pg's reading of it is so blunt and misrepresentative that I'm nervous about what kind of content he's consuming.
But the meat of the point is: if the economy is growing at 2.5%, how do you sustain 15% over 5 years?
Look, I’m a startup guy, I buy into the premise that it’s an intensely value-creating activity. But I think it’s self-defeating to pretend like the monopoly and regulatory arbitrage problems don’t exist.
I get that PG and his customers need to be able to cash out, but also, the monopoly rentiers make it more difficult for startups to compete by buying up competitors early and offering crazy salaries that make startups uncompetitive.
All that said, the subtext here is that PG is providing politicians with stories they can tell, nobody in this conversation is trying to describe reality in the most precise or honest way.
US GDP is $31.82 trillion dollars per year. Taking the 2.5% growth rate, that's nearly $800 billion dollars per year in new GDP.
The economy very obviously does not progress as a bunch of soldiers marching in a straight line. Some firms will shrink 100%, some will growth 10,000%. This much is obvious by just looking around. But even if no businesses shrank, no wages were docked, nothing bad happened... even still there would be $800B in more GDP.
So if the economy is growing at $800B per year, it's extremely obvious how a company could even grow from $1M to $1B in revenue per year without doing anything shady... Just capture some of the new economic activity that cropped up this year!
And it's even easier when we're talking about an entrepreneur's net worth. Their net worth is going to be mostly holdings in company stock. The value of company stock is some multiple of the company's theoretical future financial earnings.
So if a company is making $1M revenue today, and growths to $5M revenue by the end of the year (15% MoM growth), at let's say a 30% EBITDA margin, they have made $1.5M EBITDA. And let's say that fast growth is rewarded at an extremely rich 50x EBITDA multiple. That company is now worth $75M. If this founder is lucky and owns 50% of their business, they now are "worth" $37.5M.
If they were only at $1M * .30 * 50 * 0.50 = $7.5M net worth at the beginning of the year, and then were at $37.5M at the end, their net worth increased by 500% in one year! And all they had to do was capture $4M / $8000M = 0.05% of the increase in GDP.
Like, none of this is either shady or complicated.
I agree you’ve demonstrated that there is enough economic growth to not contradict PG’s hypothetical numbers. But I think we should strive for a deeper understanding than “all they had to do was capture… 0.05% of the increase in GDP”.
Just as a counter-example, a Robber Baron could monopolize all the profits in the rail sector and run a drug mafia on the side, and it would show up the same in your numbers; “all they did was capture 5% of the increase in GDP”. In other words, like PG you don’t actually prove the point you’re arguing; you just provided a story that doesn’t contradict it. (Capturing the annual wealth creation of ~350m*0.05% ~= 175,000 people doesn’t seem on its face to be obviously fair or routine, rather it seems like a tail outlier worthy of further investigation.)
The way I would frame it is, what we actually need to do is look at the firm level metrics and figure out what is going on. (A founder becoming a billionaire typically means their company grew to the order of $10b - let’s look at the business practices of $10b companies or founders with confirmed liquidity valuations in our range.)
If you look at founders like Jobs, I think it’s pretty clear he made his first $b (via Pixar) just by making things people loved. Companies like Uber obviously relied to some extent on regulatory arbitrage, and you can debate the timing of e.g. Google founders’ shift to monopoly rent extraction, I would likely argue they got their $b “fairly”.
The second order question of course - would markets price your company at $10b if they didn’t think you had a future monopoly opportunity? Expectation vs current reality makes this all more complex.
But I think for PG’s purposes you can ignore the second order and just talk about successful, billionaires who built things that people loved.
The problem of course is that nobody likes billionaires these days (except politicians of course) and so it’s a much less marketable narrative. And there is the crux of the problem; this post is not an honest attempt to increase our understanding of the world, it’s a political slogan.
That said, I think there are a great many people who believe that all forms of wealth acquisition (above a certain scale) are fundamentally immoral. And that belief is held because they believe, "The only way you get a billion dollars is taking advantage of working people, not earning it."
So, my read is that PG's point is not to defend all billionaires. But instead, to debunk the incorrect folk-belief that all billionaires necessarily are exploitative.
Growth comes from innovation, and innovators get rewarded with faster growth as non-innovators decline.
Look, I know this is a tech forum and we don't claim to be good at the social sciences, but this is a central debate and r>g, the idea that the rate of return to capital tends to exceed economic growth over the course of history, is a major result from Piketty's Capital In The 21st Century that people interested in "grow the pie" vs "trickle down" really ought to be familiar with. Even if you disagree, you ought to be able to articulate why, and "the average includes winners and losers" ain't it.
"But life has improved, r>g couldn't have been true forever" -- last time the inequality bubble popped because of a great depression and two world wars. The capital was incinerated, metaphorically and literally. It's a cautionary tale and we should aspire to do better.
Why is it a cautionary tale? Sounds like we should have a bunch of incinerations of capital, ideally let the capital mobilizers that are actually competent survive.
I haven't read the source but for one, there wasn't really even a US dollar until 1935. When banks failed, and they did unlike now when they artificially don't, you lost everything. There was no FDIC. All of those mechanisms are artificial and serve to make the banking industry large and profitable.
Not to mention currency debasement, another aspect of the modern world that makes finance uniquely profitable and, really, white collar work existent in any major form at all. It's ingenious. Since capitalism is naturally deflationary, as competition removes all profit over the long term, let's interfere and make it so workers make less money every working day. Hence, in order to make even the same amount of money each year, one has to either rise in the hierarchy, or argue for raises, which is inherently risky.
Basically, before 1935, it was hard to accumulate that much wealth. It wasn't generally backed by any nation state guarantee. Real estate has always been a great store of wealth, but it has physical limitations. The world since 1935 is now a world of nation state wealth guarantees. The only reason this amount of wealth is allowed to occur, is because of it. We took a strange path since 2008, when the banks were not allowed to fail. Everything eventually comes to pass.
I'm surprised someone who picked the name "engineeringwoke" has no love for FDR. He's the GOAT!
The largest bank in the US is #14 on the S&P by market cap. If the Federal Reserve is a conspiracy to make banks profitable, it is doing a poor job. More to the point: I challenge anyone who doesn't like the Fed and the compromise it represents (money printer exists, but is guarded from the politicians by a council of 12) to name their alternative. Hard money? Politicians can print? You picked "hard money." Let's go!
