce much of any wealth.

> You can't have capitalism without wealth inequality

First, nobody is talking about getting rid of all wealth inequality, but Adam Smith is questioning whether extreme wealth inequality benefits innovation and indicates a healthy economy. He makes a number of points about inequality, one of them being that the more efficient a market gets, the less profit margin individual products should generate (since they'll be priced efficiently at or near cost), and the harder it will be in an efficient market for any Capital owner to generate profits on what they build.

In general, whether extreme consolidation increases or decreases startup potential is not an absurd question to ask. I understand you have a particular philosophy about Capitalism that states that extreme wealth concentration is enabling opportunities, but that philosophy is not universally shared by every Capitalist, and you don't get to just say that's how it works just because.

Obviously Capitalism requires some inequality, and obviously Capitalism requires some equality and social mobility. You see this mirrored in the market itself; it's good for some companies to be more successful than others (that's how we know that the market is working) but almost all Capitalists outside of very narrow anachro-Capitalist sects also believe that monopolies (even natural monopolies) are bad for the market.

Second, just saying "you can't have Capitalism without wealth inequality" doesn't add anything to the conversation. It's the equivalent of just commenting under an article, "No, you're wrong."

The article argues that Adam Smith advocated against extreme wealth consolidation, it's describing his economic theories. Do you think the article is mischaracterizing Adam Smith? Do you want to point to any of Adam Smith's quotes in Wealth of Nations and explain why they're flawed? Do you want to explain what Adam Smith didn't realize about Capitalism? Or do you just want to keep repeating that he's wrong?

> Everybody equal under socialism

Again, this is totally irrelevant to what we're talking about, and I do not care about Socialism.

SpaceX wasn't built it a vacuum. The US gov't did a lot to help it succeed. As they did for Tesla

Need to look at it in terms of PPP (Purchasing Power Parity) per capita.

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)...

Norway does a bit better, but 20% of Norway's GDP is pumped out of the ground.

What's the correlation between GINI and per capita GDP growth?

It's easy for a rich country to abandon the policies that made it rich, by adopting social democracy, and subsequently see stagnation in their per capita growth rate and a reduction in their GINI, while still remaining among the wealthiest countries in the world for a few decades before they are inevitably leapfrogged.

> SpaceX would not exist without inequality. Nor that supercomputer in your pocket.

Neither would exist without massive government-led taxpayer-funded investments, made during an era when inequality was far lower than it is today.

How, exactly, would SpaceX not exist without massive government-led taxpayer-funded investments?

SpaceX has done good work but it heavily drew from U.S. government investments in the space program & ICBMs which resulted in things like microchips and a lot of advanced manufacturing technologies (ever wonder why carbon fiber became common starting in the 90s? Defense aerospace demand dropped at the end of the Cold War and the manufacturers repurposed), not to mention a ton of engineering data about the launch systems, how to keep astronauts alive and functioning, etc.

All of that foundational work happened when the top marginal tax rates were much higher, showing that “don’t tax rich people so they can fund innovation” is too simple a thesis to be correct.

SpaceX doesn't really use carbon fiber much just FYI.

And of course literally any company is based on the whole history of technology.

You might say that SpaceX only exists because rich people in China wanted to see fireworks (and there was likely state involvement).

But equally does SpaceX depend on a long existing private market and centuries of private investment into manufacturing, incremental improvement in all related technologies and millions of experiments and different things tried.

This arguments are kind of tiered by now.

Its true that the way European state bureaucracy works makes companies like SpaceX unlikely. Its equally true that part of US ability to have such company is based on defense spending over the last 100 years.

The reason I mentioned carbon fiber wasn't specific to SpaceX but because it's a good example of something which had substantial up-front R&D costs which were largely paid by government investment to get it to the point where a company has a commercially-viable path to using it.

There are a ton of similar examples — microchips being the most common here — and the point wasn't that everyone should develop their stack from scratch but rather that the original claim that scientific and engineering progress depends on current US levels of inequality just doesn't fit the history. Most people who aren't committed to a particular political position tend to agree that you need both and in the U.S. we've certainly seen a lot of successes from the combined approach, as well as educational levels of inefficiency when the incentives are misaligned.

I said FYI because it was not my main point.

And carbon fiber also a had huge amount of development from commercial companies to drive it into 100s of applications. The total amount of investment in carbon fiber is dwarfed 100-1000x compared to government investment. Both are required to actually drive a technology forward consistently.

> the original claim that scientific and engineering progress depends on current US levels of inequality just doesn't fit the history

I don't think that was the claim.

Microchips depend on transistors, which were invented by capitalists.

You can't just pick one piece out of a large number of inventions and say it was the lynchpin.

Really? What was the "massive government led taxpayer funded investment" in your phone? Microsoft wrote a big check to Apple to save it from bankruptcy, not the government.

Remember, it was Morse that invented digital telecommunications, and AT&T invented the transistor.

The government-led space race was responsible for rapidly accelerating the miniaturization of electronics.

That doesn't imply government was required to miniaturize electronics.

