He's wrong to suggest that the billionaire class and founders will solve the problem if we only trust them and let them keep their money. Founders have just as much incentive to optimize the excess out of the system, they just call it "disruptive innovation" by which they mean tweaking how the system works so that they can squeeze out profit for themselves.
I think economists call it rent-seeking.
Rather, it seems like to me the reliance of having a few owners or a few institutions with consolidated power in the form of money or assets is a recipe for disaster. If anything, it's time to disperse the wealth and responsibility of production to as many firms as reasonably as possible. I'd rather have 20 smaller companies making the same thing than 3 big ones that supposedly make them cheaper due to scales of economy which imo is wrong and that most big firms are in diseconomy of said scales now (prices imo reflect this). Basically, we need to both economically and politically Switzerfy the economy (more dispersed institutions, less central control where reasonably possible).
You do realize when we talk about jeff bezos being a billionaire, it doesn't mean he has his billions in gold/cash in a vault somewhere? The overwhelming majority of his wealth is tied in various financial assets (eg. equities) that certainly do get affected when "businesses go into shock". Sure, he'll be in a much better position to weather such "shocks", but it's still in his best interest to ensure that the economy doesn't crash.
Technically, yeah! Functionally, though, if the Even Greater Depression arrived tomorrow? He'd still be the richest man alive, and probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
Sure, a falling tide lowers all boats, but Bezos will still comfortably afford his gigayacht. It's a setback for Bezos, and maybe he wants to avoid it in order to maximize profit and utility and whatever, but it's an existential threat to him in the same way spilling a glass of milk or losing a round in a video game are. Even extreme social unrest has been priced in, at however much a luxury bunker in New Zealand costs.
Other people, when the Big Crash arrives, will -- in a totally economically rational way! -- commit suicide in order to ensure their spouses and children aren't bankrupted by their medical bills. Uh, in greater numbers than they already do. Many will starve, or at least go very hungry. In greater numbers, I mean. Should be a good time for the owner class to buy up all the housing stock for cheap, too.
I don't think the owner class is worried about it. I think they actually might be excited.
Bezos does not have his cash in hand, for the most part. To the extent that he does have cash in hand, he has already paid taxes on that cash. To the extent that he has not paid taxes on his wealth, he is fully incentivized by the share price of AMZN.
What a lot of high wealthy individuals are doing is using their portfolios as collateral against lines of credit. The LOCs give them cash to fund their lifestyle, and they don't have to liquidate their portfolios and take the capital gains charges (at least in the short-term).
Someone can have both holdings and cash in this situation.
This has been possible lately because rates are so low, so the interest doesn't cost borrowers that much.
Generally though, most 'middle-class loans' have an end date.
But I don't feel like digging around SCF data, so this is just a hunch. Having said that, my hunch is that middle class households are much more indebted than wealthy households.
Difference is just the volume of money and when the term is due.
> Someone can have both holdings and cash in this situation.
Ya, I understand this. This is exactly my point, though. If he's taken out loans against his shares, he is even more incentivized by the value of those shares than if he had not done so.
To the extent that he has pure (unencumbered) cash positions, he's paid taxes. To the extent that he has unrealized gains or loans against unrealized gains, he is incentivized by share price appreciation.
This was in response to the a comment suggesting that because Bezos had already cashed out, he didn't care about the value of his shares anymore.
It's about the fraction of global wealth that they control.
That's how they benefit from crisis and catastrophe.
Maybe the dollar value of their pile declines, but the percentage of global wealth they control increases, as the poor and less wealthy get hurt proportionately more.
LOCs are often open-ended, so as long as they're at minimum paying the interest, the lender doesn't care. Presumably it will be cleared up eventually on death with the estate.
> Bezos does not have his cash in hand, for the most part.
Sounds good to me.
That just gives more reason to go against, there's quite a few Western comforts that could use a bit more opposition, Amazon being one of them.