Everyone who learns about the Cantillon Pump thinks they would love to run it in reverse. This is because they don't understand that it does not run in reverse. It is not symmetrical. They underestimate the pain of a deflationary shock, where everyone (namely your employer) gets an incentive to not participate in the economy and then stops participating in the economy (namely by employing you). Rent and debt is still due, of course. This is the pain that inspired the USA to split from Britain (scrip/specie). This is the pain of the Great Depression -- you threw out that 1935 date like it was the culmination of a Bond bad guy plot, not the capitulation of a country tired of deflation. We even have the counterfactual: Germany, having just escaped the Weimar inflation, decided in 1929 to take the deflationary response to the Great Depression. It led them to a very dark place.
Returning to the USA: they weren't called "robber barons" because they failed to accumulate wealth. Capitalism does not guarantee competition (quite the opposite, strong property rights are the nexus of anticompetitive opportunity) which does not remove all profit over the long term, it squeezes it onto assets, which is where that unearned income we were talking about originates from. If you have ever heard or given a business pitch, attended a class in business school, or listened to a VC for 30 seconds you have heard some heinously anticompetitive scheme and their plan to leverage it for personal gain by turning it into an asset they own. Network effects, platform effects, two sided markets, returns to scale, etc etc etc. Usually they don't work, but when they do and you get a stock or a deed or a title to a money fountain (exploitation fountain, seen from the other side) you get to stack trillions while the competition spends decades trying to cross your capitalism-created and capitalism-guaranteed moat.
Yes, in recent times the money printer has been used to exacerbate inequality. But it isn't the cause of inequality -- certainly not if you look at what happened in the 1935: https://ceprdc.tumblr.com/post/87307310830/piketty-in-one-gr...
Turns out you can have an inflationary adjustment and unwind inequality and boost the economy at the same time, so long as you remember to tax the rich. FDR sends his regards!
You'd like Capital in the 21st Century.
I suppose it depends on how broadly you define "innovation".
Lots of companies grow because of, among other things: regulatory capture, regulatory arbitrage, questionable use of other people's IP, offshoring, misclassification of employees/contractors, profit shifting and transfer pricing, subsidized predatory below-cost pricing, dark patterns, aggressive collection and monetization of user data, acqui-hires to stifle competition, implementing high-switching costs to create vendor lock-in, round-tripping, channel-stuffing, business models that intentionally externalize costs, outright fraud.
My position is that this is not a good thing.
If we believed that the only people who should be morally allowed to benefit from asset appreciation are the people who actively work for that company, the entire economy would collapse.
For example, every pension fund, endowment, retirement fund, etc. are all invested in financial assets that they had NO role in. All they do is own something that become more valuable as other people labor and innovate! Shall we cast them as evil capitalists?
AOC’s criticism is that “own stock, share in gains” is not the same as earning money.
To get a billion from a million you need to do 15% for fifty years, and that ignores inflation. Or 25% for thirty-one years.
These numbers are ludicrous.
They are also speculative, not real. They are based on the notion that the company would be worth that much based on projected cash flows, expenses, etc. If you actually tried to cash it all out at any point in time you could not get anything close to that because the very act of selling will lower the value by destroying confidence in the speculative valuations.
None of these SV billionares have billions in cash or cash equivalents. Maybe a few of the largest companies do.
worth mentioning that our current system is setup by and for the people who own the stuff so its no surprise that we need them to make new stuff.
"You're young, and usually young founders should make something that they themselves want. You don't have enough experience yet to know what other people need. But at the same time your own needs are uniquely valuable, because your needs predict future demand. You're the age when people start using new things. Whatever you and your friends start using now, everyone is going to be using in ten years. Since your intuitions about other people's needs are usually a crap signal, and your own needs are an especially valuable one, you should usually listen to the second signal; you should make something you and your friends want.
Making something you and your friends want doesn't mean you have to build a consumer product. Maybe you and your friends are molecular biologists, and there's something cool that could be done now to DNA that everyone else has overlooked. Maybe you and your friends are into drones. The idea doesn't have to have a wide appeal. It literally just has to appeal to you and your friends."
By growing better than the average?
The most poignant example is tobacco. Tobacco is a net-negative product for the world. But many people find it very valuable, because it helps them with the stresses of their life and they have a biological dependency on nicotine. And so, it’s a multi billion dollar industry. But, for the world as a whole, it generates negative billions of dollars. Because of the health cost and the cost of lost work. If you did 10, 20 years early then that’s a lot of human productivity burned.
Of course, most products are not tobacco. But every product is tobacco a little bit, I think, in the sense that they merely move some money from externalities into the product. In that sense, it’s not all value creation, it’s value siphoning or moving.
PG just completely misunderstands and hand-waves over this basic concept and makes the excuse that "hey we worked really hard and made an amazing product that people loved, we aren't harming anyone."
For one thing, founders and employees don't share equally in the high growth rate of the company even though at most a founder is working let's say 2x longer hours than a salaried employee. You can do nothing wrong but you're still taking more of your fair share by the basic structure of how the business is setup.
I think anyone who is running a successful company and doesn't have a path to converting to an employee-owned enterprise is immoral, especially if you have managed to capture $1 billion just for yourself while your median employee is just making market rate salaries, or maybe they happened to gamble on your stock options and have a modest nest egg about 1/100th-1/50th the size of your wealth as a founder.
So yeah, Jeff Bezos made $260 billion dollars, but an alternative that could have happened was "Jeff Bezos makes $50 million and every Amazon employee gets a much more fair share of the happy customers' money."
More importantly, if you have $1 billion in net worth, that means that you can choose to do anything with your life on a daily basis.
When I'm over here working my job in my cushy upper middle class life, it's still an objective truth that I need to be selfish in order to secure the future of my family. Nothing is guaranteed and we need to fend for ourselves. I can't stop working or the home finances collapse within months or a short number of years if I'm very lucky and have something significant saved up or my house paid off. I legitimately don't have the time or money to help many other people outside of my nuclear and extended family.
But when you have a billion dollars (and some people have hundreds of those and one person even has a thousand of those), that means you have no limit to what you spend your time on. You can do anything, and deciding not to work on capitalist endeavors anymore has zero chance of turning you destitute.
In other words, when you are a billionaire, what you choose to spend your time on says a lot about the content of your character compared to someone who is not that wealthy.