The advantages of reducing the size and power requirements of electronics have always been recognized and improvements in it have been ongoing since the first devices.

After all, the transistor was invented by AT&T, not the government.

Modern phones wouldn’t be nearly as useful without ARPANET or CERN’s WWW, as a start.

Many other digital networks existed. I know they've been forgotten, but pretending it took a government to create a digital protocol is ignoring all that.

Whenever anyone had two computers, the first thing they'd invent next is a digital protocol to connect them.

Won’t that be your response to any examples, then?

DARPA invented the internet

No, Morse invented the digital internet. It was wildly successful. Certainly, improvements were made later.

Besides, a digital protocol is not the result of "massive government led taxpayer funded investment".

Yes, but in order for that digital protocol to spread and be used widely, you usually need massive investments in infrastructure without immediate returns, which the state often funds.

In fact, Morse was supported by Congress to build a demonstration of his telegraph system (https://en.wikipedia.org/wiki/Samuel_Morse):

> Morse made his last trip to Washington, D.C., in December 1842, stringing "wires between two committee rooms in the Capitol, and sent messages back and forth" to demonstrate his telegraph system.[19] Congress appropriated $30,000 (equal to $833,250 today) in 1843 for construction of an experimental 38-mile (61 km) telegraph line between Washington, D.C., and Baltimore along the right-of-way of the Baltimore and Ohio Railroad.[20] An impressive demonstration occurred on May 1, 1844, when news of the Whig Party's nomination of Henry Clay for U.S. president was telegraphed from the party's convention in Baltimore to the Capitol Building in Washington.[20]

That line was indeed funded by Congress. But it was a failure, eliciting zero interest from the public, and little to no use. After 3 months the line cost $1859.05 to run yet revenue was $193.56.

The next line was funded when Morse partnered with Amos Kendall forming the Magnetic Telegraph Company. It built lines from New York to Philadelphia, Boston and Buffalo. Receipts for the first for days on the NY to Philadelphia run was $100. And the telegraph was off and running.

2 years later there was 2,000 miles if wire, and another two years added another 10,000 miles.

The government line proved to be irrelevant, not crucial.

See "The Victorian Internet" by Tom Standage

The wikipedia article omitted the crucial fact that the government line was a complete failure.

> Nobody has ever succeeded in having a rich economy without inequality, though many countries have tried it.

Nobody has built a CPU that draws zero power, nor does anyone believe we can, yet we still we dump billions of dollars every year into R&D to reduce their power consumption.

My point is, even though the ideal of "no inequality" is unattainable, it doesn't mean we should give up on trying to reduce it in sensible, measured ways. Things like universal health care, affordable housing and liveable minimum wages don't just improve life for the poor - they make society safer for the wealthy too (through property crime reduction, less access to drugs for children, not stepping in human feces etc. etc.).

That conflates two very different things. One is the absolute state of the poor. The other is the difference between the poor and the wealthy.

Improving the state of the poor does not imply it is necessary to prevent others from doing much better.

Just like if your goal is to decrease auto travel times from Seattle to LA, removing air travel is not the answer.

>Improving the state of the poor does not imply it is necessary to prevent others from doing much better.

I never said it does.

I was just saying that providing a minimum standard of living for the poor, at the expense of the rich (through increased taxes for health care, lowered property portfolio values for affordable housing, and increased wage expenditures for a liveable minimum wage) is a noble goal to pursue - arguably more noble than reusable rockets.

The fact that you can't eliminate economic equality doesn't mean you should make no effort to reduce its harm.

> I never said it does.

When you frame the problem as "inequality", you are saying it does.

I'm literally not. You're twisting my words and then repeatedly telling me I'm saying what you're accusing me of.

Well nobody has ever succeeded in doing a lot of things that haven't been done yet. But more to the point, we have to define a rich economy, and inequality.

Is a rich economy just a bigger economy than most? Or an economy with surplus? Or an economy with lots of value (and then we define value)?

Is inequality some people having less money than others? Or not having as much stuff? Or privileges? Or not being able to self-sustain? Or unequal social treatment?

I think the more important questions come from fully understanding what we want and how we're trying to get it. If all we care about is that some people have more than others, we will literally be fucked for eternity. But if instead what we care about is that everyone can eat food and live somewhere without struggling to do it, we can achieve that in probably many kinds of economies, but the economy obviously has to be set up to be sustainable in the face of that requirement.

A lot of economies are just shitty regardless of how they're set up, for the same reason that a lot of humans don't have the same privileges, even though they're made of the same meat.

Being focused on envy of someone who has more leads to a life of misery. There will always be someone who has more, even in communist societies.

Focus on maximizing one's own potential is far more fulfilling.

There's still quite a difference between "I envy that person's bigger yacht" and "I envy that person's having enough food for their family".

True, and fortunately starvation is not a problem in America. (Obesity is, though, as America has been very very successful at providing plenty of food to everyone.)

Food insecurity remains a problem in the US.

https://en.wikipedia.org/wiki/Hunger_in_the_United_States#21...