You're making the case that it is virtuous to be aligned with popular sentiments on issues, which is a position that dissolves any ethical or political principles in the name of conformity.
https://tenetpartners.com/top100/most-powerful-brands-list.h...
Apple, Google, Amazon, Microsoft all in the top 10.
Exxon way more popular than Netflix.
if you're measuring outcomes by relative income/wealth, then you can also argue that the "Even Greater Depression" wouldn't affect the average person either, because everyone would stay in the same place (on average).
>probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
We just had a huge pandemic and recession. Did he take over "failing social institutions" did he "take over"?
>It's a setback for Bezos, and maybe he wants to avoid it in order to maximize profit and utility and whatever, but it's an existential threat to him in the same way spilling a glass of milk or losing a round in a video game are. Even extreme social unrest has been priced in, at however much a bunker in New Zealand costs.
Surely he'd prefer to be the leader of a global megacorp, travel anywhere in the world, partake in various space-related adventures, and not be trapped in a bunker? You're right he won't ever have to worry about his basic needs, but I wouldn't characterize it as "spilling a glass of milk or losing a round in a video game". I'd be pretty pissed if the US government somehow revoked by right to leave the country.
>Other people, when the Big Crash arrives, will -- in a totally economically rational way! -- commit suicide in order to ensure their spouses and children aren't bankrupted by their medical bills. Uh, in greater numbers than they already do.
I'm not sure why this is being brought up, other than for the shock value.
>I mean. Should be a good time for the owner class to buy up all the housing stock for cheap, too.
Similar to your fears about amazon taking over, this seems to be unsupported by the data. The great recession lasted from Q1 2008 to Q3 2009, according to the fed. However, this doesn't seem to correlate with institutions buying up houses?
https://cdn.vox-cdn.com/uploads/chorus_asset/file/22647043/S...
I suspect that you don't understand why I'm bringing up the human consequences for the same reason you've claimed that "the "Even Greater Depression" wouldn't affect the average person either, because everyone would stay in the same place (on average)". Bezos and his peers can lose hundreds of thousands of dollars of abstract net worth every day for decades before they even notice, let alone have the material conditions of their lives change in the least; the modal person will be dead of exposure in a few days. It's somewhat incredible that you'd even try to make the argument, actually.
>Surely he'd prefer to be the leader of a global megacorp, travel anywhere in the world, partake in various space-related adventures, and not be trapped in a bunker?
Aww, shucks, I'm confident Bezos will be able to continue his worldly lifestyle until things go very poorly indeed. That said, the very existence of the owner class's anxiety-bunkers is a sign that they're not entirely behind keeping the global economy running and serving the people, don't you think? If there's only one escape pod and it's for the command staff, only us crew need suffer the consequences of their tactical decisions.
>I'd be pretty pissed if the US government somehow revoked by right to leave the country.
I never mentioned this, and I'm not sure what relevance this has to anything either of us has said. I'm beginning to believe you're not arguing in good faith.
>Similar to your fears about amazon taking over, this seems to be unsupported by the data
AWS didn't even need a pandemic to achieve running most of the DoD. Not sure if you've been following the housing market, but Zillow didn't need an economic crash to go all in to rent(al)-seeking behaviour. At least they seem to be dropping the ball on that one, but think of how much more effective buying up all the houses will be once everyone's underwater on their mortgage and unemployed? I'm also a little surprised that you'd show me a chart that shows that this historical low of landlord house purchasing represents a fall to 20%. Since you're so familiar with CoreLogic's data sets regarding this, I'm sure you're aware that in 2000 it was between 5 and 10%, and trended upward until only recently. Unsupported by the data, my eye; you're just closing yours to the important parts of the story.
>The great recession lasted from Q1 2008 to Q3 2009, according to the fed. However, this doesn't seem to correlate with institutions buying up houses?