Paul Graham is out here giving speeches to rich kids at Oxford Union, but he could be spending his morning in the local soup kitchen or building homes with Habitat for Humanity. He could be mentoring people who are struggling to escape housing insecurity, or he could be working with advocacy groups to expand healthcare access and end childhood hunger.
He doesn't have to go to work every day like I do. But he is one of the people who has dedicated his life to capitalism, even after successfully taking care of his family for many lifetimes, and that says a lot about him.
What is fair? Obviously hours worked is one metric to determine what is fair. But another way to arrive at what is fair is through negotiation. Neither the founders nor potential hires are obligated to work with one another. The only way it happens is if an early employee believes the compensation they are offered by the founders is fair. If it was unfair, they would presumably reject the offer outright.
Your definition of "fair" is questionable.
If you're negotiating from a position where you've taken on debts and rent that you can't afford to pay, and time has run out to the point where you're desperate for a paycheck as soon as possible, that's unfortunate. But that's not the fault of the person you're negotiating for a job with. Exceptional cases aside, 95% of the time that's likely due to your own risk-taking, neglect, poor decision-making, or financial mismanagement. And you had a "fair" chance to not get into that situation to begin with.
But regardless of blame, it's certainly not the fault of the counterparty in your employment negotiations in that you're in that spot. Nor is it their responsibility. Nor should we want it to be! What kind of system would that be, exactly? A brutal one where many more people fall through the gaps than would otherwise. A much better system is the one we have, where people pay taxes, and do so at higher rates the more fortunate they are, and that tax money goes into programs like unemployment, which helps people in exceptional situations.
What's so unfair about this, exactly?
My word do people actually believe this. What theoretical econ 101 textbook are you living in?
We might as well just say “I exploited my structural power over my employees and got a better deal for myself.”
Of course the employees agreed to the deal presented to them, what other option did they have? They aren’t like all these founders that have the luxury of being unemployed because their dad will pay the rent.
That’s another point I forgot to bring up entirely: PG also hand-waved over the quantity of billionaires from his accelerator that came from families of very decent means where they have the luxury of risking failure. The quantity of true rags to riches billionaires is extremely slim.
What? The employees had infinity other options! They could have negotiated harder. They could have declined the job. They could have taken a job somewhere else. They could have taken the risk to start their own startup, and been in the founder position, instead of choosing to be in the employee position and getting the security and reduced stress that comes along with it.
> That’s another point I forgot to bring up entirely: PG also hand-waved over the quantity of billionaires from his accelerator that came from families of very decent means where they have the luxury of risking failure. The quantity of true rags to riches billionaires is extremely slim.
Over 200M Americans come from middle class backgrounds are above. YC also provides founders with the funds to pay themselves while they start their company. I did YC when I had almost $0 to my name and no well-off family to rely on.
Jeff Bezos famously took an $80,000/yr salary. Bezos didn't make $260 billion, or anything within 1/1000th of that. He built a company, that through some inane estimations his share of which might be $260 billion.
For him to not have that imaginary $260 billion would be for the company to not be built at all. So, if that's what you want, you're at least consistent... but no one else would think that a particularly good idea. Quite a few people like being able to order things online and receive them quickly. They don't want to have to go back to stomping through Walmart, hoping that the store has what they need.
I think part of the problem is that if you can slap a label on someone of "Eleventy billion dollars", everyone's brain malfunctions and treats it as a literal fact, regardless of the truth of the label. When you don't want billionaires to have billions, what you're saying is that you don't want them in control of those billion dollar companies. But do you not want the companies to exist, or do you just want someone else in control of those companies? And who?
This seems to come up on every thread like this. Owning 9% of a company that generates ~$80B in profits and employees 1.5m+ people is literally a massive amount of wealth and putting a dollar figure on that is both straightforward and accurate.
Anyone who owns a house can understand that liquidity and net worth are two different things. But shares of Amazon are far more liquid than a typical home.
In case you need a real example, Bezos personally funds Blue Origin by selling around $1B worth of Amazon stock each year. That's 11000 people earning their salaries + a huge amount of capital investment that are all funded from this so-call "imaginary" money. I can assure you that each time those people get a paycheck, it's just as real as yours.
Sure, but we also attach imaginary dollars to things that wouldn't and can't sell for those imaginary dollars, or even large fractions. And I expect older children to at least catch on to that fact, but a great many adults never seem to.
> and employees 1.5m+ people is l
So is that what the leftists hate? That he employs 1.5 million people? You want that to stop. That's the the part of the him being a billionaire that hurts the most?
>and putting a dollar figure on that is both straightforward and accurate.
If that were true, he could sell it for that valuation tomorrow. But as soon as he tried, the amount would drop, and the company might even be in peril. So it's neither accurate nor straightforward. It's convoluted and overestimated.
>In case you need a real example, Bezos personally funds Blue Origin
So that's the part of his wealth that you despise... that he employs people making spaceships? Those 11,000 people are the problem?
Which of those would provide the most benefit to the world?
Grombobulous says "But he is one of the people who has dedicated his life to capitalism, even after successfully taking care of his family for many lifetimes, and that says a lot about him."
You're simply anti-capitalist. Please post about that instead of mounting personal attacks on people who make more money than you. And please cease telling other people what to do and not do! Try to put yourself into their shoes and think harder about their situation.
This is the most ironic comment I've seen in a while.
Nonsense. You are a simple study and you are envious. There are good reasons why envy is listed as one of the "Seven Deadly Sins". See Wikipedia:
https://en.wikipedia.org/wiki/Envy
Reading "St. Augustine on Envy" might help:
https://fountainofelias.blogspot.com/2019/08/st-augustine-on...
Thomas Aquinas on Envy:
https://www.newadvent.org/summa/3036.htm
Stanford Encyclopedia of Philosophy on Envy:
People like you are so sociopathic and unaware that it's simply comedy.
> people who make more money than you.
One of the things I realized, as I made more money... was how much _easier_ every aspect of earning gets, as you are already earning more, and as you need it less.
We live in a system that almost _automatically_ overallocates wealth to people who do little for society. It's pathetic.
I don't think anyone reading PG's blog is clueless about the power of compounding or the difference between salary and wealth through asset growth.
Her point is essentially whether the entire capital system is "fair." And to be fair to PG I don't think AOC articulated a particularly strong point either.