Nobody has ever succeeded proving an all-quantified statement by showing only one example.

It works for all-quantified statements about sets of size one.

Ok, then show us those prosperous everybody-equal societies. Just one will do.

A counterfactual is not the only way someone can point out a flaw in logic, and trying to force someone to present a counterfactual when pointing out flaws in one's own logic in this case is more or less an intellectually dishonest attempt at dodging the point made by the parent.

Look around your dwelling. It's full of stuff made by companies, not the government.

I'm not aware of any poor economies without inequality either.

Indeed, if you're a Party Member, you get to be more equal than others.

Which countries tried it? I'm struggling to think of one, never mind "many".

Why wouldn't you consider the many experiments with communism in the 20th century to be attempts at eliminating wealth inequality? You could argue that they morphed into something different but the initial motivation based on hatred of rich people seems pretty clear cut. Not to argue that there wasn't also other motives at play.

Because they weren't?

This is like describing the freeing of the slaves in America as "attempts at eliminating wealth inequality" (and/or "hatred of rich people").

Yes, the people who owned slaves were generally wealthy. Yes, the slaves were not wealthy. Being given back legal ownership of themselves and their children could be seen as a kind of wealth transfer from rich to poor, but that wasn't the point of it.

Some historical context:

https://www.rbth.com/history/331117-how-abolishing-serfdom-l...

The entire experiment of socialism enforced on roughly half the worlds population in the 20th century would be the prime example.

Early soviet history had attempts to eliminate currency and other actions which invariably failed. The Soviet Union didn’t lack inequality but it was much more equal than tzarist Russia.

There are also many examples of failed communal ownership utopias at the local level. The outcome has largely been to move asset control to whoever has the greatest political clout in the community.

I this is a bit pedantic interpretation. Those of us arguing against inequality don’t literally mean that everybody should make the exact same amount of money and live in the same type of house.

What we are arguing against is high levels of inequality, I think most understand that some inequality must exist. But that level is much lower than what you tend to see today.

I think in Nordic countries (where I am from) have shown that relatively low levels of inequality is possible while still achieving economic success. Although we have seen rising levels of inequality in Nordic countries as well as neoliberalism has taken over in Nordics as well.

One has to distinguish between aspirations and hard goals. Equality is a lot about where you want to go as a society. Many free market advocates don’t even view it as a desirable goal. They even view it as harmful.

Unless you are entirely devoid of pragmatism, it is not a harmful goal.

>...I think in Nordic countries (where I am from) have shown that relatively low levels of inequality ...

None of the Nordic countries have very low wealth inequality and both Denmark and Sweden are in the top 10 for wealth inequality.

Here are the latest available wealth inequality numbers for the Scandinavian countries:

Denmark 0.838

Finland 0.742

Iceland 0.694

Norway 0.798

Sweden 0.867

As a comparison the US is 0.852.

The entire range for the world (where there are stats) is 0.498 - 0.902

https://en.wikipedia.org/wiki/List_of_countries_by_w

>...What we are arguing against is high levels of inequality, I think most understand that some inequality must exist. But that level is much lower than what you tend to see today.

I think you also need to put things in context and realize that the issue of wealth inequality is one of many variables that determine quality of life. For example, East Timor has one of the world's lowest rankings for wealth inequality at 0.565, but given a choice many people would likely prefer to live in Sweden which has a wealth inequality of 0.867.

There are many different "rich economies" (as measured by National Income) with different levels of inequality. Consider, for example, the United States, Japan, Germany, and Sweden (in descending order of inequality). I think you're arguing something of a strawman - that there should be no inequality. Most people other than hardcore Marxists aren't arguing that - they are arguing over what levels of inequality are justifiable.

I really don't understand the wholesale dislike of inequality when that inequality is due to legitimate value provision and not due to illegal activity, externalities, cronyism, rent seeking and so on.

Would people be happier if Elon Musk made a shittier space company? Inequality would be lower and yet the world would be objectively a worse place.

The only legitimate argument I've heard is that it creates a biochemical stress response in people, especially men, who are not as successful, which leads to poor health outcomes. But inequality in social capital also does that in spades but I don't see anyone clamoring to remove and equalize Instagram followers.

That tells me that the real underlying motivation is an intrinsic disgust with inequality due to unstated jealousy, rather than an earnest concern for the poor. If it was the latter you would see those motivations revealed in rhetoric that focuses more on prosperity and lifting those specific people up and fixing the real issues underlying poverty and disease and suffering, whereas instead most rhetoric is around the delta between them and the top which only indirectly impacts them through a very fuzzy and unproven mechanism.

When I was younger, the political rhetoric was mostly focused on improving the state of the poor. In recent years, it shifted entirely away from that into reducing the difference between rich and poor.

The question is really about what level of inequality is justifiable. For example, the average S&P500 CEO earns almost 300 times the salary of their average employee, compared with 20 times the salary of their average employee in 1965. Are CEOs really 15x more valuable (relative to employees) than they were in 1965? I struggle to believe that's true - which means that inequality is ultimately a political question as much as it is an economic question.