The other way to phrase this, of course, is "having ballooned in the past eight years, the proportion of home sales to landlords snaffling up housing stock continued to rise, even during an economic crisis, and rose precipitously after the crisis was 'over'".
Bezos isn't even the richest person alive today. That would be Musk.
https://www.msn.com/en-us/money/companies/elon-musk-is-now-n...
I guess my read is that if Bezos got his title from a company that didn't exist, in modern, sell-everything form, until 22 years ago... (and in +AWS form, until 19 years ago)
And if the current holder got his title from a company that didn't have a physical product until 12 years ago...
It's probably a bad bet to say "Obviously, these people are going to be the richest forever."
Obviously, but again, the point isn't who's at the very top of the leaderboard. The point is that the material situations of the top, say, 500 richest easily allow for what we plebes would parse as insane economic loss in real wealth, and they'd be basically OK with it. Perhaps they'd no longer be in the top two digits, but they have only really lost in the sense of a high score, not lost in the sense of total dispossession and now your life's over.
If SpaceX was somehow destroyed, reputationally and materially, Musk would still have Tesla, and all his other ventures and economic instruments. Likewise Amazon could go belly-up due to a sudden locavore craze and a drone uprising, and AWS would continue making money hand over fist. My point is that the owner class is thus not actually seriously incentivized to prevent an economic crash, and in fact their apocalypse-bunkers indicate that they're pricing in the clearly non-zero chance of it happening.
Lastly, the numbers you're using about the ages of these mega-corps? Good point about that -- the Hudson's Bay Company once owned more land than any other company ever, acted as first contact to uncontacted Natives, and now they are a department store. That said, I don't think Amazon or Tesla will fall from grace in the near term. Blithely assuming that the HBC, like many a corporation, would have a 20 year lifespan or even just wane in power in 20 years, would have been a bad bet in 1700.
When the DotCom Bubble burst AMZN's stock when down 90%:
* https://www.cnbc.com/2018/12/18/dotcom-bubble-amazon-stock-l...
He didn't seem to freak out then and kept chugging along.
Short of the (zombie) apocalypse happening, I doubt it will ever drop that much again, and so I doubt Bezos would care about any kind of draw down that could realistically happen.
by what metric?
If you own a shipping port, it's in your best interests for thing to get worse right now and not better. You end up being able to charge premiums to jump queues, and end up making more profit by doing less work. Those guys are incentivised to ride the crashing economy all the way to the bottom, and not to lift a finger to slow it down.
And Bezos might be as well. Amazon quite likely could profit handsomely off a freight crunch that sees container prices go through the roof. There are very few retailers or wholesalers who'd have the bargaining power to get those queue jumping premium services for lower prices than their competitors, and when Amazon Prime becomes the only way to buy manufactured goods out of China, they can push the margins higher that other importers who either can't negotiate rates the way Amazon can, or who just can't get stock into the country at all.
Just off the top of my head, the Swiss:
don't make airplanes (no Boeing, Embraer)
don't make cars (no GM, Ford, Toyota, etc)
have big consolidated banks (UBS & CS)
have large trading firms (Glencore, Trafigura)
etc....
My point is not to nitpick (I actually agree with your post) , but to show that even in a tiny country like Switzerland (smaller than Chicago), it is hard to do that.
<null>.
UBS Switzerland. [1]
Glencore. [2]
[0]https://www.pilatus-aircraft.com/en
[1]https://swissfirma.com/largest-swiss-companies
[2]https://www.topmba.com/jobs/15-fortune-500-companies-headqua...
GM and the rest of Detroit got their rear ends handed to them because they'd underinvested in fuel-efficient engine designs (the lost 70s) and grown lazy in reliability.
Lean manufacturing may have allowed Japanese manufacturers to price more competitively and be more agile, but at the end of the day, they increased their sales because they made better cars.
You're leaving out some pressures which caused Detroit to be un-competitive in the small car space, including high labor costs.