She captured the truth, that our current system vastly favors capital over labor (etc etc etc), and did that in around six or seven words.
You can't really do better than that when communicating ideas at scale. What she said is true, it's for essays, economic papers, and laws to provide the nuance.
> What [AOC] meant was that it's impossible to get that rich without doing something bad — without cheating in some way... The reason [my founder's] startup was growing so fast was simply that users loved what she'd built. So she could feel from her own experience how wrong [AOC] was. She wasn't exploiting anyone. Exactly the opposite in fact. The reason her startup was growing so fast was that she and her cofounder had been working their asses off to make their users happy, and as a result the users had been telling their friends. And that gets you exponential growth.
In other words, he's saying that rapid wealth creation can (and often does) come from creating and selling things of value to willing buyers, at scale, and that that's not unethical to do.
I do agree with you that AOC's point is not particularly strong, though :)
Which is something that is not an option for most people.
Look at where y combinator founders come from. It’s 99% people from elite institutions
That is a core part of AOC’s point
Getting a startup funded is just not something that is possible for most people. They just aren’t in the right circles. Does not matter how good of an idea you have
However, if you’re in the right circle, you’ll get shitloads of chances even after repeatedly failing. Just look at how many of these founders that “made it” drove multiple companies into the ground before making it. It’s a lot easier to find “good fortune” when you have a lot of chances than when you have 0 chances
And if you do have a good idea but are not in the right circles, someone from the "right circle" has the "right" to use your idea as their own.
How else should it work?
Should investors give funding to people who haven't built anything, whose startups don't have any users, who had bad test scores and did poorly in school, and who have no references? If you think so, why? And how is that fair?
If you believe that, should professional sports teams draft mediocre players? Players who didn't play in college or even in high school? Players who didn't make the JV team? If so, why? If not, why not, and how exactly is that so different?
We all know there is no such thing as a perfect meritocracy. There never will be. Things will never be perfectly fair. That's life. But we can try to come as close as we can. And that obviously requires offering more opportunities to people who perform the best. Otherwise, what incentive is there to even strive and try to do well? The alternative isn't fairness, it's randomness.
The actual comparison would be to look at all the startups with billionaire founders (so likely $10B companies) and then analyze the market dynamics that enable them to keep growing so fast.
But his example doesn’t demonstrate anyone earning $1b. It just demonstrates a very high growth rate at $1-2m.
She has made vague, handwavy, and (depressingly) oft-repeated statements that "there are no ethical billionaires" and that "it's impossible to earn a billion dollars," but she has rarely supported with these statements with any facts or evidence whatsoever.
The fact that her detractors have spilt gallons of ink arguing against her point without providing such a counterexample speaks volumes.
Edit: I’d like AOC to publicly say Taylor Swift is unethical and immoral too. Heh the swifties would have her head over that.
He said nonsense! If you start as a two millionaire and grow 95% every month you can be there in 9 months!
I say if I start with one cent and grow 10000000000000% every millisecond I can be there in a millisecond.
Furthermore, the company motivated by profit that does not have to pay for polluting the environment will also pollute the environment. Regulation is also necessary to pay for long term externalities and other boom and bust cycles. There is nothing new in PG take except COPE and blame shifting about the increasing inequality and other societal and environmental issues.
Without regulations (just a fancy word for "laws"), few people would bother to do any of these things. As it would be much more profitable to simply sabotage competitors, form cabals or monopolies, oppress and steal from the populace, conquer and loot your neighbors, lie and deceive and trick your partners, etc. And even if it weren't, anyone who did want to truly innovate or produce something useful would be discouraged by the fact that, due to others engaging in the above activities, they wouldn't see any profit.
So, to answer your question…
> How often does this actually happen?
All the time! Hundreds of thousands of times per year! Because we don't live in an unregulated free market, because there's no such thing and the concept is absurd on its face.
There are plenty of gaps and inefficiencies where new businesses can provide value to customers at scale who will happily part with their money in return.
Not to mention the fact that the constant march of technology (as well as changes in policy, culture, environment, knowledge, etc.) are constantly tearing open new holes in the market.
The actual opposing argument is that it's impossible to create a billion dollar enterprise without a group effort, and for one person to end up with a billion dollars necessarily means that they made decisions within that enterprise that resulted in a lopsided allocation of resources at the end.
Period. That's it, and it's inarguable.
Every single aspect of the system is arbitrary and is a policy decision made by society. The basic building block, the limited liability joint stock company as a legal concept with some form of independent rights and entity status is arbitrary. Every lever, every part of the system, is created by people making decisions about how society is organized.
The people he is arguing with are basically saying "we want the system structured differently because this one is producing too much concentrated wealth." That's a political choice and an eminently reasonable one.
So if it's that simple, why would he feel a need to straw man instead of just addressing the actual argument? Well because he'd lose. The reality is is most people agree with this assessment of society and want it to change.
And by the way the question of how resources get split between labor and capital is the oldest and most central political problem in human history. To adopt a condescending tone while pretending to be ignorant of stuff you learn in the first couple weeks of any real study of politics or history, betrays the deception inherent in his essay.
Now I'm not saying that the employer is necessarily morally culpable here — I'm sure most employers would like nothing more than to not have to worry about their employees' healthcare, and certainly I doubt many people enjoy having the ability to take it away. But it doesn't change the fact that it's impossible to have a real negotiation when inelastic demands are (potentially) unmet. Someone under threat of losing health insurance or housing is negotiating under duress, contrary to the comment I replied to.
They don't hold me down and force me to hand money to a landlord, mind, they just lock me in a cell if I don't, so maybe it doesn't meet your standard of proof.
My argument is this: the core disagreement here is about the allocation of resources between labor and capital.
I’m right. It is.
That doesn’t mean I have settled the argument about what those allocations should be which nobody has, it’s a core organizational element of politics.
But I think his argument is bullshit. It’s a purposeful misdirection because it refuses to recognize the terms of the discussion at all.
> “There’s a certain level of wealth and accumulation that is unearned,” she said. “You can’t earn a billion dollars. You just can’t earn that. You can get market power, you can break rules, you can abuse labor laws, you can pay people less than what they’re worth, but you can’t earn that.”