That's not surprising to me for a few reasons.

The SP500 is a fixed number (500) of companies, which means that as the real economy grows, the average size of the company that happens to be in the top 500 will be larger, which will skew the average up merely because of a side effect of using a fixed threshold instead of a percentile or market cap threshold. Consider an economy of 50,000 companies that grows to an economy of 100,000 companies. Due to the power law distribution of market caps, the top 500 in the latter is going to be much larger than the top 500 in the former.

There's also been a general trend towards centralization which drives up the market caps of the top 30 due to the arrival of network effect companies (Facebook) combined with government policy to bail out large companies in '08 and '20/'21. This gives CEO more leverage, meaning their decision making is more impactful due to the size of the org, and legitimizes higher pay.

Another factor is the commodification of labor due to globalization of trade. That increases the supply at the low end which increases the disparity between CEO pay and worker pay due to the relative scarcity of CEO talent and oversupply of commodity labor.

I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in.

I couldn't quickly find data back to 1965, but I did find that the S&P500 market cap as a percentage of GDP has grown by 2.75x since the late 80s, whereas CEOs are paid ~5x more relative to the average worker in that time.

Additionally, the trends don't really change if you take the S&P500 out of it - economy-wide CEOs are paid much more relative to ordinary workers than they used to be. Even if the biggest companies are bigger and more complicated than they used to be (I find this hard to believe - is Facebook really bigger and more complicated than Standard Oil, AT&T, IBM, or GE?), the typical company probably isn't.

Most economists would also point out the tight correlation between CEO pay and stock market caps, which means that CEOs aren't being paid more because they're doing a particularly good job.

> I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in.

Everyone else who takes home less money as a result, loses. But if you don't believe me, consider a scenario in which CEOs earn thousands or tens of thousands of times the wage of the average worker - does that seem justifiable? What about a scenario in which the CEO earns everything?

> S&P500 market cap as a percentage of GDP has grown by 2.75x since the late 80s, whereas CEOs are paid ~5x more relative to the average worker in that time.

Yeah. That's only part of the explanation for the observation.

However, looking at it as a percentage of GDP is flawed and leads to an understatement of the effect. We need to look at it after adjusting for inflation only, since all that matters is how big these companies are in the absolute after applying the fixed threshold cutoff of 500. If you're normalizing by GDP, you're not comparing apples with apples when doing a temporal comparison.

> economy-wide CEOs are paid much more relative to ordinary workers than they used to be.

That's right, and I outlined some of the reasons for that, such as commodification of domestic lower skilled labor due to globalization and technology.

> tight correlation between CEO pay and stock market caps, which means that CEOs aren't being paid more because they're doing a particularly good job.

This hinges on how we define a "good job".

If I'm the CEO of a small accounting firm, at best my decision making can improve profits by $1 million. If I'm the CEO of Apple, my decision making can improve profits by billions. That extreme leverage afforded by large companies is why one person can be paid so much money.

The other aspect is supply and demand. Running Apple is not as easy as running a small accounting firm. The supply of people capable of doing that is much less. Hence the higher compensation.

There's also selection effects we need to consider. Tim Cook is significantly more skilled than a randomly chosen CEO amongst small companies. Just like Michael Jordan is more skilled than a randomly chosen team captain from high school teams. It would be inaccurate to say that Michael Jordan isn't better than some randomly chosen team captain, just as it's inaccurate to say that Tim Cook isn't making superior decisions to some randomly chosen CEO from a small company.

> Everyone else who takes home less money as a result, loses.

This zero-sum mindset is just not accurate. If Tim Cook gets paid $500 million and his decision making leads to $50 billion in extra benefit for the org compared to what a second-best CEO could have brought in, then the org has gained $49.5 billion in excess value. Your mindset is that the org (and the people inside it) have lost ~$500 million without considering the unique value add that makes it worthwhile and win-win for everyone. If the board didn't think that Tim Cook was adding unique value above his compensation, then they would give him a pay cut or hired someone cheaper.

> However, looking at it as a percentage of GDP is flawed and leads to an understatement of the effect. We need to look at it after adjusting for inflation only, since all that matters is how big these companies are in the absolute after applying the fixed threshold cutoff of 500. If you're normalizing by GDP, you're not comparing apples with apples when doing a temporal comparison.

There are plenty of historical companies with higher market caps than today's companies in 2021 dollars. And again, if you compare the largest companies in 2021 with the largest companies in 1965 (using 2021 dollars), you'd find that their market caps are only ~2.5-3x the size (but yet their CEOs are paid 15x more relative to the average employee). But I think this misses the mark because a bigger company isn't necessarily harder to run. Nor is it clear that the CEO is making dramatically harder decisions. In fact, it seems equally plausible that the larger the company, the less of an effect the CEO has.

> That's right, and I outlined some of the reasons for that, such as commodification of domestic lower skilled labor due to globalization and technology.

This argument doesn't hold water, because the average employee salary (the one we're comparing the average CEO salary to) hasn't dramatically dropped in terms of purchasing power. In other words, your argument is that the average salary has gotten lower and therefore CEO pay appears higher - this isn't the case.