The whole point of the startup culture is that they can do things better than a large company.
And, quite often, they can. But not always.
A semiconductor plant, for example, is not a startup thing because the capital cost is so gigantic.
However, most fields are not that bad. Even bio equipment just isn't that expensive relative to the cost of the people to use that equipment.
The bigger problem, right now, is that investors don't want to fund anything which requires more than 18 months before flameout/unicorn. That blocks startups that have a 5+ year horizon.
What if there was inflation?
As long as the capital-owning class is holding equity (stocks, real estate) they benefit from inflation.
I'm not sure that follows in extreme cases. I don't even think it follows in baseline cases (2% inflation yoy).
Raising prices leaves customers with limited resources, as wages do not follow at anywhere near the same rate.
If inflation brings prices up, consumers can only spend on specific items, prioritizing necessities over entire verticals of goods. For the vast majority of companies, it's bad.
Take a look at a sampling of the top 50 or so companies by market cap. There's computing & telecom (Apple, Google, Facebook, Microsoft, NVidia, Intel, Comcast, AT&T, Verizon, Broadcom, Cisco), which is fundamental to obtaining products & services these days. Retail (Amazon, Walmart, Costco, Target, Home Depot, and Lowe's). Financial services, necessary for paying for things (JPMorgan Chase, Wells Fargo, Visa, Mastercard, Bank of America). Critical enterprise software (Oracle, Salesforce). Health care (United Health, Johnson & Johnson, Eli Lilly, Pfizer, Abbott Labs, Merck). Oil (Exxon and Chevron).
Of the top 50, the only ones that I think would be seriously vulnerable are Tesla, Netflix, and possibly branded foodstuffs (Coke/Pepsi/McDonalds). Sure, it'll be devastating to the vast majority of companies - but it's companies like restaurants, niche hobby stores, luxury activities, etc, not the staples that make up the S&P 500.
Billionaires have relatively very little cash in hand. Their billions typically are in form of business equity, and so they very much care of the businesses go into shock.
“ In 2014, for example, Oracle cofounder Larry Ellison disclosed he had used 250 million of his Oracle shares as collateral to secure a $9.7 billion personal line of credit.”
Source: https://www.businessinsider.com/american-billionaires-tax-av...
A credit card with a $5000 limit is not $5000 cash in hand. It's a 'line of credit' for $5000 and whether I actually have the cash to pay that back is a different story. I might actually have $0 cash in hand to pay that back and many people don't until their next paycheck arrives.
Any guesses how far the Oracle share price (of ~$100) has to drop before the bank will actually use that collateral to get their cash?
This practice also comes with all sorts of tax benefits as well.
If they really need to pay some of it back then the company might decide to buy back some shares.
And realistically, like the old adage says: If you owe the bank $1M it owns you, if you owe the bank $1B you own the bank.
The little guy had cash in hand for maybe 24 hours (and even then probably just a certified check). Maybe a little later, say 10 years in they get a home equity line of credit and the bank takes back the previously paid off part of the house as collateral again.
I don't doubt repossession of the little guy's house is easier and happens more often than a Bezos loosing his collateral :) and for every Bezos there are probably quite a few small and medium business owners that put their businesses as collateral to get that line of credit and that did get repossessed.
In this situation it is almost reasonable to want a small crisis to shake out your upcoming competitors and buy some more land or other things of real value at a discount.
They don’t, though, that’s the entire point.
> and even if they lose it all it almost doesn’t make a dent in their net worth. > In this situation it is almost reasonable to want a small crisis to shake out your upcoming competitors and buy some more land or other things of real value at a discount.
A small crisis will in fact not cause them to lose significant amount of cash, but will cause them to lose significant amount of their net worth. Nobody wants that.
Newer, smarter Asian companies will displace stupid old American ones, just as the Americans crushed the Europeans.