You can produce a motte-and-bailey-type argument where the "get market power" and "pay people less than their worth" are doing all the heavy lifting in that statement. But I think we can agree that she is very much tying the accrual of wealth to various kinds of villainy. That is what pg is taking on. And that matters because the common person would agree with the statement that you should be rewarded for what you create - if wealth accrual is all theft, that perception would make a much stronger argument for the reallocation of resources.
In fact, my argument would be that the more regulated, industrial-policy-driven economies of the recent past were better at generating wealth and improving society.
For the most part, the real conflict that we're having around these topics is about the reorganization of the economy that happened starting in the mid-1970s.
This change shifted the focus of the US economy to financial extraction and away from industrial policies, a role that we sold out to China for the benefit of our elite classes and the severe detriment of our working class.
George Lucas made a movie with a (small) group effort. But what made a billion dollars is his Star Wars universe which is almost entirely his creation.
It literally creates wealth for other people. If my toy sells $10,000 without Star Wars and $100,000 with it, did I participate in making George’s billion, or am I benefiting from it?
> means that they made decisions within that enterprise that resulted in a lopsided allocation of resources at the end.
What do you mean? Every good and service involves many people, but the degree to which they participate in its creation and risk vary. For example, a Farmer may create a more efficient way to grow food. Is the grocery store now entitled to a piece of the reward? They didn’t change anything, all of the improvement is the farmer side.
That’s absurd. Obviously they are creating incremental wealth and their particular toy didn’t make or break billions.
The post I replied to allocated all of the monetary value of the Star Wars branding of a toy to George Lucas personally, which I think is obviously wrong.
If that were actually true, how come we can't predict what the next Star Wars universe will be?
Same for pop songs etc. If it were actually about objective qualities of the creation, and not just luck, the next winners of the lottery would be apparent even before they hit the theaters.
There is null inherent quality in the Star Wars universe causing the billion dollar revenue. If George Lucas wouldn't have been there at the right spot at the right time, the dominant IP would simply have been something different.
If you have kids, you can directly observer what actually happens: The IP owners dump huge amounts of money into merch and product placements everywhere, resulting in them getting in contact with the franchise before they are out of their diapers. My kids came home from daycare roleplaying lightsaber fights without any previous contact with the franchise at our home. The trick is implanting the meme (in the original meaning of the word) into kids' brains before another meme can nest in there.
Well yes. That is in fact exactly what I mean.
Once again, lopsided allocation - George benefited from and is directly responsible for keeping the cost of labor low: https://www.hollywoodreporter.com/business/business-news/100...
Would he have been a billionaire without that? Who knows? But it definitely helped him get there.
If you say the original crew did not do all the labor required to make the franchise grow in the future (obviously true), you are now arguing different people have had incremental impact on creating the wealth, which is kind of the point.
Are you saying that he/the small group are solely responsible for Disney wanting to pay 4 billion for it?
The other thing that we're often ignoring is that it's impossible to create a billion dollar enterprise without luck. You have to be at the right place at the right time.
For the most part only capital gets to roll the dice, but even before that it's a sign of the times that we take it seriously at all when people talk about "earning" a billion dollars. We could all do with a bit more humility.
No it's not, it's actually extremely easy to prove wrong: J.K. Rowling.
Which is, as I pointed out, inarguable. No one is spawned alone in the woods to start their adventure independently of the society they are in.
in common parlance, theft
- Documentary
You can argue that the app store and vetting process itself is worth up to or over 30% (i.e. they are giving value away, not extracting it), but they make a clear distinction.
Uber's profit margins are about 10% value created and 90% exploitation of power imbalance between the rich corporation and itinerant drivers and less well capitalized competitors.
Whether somebody acknowledges this reality or not tells you where their political allegiances lie.
Ideally a new business creates more value than it simply takes out of an existing marketplace.
I think one can argue a lot of 2010s app-ification, Uber-of-X, or what I called "re-intermediation" was more than 50% rent seeking.
The business model of being willing to lose billions selling $1 of goods for 80cents (before even talking CapEx) until your competitors fold (and then raise prices) is the kind of thing we used to regulate against.
At some point our regulation shifted towards a more short term "if it makes consumer prices lower right now its OK".
It's impossible to fully prove a counterfactual, but few things "wouldn't exist at all" if "that one person" hadn't done it.
Netflix is a decent example. Many people saw the coming of video streaming. We would still be able to stream videos today even if Hastings had stayed at Rational.
Apple was already a multibillion dollar company almost 30 years before the iPhone was invented...
(though I'm sure you will have no trouble inventing some other reason that that wealth, too, was created through exploitation)
We have evidence he was still doing this decades later when he colluded to depress wages with Eric Schmidt at Google when he felt Apple employees were being offered too much in salary.
I'm happy to assume he was stealing money from people at every point in between because he was, quite famously, an asshole.
1. Extracting from the market or the economy. It seems like (correct me if I'm wrong) this is what you're reading it as? Here you're generally exploiting what private equity calls "pricing power" or what economists call "enclosures" (or "rent-seeking") so inelastic demand (eg housing) or market protection (eg making municipal broadband illegal); and
2. Extracting from labor. This is the basis of the labor theory of value [1].
The point of comments like AOC's is mostly the second one, which is to say that you only become a billionaire by extracting it from your workers. And yes, this is a fundamental disagreement with many people. Some will say that the startup founder who makes a billion dollars deserves it by taking the risk or being the leader or however you want to frame it.
The counterargument is that that value simply wouldn't exist if it wasn't for those workers and their work. Even Instagram, which famously had only 13 employees when acquired for $1 billion, still needed those workers. It would've been nothing without them.
Take Google as another example. The profit per employee has famously been (at times) over $1 million per year.
The term for this is "surplus labor value".
> Take Google as another example. The profit per employee has famously been (at times) over $1 million per year.
So, are you saying that the employees were exploited in some way? I could give you examples of how value is created without any work at all.
Google ads "extracted" value from traditional advertising in newspapers and magazines, so the "exploitation" (or efficiency gains, if you're charitable) came at the expense of employees at other organizations worldwide.
"Mainstream economics" is doing a lot of heavy lifting. It didn't "replace" LTV. Marginal utility is simply an an ideological rejection of it with the confusion of price vs value that ignores class exploitation. The proponents of this were the gensis of the so-called "Austrian school" [1] and thus the fathers of neoliberalism [2].
> So, are you saying that the employees were exploited in some way?