> This hinges on how we define a "good job".

If CEO pay was correlated to performance, we'd find that CEOs whose companies did better were better compensated. But we don't find this - we find that CEO pay is most correlated to the stock market.

> This zero-sum mindset is just not accurate. If Tim Cook gets paid $500 million and his decision making leads to $50 billion in extra benefit for the org compared to what a second-best CEO could have brought in, then the org has gained $49.5 billion in excess value. Your mindset is that the org (and the people inside it) have lost ~$500 million without considering the unique value add that makes it worthwhile and win-win for everyone. If the board didn't think that Tim Cook was adding unique value above his compensation, then they would give him a pay cut or hired someone cheaper.

This isn't true, because as noted above there isn't evidence that better-performing CEOs are paid better. Tim Cook isn't being paid his salary because the board believes he's adding such-and-such amount in value, but instead because CEO compensation is not related to the value added.

However, you didn't answer my final question: is there a level of inequality that you would consider unjustifiable?

  "In fact, it seems equally plausible that the larger the company, the less of an effect the CEO has."

This is easily shown false by simply comparing Apple with a small accounting firm. The max effect a CEO in the latter can have is on the order of $1 million, which is about 4 or 5 orders of magnitude less than the negative consequences to Apple if its CEO sucks. For a real world example see what happened when Ballmer was replaced by Satya Nadela. Or see what happened to Enron when a criminal CEO was steering the ship.

  "your argument is that the average salary has gotten lower"

That is not my argument. My argument is that the increasing supply of low skilled labor has meant that wages have not gone up alongside productivity growth, which contributes to the wage gap with CEOs. That's a subtle but important difference.

  "If CEO pay was correlated to performance, we'd find that CEOs whose companies did better were better compensated."

That's exactly what we find. CEO comp in the form of stock and options are usually tied to milestones or stock performance. Look at Musk's arrangement. The stock price is often used as a proxy for performance because it aligns incentives and is harder to game than explicit metrics.

  "is there a level of inequality that you would consider unjustifiable"

Not at all. If someone invents nuclear fusion in their basement and delivers $50 trillion worth of value to humanity, I really could not care if they keep a $5 trillion slice of that. They've gifted $45 trillion onto the species and I am extremely grateful to them for doing that.

> This is easily shown false by simply comparing Apple with a small accounting firm. The max effect a CEO in the latter can have is on the order of $1 million, which is about 4 or 5 orders of magnitude less than the negative consequences to Apple if its CEO sucks. For a real world example see what happened when Ballmer was replaced by Satya Nadela. Or see what happened to Enron when a criminal CEO was steering the ship.

All you're really saying is that bigger companies have more to lose, not that CEOs of bigger companies have larger effects. It could be easily argued that the CEO of a smaller company is able to more directly affect the business - fewer intermediaries making decisions, less oversight etc. As for your real-world examples, you can find countless counterexamples of companies who replaced "good" CEOs and performed just as well or perhaps better. In big organizations the factors that lead to success extend far beyond the CEO.

> That is not my argument. My argument is that the increasing supply of low skilled labor has meant that wages have not gone up alongside productivity growth, which contributes to the wage gap with CEOs. That's a subtle but important difference.

Just to be clear here, I'm talking about domestic workers. So arguments about globalization etc. don't apply.

> That's exactly what we find. CEO comp in the form of stock and options are usually tied to milestones or stock performance. Look at Musk's arrangement. The stock price is often used as a proxy for performance because it aligns incentives and is harder to game than explicit metrics.

Exactly my point.

1) If CEO compensation was based on performance, then their compensation would rise and fall based on performance relative to their peers. Instead, CEO compensation rises and falls relative to the overall strength of the stock market. Just graph executive compensation vs value of the S&P or Dow and this is easy to see. (Put another way - were 100% of CEOs doing a terrible job in Spring 2020 or Fall 2008?)

2) Since CEOs are compensated in stock (or, historically, stock options), their compensation has nothing to do with the "value" they bring and everything to do with the value of the stock market.

> Not at all. If someone invents nuclear fusion in their basement and delivers $50 trillion worth of value to humanity, I really could not care if they keep a $5 trillion slice of that. They've gifted $45 trillion onto the species and I am extremely grateful to them for doing that.

Executives of the British and Dutch East India Companies were probably compensated at rates tens of thousands of times greater than that of their average "worker". Do you consider that justifiable? What about companies that use (and used) slave labor?

  "not that CEOs of bigger companies have larger effects."

I am arguing this. Enron and Microsoft are examples. What small company CEO is capable of directly blowing up billions of dollars? Or with Nadela, pulling off a turnaround worth multiple billions? These are larger effects that are inaccessible elsewhere.

Your point seems to be that a small company CEO has a bigger impact relative to the size of the company. I agree with you on that. If a company has one employee - the CEO - that will be true by definition. But it's a trivial point and not one that is relevant because a one person operation who increases revenue from $200,000 to $400,000 shouldn't be compensated more than a large company CEO that drives an unexpected 5 percent growth in $100bn of revenue. The latter has much more value add and people that are thought to be able to do it will therefore be paid much more.