A lot of the JIT fashion came from Toyota, and yet Toyota doesn’t seem to suffer from these issues as much as others. I don’t think it’s any coincidence that most of the senior executives of Toyota have all been at Toyota for longer than many of us have been alive, and that the company president is the grandson of the company founder.
This is pure speculation, but I also wonder if Japan’s geography + slightly more diverse economic landscape (lots of small businesses that do nothing but make components) help make their JIT more resilient to shocks. With Osaka, Tokyo, and Nagoya all within an area less than the length of California, it’s far easier to “in-time” material.
Computer chips? Made only in one company in china? Trying to get someone else to make them, means weeks or months of production line changes + waiting time + other customers... good luck. If they're far away (eg. china), and the transport system is fucked up, you're basically fucked up too. Even a huge company like toyota can't make a chip factory "overnight" anywhere.
> the supplier, who has absolutely no knowledge of your inventory needs.
...doesnt jit work better if you have good relationships with them and they know well what your expectations are and can adjust accordingly?
We're talking about founder owned companies owned by billionaires. So let's use an example of one: SpaceX. You're maligning "disruptive innovation" so let's expand out your claim with the specific example: an order of magnitude reduction in the cost of space flight and the introduction of competition in rural internet service.
So you're saying enabling access to other planets and the moon while providing people in isolated areas with internet service is an example of squeezing out profits and you're saying that you think it is rent seeking. Rent seeking is defined as an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs. We already had programs to access space. They were an order of magnitude more expensive. We already had programs to provide internet. They didn't serve well the subset of people that are in remote areas. So in both cases it just isn't the case that the company is doing rent seeking.
In other words, you are completely wrong when we use a specific example.
This applies to more specific examples. Lets use the specific example of Flexport. It is owned by a founder and you're replying to things posted by them so it's even less of a reach than before.
They are introducing computers to an industry that has competitors from the 1400s era. These competitors sometimes have legacy processes built on physical paper and for some of them excel is an example of the use of cutting edge technology. You're saying that doing better than that for people using modern technology is an example of rent seeking.
Dear lord the amount of smug “wE aRe ThE mOSt EfFicIEnt wAY Of AllOCaTinG CaPitAl” arguments from very wealthy founders that would prefer to become more wealthy is frankly ridiculous. I get it, you went to Stanford and they taught you some fancy words to trick people into giving you money instead of investing in public infrastructure and services.
"most" does a lot of work here since it's a relative term. I'm not sure I'd exactly call them efficient but I'm not sure there's a _more_ efficient way that I've seen.
There was a book published a couple of years ago (before the pandemic) which was "demonstrating" (so to speak) that going back through history real financial/economic levelling at a reasonable scale only happened as a result of violent means (wars, revolutions etc).
I think what those violent means do (among other, more nasty things like people getting killed) is that (in some cases) they obliterate the societal/institutional structures on which a specific rent-seeking system is based, which gives the majority of the people a chance to "level up" until a new rent-seeking system takes shape.
Also plagues/disease. Currently relevant.
People writing articles like this forget that it's not just Wall Street, but competitors who created the huge pressures for adopting JIT inventory systems. There's also the consumer. Are you willing to spend the additional money required to buy a car from a company who wastes tons of $ on excess inventory?
It didn’t help but I think that’s more of a symptom of building shoddy products: part of why inventory backed up is that Detroit was producing cars which simply weren’t as good. Toyota didn’t have a shortage of demand, and neither did Saturn. If you make shoddy, poor-handling gas guzzlers, yes, you’ll underperform on sales. That doesn’t meant the only option is less inventory.
The book is a deep, academic examination of the roots of lean production, and is a must read for any engineer who wants to get the Agile cultists to shut up and go away. I'm a hardcore believer in the ACTUAL Agile philosophy, which is rooted in lean, and I despise the cult of clerics that have risen up around it and turned it into management consulting BS. That book helps to know real agile from consultant billing hours agile.