Yes, objectively, as measured by profit. The counterargument is that many were well-paid compared to their non-tech colleagues. While true, they still created way more value than what they were paid.
> I could give you examples of how value is created without any work at all.
I'm all ears.
[1]: https://en.wikipedia.org/wiki/Austrian_school_of_economics
The fact is the billionaire managed to extract value from the market. The ethical question is: who deserves to get the value that was created by the market? The answer could be "the founder" but it could also be the funder, the worker, the customer, the political structure that enables the market economy, the mother of the funder who raised them to be hard working, the nurse that treated the founders minor illness in an early stage and prevented it from causing a physical disability, etc.
That's why we're here debating, because one can create value, and one can extract value. Both statements are true and easy to argue for. The synthesis is that creating value also grants licence to extract since it's impossible (possibly even theoretically impossible) to define exactly where the line between the two is.
The original claim, as I understand it, is basically this: you can’t be an honest actor in a dishonest system.
And it’s not even necessary to claim that billionaires did something uniquely wrong to become billionaires. It’s just that their share of the exploitation is so, so, so much bigger.
> There are three ways to make a living:
> 1) Lie to people who want to be lied to, and you’ll get rich.
> 2) Tell the truth to those who want the truth, and you’ll make a living.
> 3) Tell the truth to those who want to be lied to, and you’ll go broke.
> What [AOC] meant was that it's impossible to get that rich without doing something bad — without cheating in some way... The reason [my founder's] startup was growing so fast was simply that users loved what she'd built. So she could feel from her own experience how wrong [AOC] was. She wasn't exploiting anyone. Exactly the opposite in fact. The reason her startup was growing so fast was that she and her cofounder had been working their asses off to make their users happy, and as a result the users had been telling their friends. And that gets you exponential growth.
To any honest reader, it's clear he's saying the system isn't necessarily dishonest, and that it's possible (if not common) to rapidly earn money in the system by simply creating things of value and selling them to willing customers.
Right, but, taken to its logical conclusion, you cannot earn any amount of money honestly at all, because you'll always create negative externalities to some extent, or supporting people who do/companies who exploit their workers, even as a rank-and-file employee.
The marxist nonsense about exploitation is getting really tired and needs to die already. Yes, we get it, marxists don't value anything that grows total output, don't think it should be compensated and are totally fine living in the stagnation that view creates. If they could all just skip a few steps and go to the end game of their philosophy that would be great because I'm tired of hearing from them.
Last election cycle, the world's richest man made the nation's largest political donation to the most expensive campaign in US history. In return he was given unprecedented (and arguably illegal) access to take a figurative chainsaw (his imagery) to our institutions.
We're all under the same laws, but we are not all operating under the same rules. To quote the President, "when you're a star, they let you do it. You can do anything."
Here's a paper on uncertainty logic to expand from. https://arxiv.org/pdf/1506.03123
Reasonable people can disagree as to the nature/extent -- or even the existence of -- exploitation, but this guy absolutely has impermissibly strong blinders on, rendering most of this article a waste.
Like, does PG really not understand that nobody is arguing that a company can build a billion dollars worth of value? Has he not read Adam Smith? Is his definition or understanding of rent seeking so limited that he can't see the grey areas between "extraction" and "earning" money?
Anybody who earns significant income from investment, including VC money, should recognize that they are at some level extractive, not the hard won dollars that the folks at the ground level are generally putting in.
For guys like PG, Musk, Bezos, Zuck, Ellison, Thiel their very identity is tied to winning this as a game, and thus, any actions they take must defended at all costs, and the score must be seen as righteous and deserved and free from interference.
musk isnt a trillionaire because his assets would equate to physical product. his valuation is an inflated target of market manipulation.
when you add up all the physical goods in the world that directly benefit people, that comes nowhere near these valuations.
and externalities are one way wealth is taken from the environment. then theyre parlayed.
That sounds like a pretty impoverished world to live in. No music, no art, no communication with our friends and family beyond speech…
The point was that the real money comes from finance games, like the stock market, forex trading, etc - things of much more dubious value when you actually look at them objectively.
Any discussion not grounded in those facts is a dishonest discussion. It is a zero sum game until those externalities change because ultimately our species is built upon extraction resources to produce wealth. It IS a zero sum game until you or someone else invents a means of solving the first order problems.
Anyone downvoting me because they think renewable energy overcomes the finite resources on planet earth are absolutely delusional.
We literally have evidence of the scarcity of resources when China started threatening to limit access to rare earths. CaN other countries build capacity at some point? Sure. What happens when you’re in a country that has none naturally and the countries that do have access don’t feel like selling you any?
What’s that? It’s a finite resource that results in a zero sum game?
You don’t need a trillion year scale for the average man to already be dealing in finite resources and ability to create wealth.
It takes 30 seconds of research to see the cost of an acre of land has far exceeded inflation over the last 50 years. That’s finite resources at work.
Not to mention that, especially in a fiat environment where currency is printed out of thin air, it is literally a zero-sum game by definition. When the printer winds up, the bankers win big at everyone elses expense; setting the tone for the entire market. Anecdotal success stories of hard working, honest billionaires is a nice distraction, but that's all it is.
The substantive reality of the status quo is one of unprecedented levels of extraction, and as we continue down this AI power consildation story, that will be harder and harder to deny as we go forward. If you happen to win big as an outlier, more power to you, but the article even admits to the rarity of this story implicity. 20 years. thousands of companies. 30 billionaires.
Even if every single one of those people are honest to goodness saints, that's only slightly better odds, perhaps, than winning the lottery.
By comparison, many people out there are trying to get rich playing the lottery, gambling on stocks, etc., which often have far less likely odds. Is it not better for them to hear about what PG is preaching?
There are less than ~5K billionaries in the entire world. Not quite like winning the lottery sure, but still unrealistic for the majority of people.
How many is "many"? If you meant 100 million people, then that's still just 1.2%.
And in my opinion to claim that 100 million people have the opportunity to become a billionaire is laughable. Even if you're a super genius and you do everything right, there are just WAAAY too many happy accidents (opportunities) or just lack of unfortunate events stopping you.
Like you could be born to the best parents, who can afford the best school, growing up with the best opportunity business partners, and you work your ass off and are very smart… and then there's STILL a 20% chance you're in a car accident before the age of 30[1], potentially derailing your whole trajectory.