  "So arguments about globalization etc. don't apply."

It is highly relevant. It's why US manufacturing collapsed, because China does it cheaper and better. The average Joe now has to compete with an increasingly global workforce who have a lower cost of living and no minimum wage laws.

You are correct that domestic jobs like Uber drivers don't face international competition. But that's missing the point that low skilled labor is a fungible commodity. If all the factory workers get laid off, they start competing with Uber drivers for those same domestic jobs which increases the labor supply for a shrinking number of jobs and depresses wage growth.

  "Instead, CEO compensation rises and falls relative to the overall strength of the stock market."

This is a great point but I will take issue with your claim that it has "nothing" to do with performance. The reason stocks have positive beta in general is because the macroeconomy largely drives revenues for most sectors. Apple will legitimately make more money if the overall economy is healthy.

And not all stocks have positive beta. Biotech for example.

But I actually agree that beta should be stripped out when determining CEO pay, not because the market moves don't correlate with company performance (it does due to the macro confounder), but since market moves are merely good luck and not attributable to the skill of the CEO.

It doesn't happen which I see as a failure of boards.

At the same time, I can sort of see the validity in keeping it rather simple. The shareholders just want the stock to go up, and adding complexities that might disalign incentives could lead to bad second order effects such as a CEO pursuing an unnecessary hedging strategy (consider a CEO of an airliner who would be tempted to over hedge oil prices) in order to secure outperformance and therefore compensation in a downturn. But on balance, I do support the idea of stripping beta out.

  "Do you consider that justifiable? What about companies that use (and used) slave labor?"

I believe I addressed that in my initial post. If they're making money not due to legitimate value add, then no I do not think they're entitled to keep their wealth. Whether that's via rent seeking, pollution, slave labor.

There's obvious grey areas where the devil is in the details and a binary answer isn't appropriate. Airliners that contribute to pollution, consumer goods companies that might have some child labor in the supply chain, etc. I can't give a one sized fits all answer to these cases. But if we pick specific examples like SpaceX or the hypothetical person that invents fusion, then I want them to keep all of what they earn.

> I am arguing this. Enron and Microsoft are examples. What small company CEO is capable of directly blowing up billions of dollars? Or with Nadela, pulling off a turnaround worth multiple billions? These are larger effects that are inaccessible elsewhere.

But Enron is the absolute extreme case, not the typical case - and even there, there were large numbers of individuals involved in Enron's scandals so you can't just point to the CEO. Where's the evidence that Nadela was the primary factor in Microsoft's performance in the last 10 years? Was Steve Jobs a bad CEO because he was run out of a (then-failing) Apple? The point I'm trying to make here is that I don't think there's any evidence that CEOs at most big companies are "adding value" on the scale required to make your argument work - that CEOs deserve their extremely high pay because they provide extremely high value. (Do CEOs in the United Kingdom, Japan, or Germany provide substantially less value?). I think it seems much more reasonable that large company performance has to do with a huge number of factors, of which CEO performance is but a small one, and that CEO pay has more to do with the tax/regulatory regime as well as political and cultural attitudes.

> It is highly relevant. It's why US manufacturing collapsed, because China does it cheaper and better. The average Joe now has to compete with an increasingly global workforce who have a lower cost of living and no minimum wage laws.

It's a little bit relevant. The average Joe now has to compete with an increasingly global workforce, but that may actually increase the average typical salary of domestic workers as much as decrease it, because jobs that can be done more cheaply are not done in the United States.

> This is a great point but I will take issue with your claim that it has "nothing" to do with performance.

Sorry, "nothing" was a little hyperbolic.

> I believe I addressed that in my initial post. If they're making money not due to legitimate value add, then no I do not think they're entitled to keep their wealth. Whether that's via rent seeking, pollution, slave labor.

I'm glad we agree then inequality is political and not some emergent economic property :). You simply happen to buy into the current political justification for inequality ("people who add more value earn more money") but not myriad past ones ("the nobility and the clergy provide important functions to a harmonious society" or "property rights are inviolable").

If Musk had 1/10th of his current wealth, would his space company be shittier?

Possibly yes. Do we know how that would impact his motivation, or the motivation of future entrepreneurs who see what happens at the end once people become successful?

Why do you think common advice is to avoid too much dilution early on, or to avoid founder fallout with almost half the equity walking out the door. It's because, like it or not, this kind of thing motivates humans. Maybe you are a monk and can work hard for a company as a founder with very little equity, but knowing myself, I would never do that, and I am not so unusual as to believe I am unique in that department.

Also I don't see this as a pure question of incentives, but also a question of property rights. He made that wealth via value add. We owe him our gratitude for that and have no right to swipe his property. If he stole that money or made it by spewing toxic pollution, then by all means take away his wealth.

> Maybe you are a monk and can work hard for a company as a founder with very little equity

I suggested Musk would still be worth $19B. Truly I am a monk if I should want so little.