> I'm a hardcore believer in the ACTUAL Agile philosophy, which is rooted in lean
A lot of the Demming types are pure theory, or just garbage in the modern age.
> A lot of the Demming types are pure theory, or just garbage in the modern age
i guess what your saying is, its better to study those companies themselves, even if influenced by said person...?
It really feels like a lot of these folks go to university, embrace a quasi-religious ideology where large companies are the devil and are therefore the root of all things bad, and profits are a sign of greed. Meanwhile, the douchenozzle is sitting there writing that tweet on a piece of electronics that was made possible by the things he's complaining about.
If I'm being paid for my performance while I'm a CEO, why would I spend money today (and hurt my performance today) to fix a problem that MIGHT affect the company in 20 years
What? How did you get billionaire class and founders? He specifically says founder led companies and family owned businesses. Unless you reduce that group to the Waltons, how does family owned businesses equate to the billionaire class?
"Only founder led companies and family owned businesses can stand up to the immense pressure from the dogmas of modern finance."[1]
• https://en.m.wikipedia.org/wiki/Rent-seeking
Notably, this usage does not include "providing liquidity", so most of what hedge funds and private equity do for a living is rent seeking, by definition.
So the parent commenter's usage appears to be correct... If it's any consolation, I was under the same mistaken impression as you for a long time.
Some activities classed as renty can be economically beneficial. It’s not all pure usury, but activities that seek to increase rent revenue without increasing the value provided are a problem and that’s the ‘rent seeking’ part. I’ve no problem with fair value rents, but rents should be as low as the market can reasonably bear as excess rents are essentially a tax on production.
Re: Liquidity... The fact that a service is immediately useful to somebody (and has a willing customer) does not prove that it's a net productive behavior for the society, as a whole. That's just how the field of economics defines it, and the practioners widely agree that "providing liquidity" falls into that category.
Now, it sounds like you may be trying to defend the morality of rent-seeking behavior... If that's the case, I wish you good luck in your argument, with somebody besides me. I have no dog in that fight.
The real issue is when owners seek benefits of ownership that are not correlated with efficiency or productivity. For example grants and subsidies, inflation of rents though monopolistic practices or opportunism. In fact all monopolistic profit inflation is renty in a way, regardless of what the business model is, because it's extracting extra profits from simply exercising control of something in excess of the economic value provided. It's exercising the power of incumbency that's the problem.
A topical example is consumer electronics companies designing devices to only last so long and actively suppressing the after market through DRM, difficult or dangerous to repair designs, restricting owner autonomy through software patents and IP law and other methods to ensure you must come back to them and purchase another one.
Another more direct example is the slow conversion of all paid as a product software into subscription services. You can't buy the adobe suite anymore. You have to subscribe to it. Sooner or later you wont be able to buy your operating system either.
Designed obsolescence is arguable though. The customer could always buy elsewhere.
Anyway tye case I was replying to is not rent seeking. Leaner businesses may be more fragile, but they are also more profitable and productive. It’s just being paid to do work.
Tech founders are a different breed.
Whether we believe them is another matter entirely.
I will give him credit for cleverly spinning this logic all into a pitch to kill the unrealized cap gains tax proposal!
He didn't say they'd solve the problem. He said they're the only ones who can be resilient in hard times. OK I think he said the ARE resilient, I say "can be" because it's still a choice.
"I think economists call it rent-seeking." That's what the incumbents are after, and so are a lot of the startups - at least the startups seeking round after round of investment. If they're not seeking rent, they're trying to set up infrastructure (manufacturing or cloud this-or-that) and collecting returns (rent) on that investment. Nobody talks about profit on goods sold, they talk about return on capital (or RoE) and that seems a lot more like rent.
You can juice RoE in the short term by removing slack and shock absorbers, because increasing the brittleness of the supply chain probably won't show up in this quarter's returns.