So car accidents ALONE could take away the chance for 20% of people. Not saying a car injury is terrible, but it could be sufficient to derail the billionaire plan.
That said, you work with what you got. And become a millionaire? Sure, doable. Billionaire? You need to win several lotteries AND have skill & contentiousness, I'm sorry let's not pretend otherwise.
[1] 2.44 million people injured in traffic in the US every year (2023 data, and US traffic injury and death is skyrocketing UPWARDS thanks to the car lobby's light truck loophole, while everywhere else in the world traffic deaths are going WAY down).
But PG is literally addressing the billionaire question. He's literally replying to a statement about billionaires specifically.
We're not reading too much into it.
Like I said, millionaire sure. (You could see it as another word for "successful"). Billionaire? Absolutely not, and it just sounds like you and PG are trying to change the subject, because the actual topic can't be refuted.
Or PG is so disconnected from reality that he's intentionally directly saying "I earned billions".
Uber was not a YCombinator company. For some unexplained reason, many mistakenly think it was a YC startup but it's not correct.
(The gp's comment is an example of how chatbots hallucinate because they train on the text of people unintentionally hallucinating.)
()
We're now applying LLM anthromorphism back on people...sigh
His post here in particular violates the fundamental principles of HN in that he does not engage with the argument at all.
The argument isn't that it's impossible to become a billionaire legally, the argument is that it's impossible to become a billionaire in a moral way, though that's more of a problem of the system than it is necessarily one at the individual level. A just and moral system would assign the value being created in such a way that becoming a billionaire would be essentially impossible.
Yet pg never even acknowledged the possibility that that might have been the argument.
There are many assumptions around this you could argue about, but he’s directly addressing the original statement (which was also simple, and did not explicitly include the assumptions either).
I agree they are talking past each other - a lot of this is more related to marginal cost differences than anything else imho (basically how leveraged the value of my labor could practically be).
2. If you don't have an unfair anticompetitive moat, you'll have competitors, driving your profit towards zero as usual.
I'm of the opinion that this skill atrophies substantially for billionaires.
"Company" is doing some very heavy lifting in how you are using it. The "company" in that sense does not include any worker who isn't a meaningful equity participant. In Amazon's case, or Telsa/SpaceX's case, the "company" is a single founder and his cronnies.
But as for `the work of the workers does not on its own create the value`... I just don't see how that isn't completely incorrect. It is literally the only part that is at the core of the value creation.
How much value would be created by Amazon tomorrow if every fulfillment worker and driver didn't show up? Basically none. But Jeff Bezos could die of a heart attack tomorrow and it wouldn't stop a single dollar of value creation.
We really don't appreciate the contributions of workers enough in this country. Whether it is the medical assistant at the doctor's office, the person who makes your burrito, delivers the Amazon diaper's order, or even check you out at the store. If people stop showing up to work, this all falls apart. It won't matter how much capital you have if you have no workers.
You can worry about whether the split of return is correct, but arguing that the pile of paperwork is valueless or somehow nonexistent is silly. Value flowing to investors is a consequence of how that pile of paperwork is set up and what is on the papers, nothing more or less.
China probably has the most successful communist government ever (in large part by selectively adopting capitalism) but it isn't like the conditions for their workers are better than in the U.S. or Europe.
All this talk of "late-stage capitalism" seems to miss the mark. It is the rise of many forms of authoritarianism that is the leading cause of disregard for the needs of every day working peoples.
Does this mean you haven't been following his twitter the past several years?
But yes, I think a lot of people would say there should be a cap on how much more wealth someone has compared to the median, for many reasons, such as the amount of political power it would yield him. The thought experiment uses a harmless activity for earning the wealth, but criticism of wealth inequality is often based on what happens _after_ the wealth is earned too. If in this example you will claim the world remains perfectly (socially) egalitarian and the kid will be benevolent, then maybe we can let him keep his wealth in the thought experiment. But that’s not the world we live in, and possibly never will be.
IIRC, that's precisely what Nozick is nominally interested in exploring (although he really doesn't).
There at least 2 distinctions going on:
1. whether wealth is acquired with or without exploitation; Nozick uses consent as a proxy for exploitation, which is dubious but predictable given that he's a libertarian
2. whether there are ill-effects to (excessive) wealth regardless of how it was acquired
Which one is the better allegory of modern capitalism?
They aren't paid millions based on tickets to see them play, it's the advertising.
So the reason you can’t think of any is because no economic activity exists with out them.
But externalities can both be positive or negative.
In my circles we actually never use this word because it is basically just a fancy way to say exploitation that makes capitalists feel good about them selves.
Looking through wages and trying to find a ceiling(by time/effort) on the value creation by a human is one dimensional at best.
> The work is done by the seed/sun/soil/water.
and the farmer collects. It's not that the farmer does nothing or deserves nothing. But it is precisely the same as the capitalist model: the capitalist sets the stage for labor to do the work, and then collects.
As others have noted, the central question is who gets to benefit from what is created and why.
It’s only the same if you consider natural resources and human labor to be equivalent. To me, that sounds quite reductive.
Obviously when viewed from other perspectives, they differ significantly.
This is what aoc is referring to essentially. It's practically impossible to become a billionaire through "regular" work alone that pays you a salary.
I'd argue that for all super wealthy people, their salary isn't the major factor in how they gained their net worth. Lets take Googles CEO, he makes 2 mict llion per year (the exanumber isn't that relevant here). With this salary it'd take him 500 years to earn his net worth. Again, completely different proportions to "normal" people earning their net worth through their job. And I'd argue you can do this for everybody with more than 100 mil. dollars.
You should read that as a self-preservation technique. The eager use of a strawman tells us PG heard AOC's words as an attack against him personally, his business, and his friends.
So the essay is not a reasoned retort but more an emotional self-defense to soothe a bruised ego. It's to assure himself that no -- in fact he did earn his wealth fair and square, and to imply otherwise shows a lack of understanding of how this all works. But I do love this essay because it does show just how emotional and irrational billionaires can be when their wealth and egos are threatened.
Sure, some folks are going to be fantastically wealthy, that's OK to a large extent.
But, we're on the precipice of trillionaire's existing in a country where literally half of the population is functionally illiterate (yes, that's the USA), where the middle class is dissolving, and where we are approaching a feudal level wealth inequality-- and all this stuff is accelerating.