If he had 1/10 of his wealth in 2002, would he have risked it all founding SpaceX?

Absolute nonsense. Please stop commenting on things you lack even a basic understanding of.

In reality, the Nordics have higher GDP per hour worked than the USA with much lower inequality and much higher public ownership.

And of course, the state played a pivotal role in space and phone technology. The following book on how government rather than the private sector is the key driver of innovation and technological advancement, is a great read, and has a key chapter focused on Apple in particular: https://en.wikipedia.org/wiki/The_Entrepreneurial_State

20% of Norway's GDP gets pumped out of the ground. The US does not have that luxury.

> the state played a pivotal role in space and phone technology.

There wouldn't be phones we have today without Apple. There was no government program to create them. Apple invested billions of investor money in creating them.

I've seen books like the one you cite before. Their central theme is if a technology is based on ABCDEF, and the government did only C, then government gets all the credit. If the government did only A, then the government gets all the credit. If the government did F, then the government gets all the credit.

For example, Samuel Morse invented digital telecommunications. But of course, the government gets all the credit for making an improvement on it.

But if the government does deserve the credit for the technology stack that makes for a successful phone, why didn't any communist country make a phone?

The article claims the government invented touch screen technology. I don't know how true that is, but it omits that the GUI, an essential technology for the phone, came from Xerox, not the government.

P.S. The history of the touch screen https://en.wikipedia.org/wiki/Touchscreen is long and complicated. To hand it all to the government is confirmation bias.

> 20% of Norway's GDP gets pumped out of the ground. The US does not have that luxury.

Wrong again, the Nordics do not rely on oil to fund their welfare states - not even Norway.

> To hand it all to the government is confirmation bias.

Your whole comment screams confirmation bias for your own ideological view. Drawing a clean dividing line between "government" and "markets" is of course a fool's errand because they aren't separate - governments create markets through enforcement of property law and many other laws and programs.

> Wrong again, the Nordics do not rely on oil to fund their welfare states - not even Norway.

It's still part of the reported GDP.

> governments create markets through enforcement of property law and many other laws and programs.

If you're familiar with my posts, I often write that the purpose of government is to protect property rights so free markets can function.

Why is there so much fuss about income inequality and not any other kind? There is huge sex inequality where some men have hundreds of sex partners and others have zero. Friendship inequality where some people have huge networks of friends and acquaintances and others live in isolation. Looks inequality where some are celebrated worldwide for their looks and some made outcasts for theirs. Health inequality where some 70 year olds can run marathons while some 30 year olds are wasting away. Why so much fuss about income and only income? Why aren’t the fit 70 year olds being conscripted into providing free personal training for unhealthy 30 year olds 5 days a week?

I've thought about this too.

The life someone will have if they are born tall, handsome, and socially skilled will be much different than that of one who is the opposite, even if their families make the exact same amount of money.

I think it is because first, money is easy to measure. Everything else is not measurable, or not socially regarded as important to measure and compile information about and act on it.

Second, money is the fairest thing in the world. One man's dollar is equal to an other's. You can't change your mannerisms, face, etc... but you can always get more money to even the scales. When things do not go our way, it lays bare the truth about reality, which is often intolerable and in congruent to the things we tell ourselves and want to believe. We may tell ourselves that we are smart, deserving, etc, but the money does not come - maybe because we are not inherently deserving, nor smart enough to warrant the amounts we desire.

This leads me to look at the past sometimes, and understand why social conservatism still exists. Those sorts of structures may be arbitrarily constricting, unfair, immoral, etc - but the one thing they do that modernity does not is give assurances and a path to a certain future; not a perfect one, but one that is achievable and one you can feel secure in. The beautiful may be told that they cannot date 20 people due to social pressure. The fat will be called lazy and be monitored and pushed to fix it. Friendships will be forced by having people show up over and over and do some sort of charity or whatever together. Yes, income will also be addressed by expecting the more well off to fund many of these things, and shaming them into submission if they don't.

Is it right? Being a modern man I would say no! Its horrendous and outdated. But at least it... tries to attempt to address these "problems".

> The life someone will have if they are born tall, handsome, and socially skilled

People aren’t born those things, though they may be born with a greater or lesser capacity to become them. They can also be born rich, which can buy one pretty directly and substitute pretty well for the other two, as well as maximizing realization of any natural capacity in any of the three areas.

Money can solve those other inequalities to some extent for an individual.

Because money isa proxy for so many other things and people who have a lot of it can just buy what they want/need in many, perhaps most cases.

The scale on which inequality causes social unrest is also much, much more pronounced when it comes to money than anything OP listed.

Money is concrete and relatively easily enumerated and manipulated. Those other things aren't.

Intelligence?

"Wealth, as Mr Hobbes says, is power." --Adam Smith.

One person cannot hoard all the sex appeal, or charisma, or attractiveness, or health, or intelligence, or age. These are all ultimately bounded. And except in a very general sense, they are not heritable, most certainly not in a cumulative sense as with financial wealth.