The supply chain for fuel is brittle. There isn't sufficient inventory in tanks to buffer even short disruptions. A pipeline offline for a couple days is enough to make a crisis.
People catch wind of the crisis and start filling their tanks at three-quarters full instead of one-quarter full, and the brittle supply chain breaks with the accelerated demand.
Same thing we're seeing with the global supply chain which was already brittle, now individuals and companies are putting in bigger orders sooner to compensate, and it fails in the face of accelerated demand.
So do workers, to be fair. The goal of workers in purchasing departments and HR isn't to make the business more efficient but to propagate a cushy lifestyle for themselves and their mates.
To an extent, that same misalignment exists in all classes of worker, including engineers.
SWEs are probably the worst at this; so many of the problems that we solve don't have anything to do with squeezing the most performance out of the hardware or reducing technical debt. Instead, a huge chunk of our time is spent on man-made bullshit that sysadmins don't solve properly because otherwise they'd be out of a job.
>I think economists call it rent-seeking.
Are you saying all "disruptive innovation" rent-seeking? Or only certain kinds? If a founder was able to "optimize the excess out of the system" by providing a better consumer-facing experience (eg. amazon), why shouldn't they be rewarded with profits? Is there any room for profits without being called a rent-seeker?
Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences. Technically customers were supposed to pay a self-reported use tax but many did not.
The relevant laws have changed since then, but the general point still stands. Does mere tax and legal arbitrage count as rent-seeking? Absolutely.
Sales tax in california was 7.25%. While not having to charge tax was a competitive advantage, I'm skeptical that was the defining factor that led to amazon's success. This is further compounded by how prices work in the US (taxes are not included), so I doubt this even made a conscious difference to most people. Finally, the exemption isn't limited to e-commerce sites. According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". Why did amazon dominate while sears languished?
It isn't really an exemption, anyway, it is a limitation under then-existing federal law on the power of states to impose taxes.
> According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone".
That's misleading.
What it actually applied to, at the time, was companies without physical presence in the state into which the sale was being made. So companies that exclusively did those things would be covered (except in the State they operated from, but they could operate in a no sales tax state), but companies that did them alongside physical operations would not, and before the web, those other models alone had so much less access to customers that the sales tax hack wasn't worthwhile.
> Why did amazon dominate while sears languished?
Because while Sears also had mail order business, it was a ubiquitous brick-and-mortar retailer, and thus was paying sales tax on its mail order sales, because they had retail everywhere.
2. I'm not really convinced that "the sales tax hack wasn't worthwhile". How expensive would it be to spin off your mail order division? Lawyers might be expensive, but 7.25% of your revenue is also a lot of money.
Someone could click a link on an ad and be on your “catalog” and able to order with very low friction, rather than seeing an ad, ordering a catalog, getting the catalog, then calling in or mailing an order.
(Also, Amazon was initially specifically in books, and got started just after a few giants like B&N and Borders had crushed local independent bookstores and replaced them with giant, discounting, but more impersonal and on average more distant from the customer big box stores, so they were hitting a market uniquely (or at least particularly) primed for a convenient to access heavily discounting remote seller; not only was the internet a sea change
Is this even still true in a super low interest rate environment?
Yeah in the 80s and 90s, tying your resources into inventory would have cost a lot in terms of missed opportunity to invest the money elsewhere. But with financing rates near zero or even sometimes negative in real term, wouldn't even the wall street guy be like: sure keep some inventory, cash is cheap right now.
This RoE argument seems very last century to me.
New companies aren't all trying to be rent-seekers, they also try to dodge existing regulation or actually innovate.
Plenty of people warned about the hazards of allowing these companies to outsource everything, government did nothing. Mostly because they are bought off by lobbyists. This could have pretty easily been prevented by putting tariffs on key industries to keep manufacturing here or at least in North America
> tariffs on key industries to keep manufacturing here or at least in North America
im pretty sure massive lobbying would incur... but maybe im not seeing the whole picture.