I mean, I guess it's not that bad. We still have a democracy. It's not like we have billionaires re-arranging political power and public resources for their pleasure and benefit. Oh wait, we do!
No. It was to persuade future politicians not to redistribute his and his friends wealth.
I wasn't there at the time, so I could be wrong. But I feel like their robber baron counterparts 100 years ago knew that they were hated and had some idea of why. And that's why they spent so much money on parks and buildings and colleges and everything else. They could see option B was the masses coming across their lawn with sharp implements.
Say, for example, my job is allocating capital across the S&P 500. My work is picking the stocks, the fruits of my labour are excess returns.
Are those excess returns not work? What are they?
Say, for example, my job is allocating capital across the roulette wheel. My work is picking the numbers, the fruits of my labour are excess returns.
Are those returns not work? What are they?
Wealth extracted from a market, which is what the parent commenter said in the first place
Normally you'd get a low percentage fee instead of getting all of the returns unless you got that capital for free (inheritance?), so yes, you are a worker compared to the person controlling the capital.
Missing from both sides of this argument, IMHO, is BATNA.[0]
[0] https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiat...
The problem with AOC’s argument is she’s recycling a 2008 talking point into a context where it doesn’t make sense. Financial entities making trillions moving money around raises questions about whether value is really being created. When I get three Amazon packages delivered to my house every day, there’s no question about value creation.
Her point isn’t that Amazon is bad because it’s a trillion dollar company
Her point is that Bezos is bad because he and Amazon could have paid that driver 10x what they make and still had more money than they could spend in 100 lifetimes
The distribution of the gains is absurdly weighted towards the top
How is that relevant to anything? There are intelligent criticisms of Amazon. But this is just a non-sequitur.
The point is that his wealth is from exploiting labor out of greed.
He could take a smaller share and still be plenty rich and many more people would be much better off than they are today.
But he doesn’t. The disparity is so vast that it is arguably immoral or unethical. That’s AOCs point
It very obviously goes to the people working at Amazon. Political party has nothing to do with anything
She meant it was unethical to do so. It wasn't about working alone or not.
I know we like AOC but the way people bend over backward for her is off-putting.
What you said she said: "The only way to get there is to set up a structure that extracts a billion dollars from a market"
Extracting does, in fact, imply "something bad". To extract is to take something for yourself without adding value. That is bad. Your language implies that the people who make that sort of money do not add, which is what pg is trying to refute.
And now comparing PG's writing today and what he wrote 10~15 years ago, I finally get what Joel means.
And a lot of these structures either involves a percentage cut or a security of some kind. And it's not new, it's copied.
Is "building structures" not work?
And an overly simplistic view of the math problem too. (Surely going from 1000 to 2000 customers is as easy as going from 10 to 20, right?)
Everyday, people grind their own flour.
Then I build a mill, and allow them to use it in exchange for a part of their flour.
Is my wealth not earned?
In the US that would make me a billionaire.
You couldn't do it by yourself. A team of people could, and if they shared the billion, none of them would have a billion, but if you were the company owner and got to keep 50%, but your team of a hundred made two billion, you'd be a billionaire but not because you earned it.
Focusing on completely optional and often imagined "externalities" just reveals a certain mindset (one could find some for cases like Amazon, but bezos became a billionaire in 1998 so whatever Amazon does after that doesn't directly apply, unless the goalposts are moved).
An example I love is hollowing out of this or that. The fact that people wanted to shop at Amazon (especially in 1998) and not a local bookstore, like the fact that people want to go to a Taylor Swift concert and not your indie band's is not an externality, it's a skill issue.
> She wasn't saying, of course, that it's impossible to become a billionaire. Obviously that's possible. Nor was she talking about the distinction between income and capital gains. She wasn't making a point about accounting. What she meant was that it's impossible to get that rich without doing something bad — without cheating in some way.
IMO, that's a pretty fair interpretation, given Warren's rhetorical history.
> ...one doesn't earn a billion dollars through work alone > set up a structure that extracts a billion dollars from a market
If we accept that interpretation (which I don't), in what way is the latter not "work"?
As he got a little older, he cut back on that pro-discrimination advice... that typical thing where he was able to recognize the problems with his bigotry only after he would have been on the other side of it.
As he has become ludicrously wealthy he has, unfortunately, lost all track of reality. He no longer engages with the practical or the real... instead he deliberately misreads a quote so that he can wrote a pathetic and defensive response to it that engages in bad faith. And because he is ludicrously wealthy, he is surrounded by a mix of yes-men, and other hyper-wealthy sociopaths. So none of them give him critical feedback.
Paul Graham has become useless to society. He is, fundamentally, just a mindless pile of cash.
I'm not defending that interpretation, mind you, just saying it's a possible read of the phrase.
I didn't even exploit my workers and make a margin on their labor. Please can someone who believes billionaires are evil explain this to me.
Taking your interpretation at face value I would add that yes we call it “capitalism” not “laborism”.
like other "entrepreneurs" its most likely self-affirming bullshit, cranked up to religious levels (cue any modern ayn rand equivalent)
Guy wrote an essay criticizing “woke” on the eve of Trump’s inauguration and is now running interference for billionaires causing an affordability crisis.
If someone is out of tune enough they are probably just playing a different song.
When you hit a hundred billion in net worth, you get a nice solid gold plaque that says "I won capitalism", you get an attaboy from the UN, and we start taxing the shit out of wealth over that cap.
Adjust periodically for inflation. (Do that for minimum wage while we're at it.)
It's because while for some people there may be jealousy involved, many more have realized or are now realizing how much power the ultra rich have, and how bad that is for our societies.
Once a company becomes large enough, it becomes so influential in society that control of it must be made more democratic.
I don't think anywhere has figured out quite the right way to go about it yet, but it's clearly the right goal. Some countries require employee representation on the boards of large companies.
I find these special founder-class shares that completely insulate folks like Musk and Zuck from their actual investors to be deeply problematic.
Musk was AWOL running the US government for months without any apparent impact. Even after he got back to work, he's running enough companies he's clearly part-time on at least some of them.
Jobs died. Bezos and Gates stepped down. Things continued!
> Commies will literally never learn.
Yeah, they're goofy, for the same reasons the extreme libertarian anti-tax folks are goofy. Each pretends the complexity of humanity can just be waved away.