Physical possessions and relationships are similarly bounded. One person might have far more grain, or friends, or lovers than another, but the upper-bound limits are still relatively low, the aquisition and carrying costs are high, and most of such things provide little by way of direct power of and by themselves.

Money and wealth are intrinsically unbounded. They also tend to compound. Matthew 25:29: "For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath." Modern experience tends to bear this out: those who start with an advantage tend to do better than those who do not.

In a world with boundless accumulation, the accumulation of power leads to a monopoly on power. The individual or company which has the most wealth within a town, or city, or state, or country can determine who works and who doesn't, who can buy or rent a home and who cannot, who can open their own business or not, who can receive loans, etc. At sufficient levels, wealth funds education, research, and disciplines (the field of economics is rife with this, through to the current day as with the wholesale funding and direction of economics departments, faculty selection, and curriculum at the University of Florida.[1] Note that Smith himself lived largely on patronage from nobles.

Aspects of economics also distinguish between income based on direct work (wages) and trade (sale of commodities or high-ticket goods), and of the unearned income of economic rents (as in land rents, returns to capital, interest, or awards to some specific monopoly, large or small). Labour is directly rewarded according to the the value produced at market prices with the surplus value going to the purchaser. Rents include the surplus value based on scarcity and an inelastic supply, providing the propertyholder an unearned income above costs.

(Smith makes clear that the fundamental price of a product should be the cost it takes to produce, most especially in labour cost. This pressages Marx's Labour Theory of Value, though also the Marginalist notion of marginal cost of production.)

Market failures of unpriced externalities, both negative and positive, also result in inefficient pricing, as do the effects of greater or lesser market power through superior coordination, control, information, or generally a superior Best Alternative to Negotiated Agreement (BATNA), detailed by Smith especially in labour-employer relations (much discussed elsewhere in this thread).

With inheritance, all connection between work and reward, supposedly the heart of a market-based economic system, is lost, as heirs inherit the wealth of ancestors without having actually worked for their advantage.

The ultimate consequence of an ever-compounding inequality is ultimately that of the "Utility Monster" or "Freedom Monster", in which a single entity has all the money, utility, or freedom within a system, and all the other players have, collectively, none.

http://existentialcomics.com/comic/259

In practice, revolutions (or foreign invasions of a greatly weakened nation) tend to be the limiting factor on such developments.

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Notes:

1. https://publicintegrity.org/politics/koch-foundation-proposa...

The biggest reason we have mass inequality in America is low interst rates (leading to an asset bubble), the Covid wealth transfer to the rich (including free government subsidies and handouts), and mass immigration of low skilled people which increases competition and diminishes the earnings at the bottom end (although it benefits the rich who hire maids and employers like restaurants).

For other developed countries there multi-generational rich like the Wallenbergs and Ikea of Sweden. My guess is they are much wealthier as percent of GDP than America than American oligarchs. However the total 1% in the US is slightly more:

https://www.economist.com/business/2016/03/10/a-nordic-pyram...

“Credit Suisse, in its annual report on global wealth in October, pointed to findings that the richest 1% of Swedish households control 24% of the population’s total wealth, making it only a bit less unequal than India (25.7%). In contrast, Spain’s 1% control 16.5% of the wealth, and Japan’s only 4.3%.”

> The biggest reason we have mass inequality in America is low interst rates (leading to an asset bubble), the Covid wealth transfer to the rich (including free government subsidies and handouts), and mass immigration of low skilled people which increases competition and diminishes the earnings at the bottom end (although it benefits the rich who hire maids and employers like restaurants).

Mass inequality predates all of these things by a significant amount of time. Covid is like 2 years old, and low interest rates like 15. Mass immigration of low-skilled people is something that's happened throughout the entire lifespan of the US, although I don't know that you're specifically talking about the US. There's no time of a lack of low-skilled immigration to compare to. If you're American, and not a native or the descendant of a slave, you are 98% likely the result of low-skilled immigration.

> Covid is like 2 years old, and low interest rates like 15.

US interest rates were fairly low in the 1950s and even 1960s, and inequality wasn't as high then:

* https://fred.stlouisfed.org/series/INTDSRUSM193N

Interest rates have been <1% in Japan since 1995, how's inequality there?

* https://fred.stlouisfed.org/series/INTDSRJPM193N

Wealth inequality increased significantly in the US in the late 20th century. Cheap labor is definitely a candidate explanation. But I don't mean immigration, although undocumented cheap labor is part of it, I mean globalization of trade and the rise of China. Now, everyday Joe has to compete with two billion foreigners who will work harder than he will and for less. So of course car plants are going to shut down and the monetary value of his/her unskilled labor are going to plummet. That's just supply and demand and unsurprising. On net, I think it's a humanitarian miracle that these counties are rising up. But it's undoutedly a big part of the inequality picture in the US.

What about all the cheaper labor in other countries with more lax environmental and labor laws, not to mention being cheaper simply due to being further back on the development timeline? And automation obviating roles quicker than people can or are willing to be retrained to more in demand roles?

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